Memorandum submitted by Age Concern England
(PC 10)
1. INTRODUCTION
1.1 Age Concern England (the National Council
on Ageing) brings together Age Concern organisations working at
a local level and 100 national bodies, including charities, professional
bodies and representational groups with an interest in older people
and ageing issues. Through our national information line, which
receives 285,000 telephone and postal enquiries a year, and the
information services offered by local Age Concern organisations,
we are in day-to-day contact with older people and their concerns.
1.2 Age Concern welcomes the opportunity
to comment to the Committee's inquiry into the Pension Credit.
This evidence draws on our response to the Department for Work
and Pensions (DWP) following publication of The Pension Credit:
a consultation paper in November 2000, and our views on measures
set out in the State Pension Credit Bill and explanatory notes,
and recent statements by Ministers.
2. SUMMARY
OF MAIN
COMMENTS
2.1 Age Concern believes that all older
people should have an adequate income in retirement. We have welcomed
recent improvements to state benefits for older people and also
welcome the principle behind the Pension Credit. However we have
concerns that it will extend means-testing unless it is accompanied
by increases in the State Pension.
2.2 For current pensioners the improvements
to MIG/guarantee credit bring welcome additional income to many
older people. The savings credit is likely to address some of
the concerns of older people who feel there was little point in
saving—particularly from those who will receive amounts
around the maximum level.
2.3 We are not convinced that the Credit,
as proposed, will have a major role in encouraging people to save
and contribute to additional pensions. This is due to the levels
of payment and withdrawal rates, and the difficulty people will
have in understanding the systems and predicting future circumstances.
2.4 It is possible to improve take-up and
administration and it is important that this is done. However
this will require considerable ongoing input in terms of staff
time and other resources and, even so, we do not believe it is
ever possible to completely remove the obstacles that deter older
people from claiming benefits that are dependent on some form
of assessment of their resources and personal circumstances.
2.5 The introduction of the Pension Credit
will result in a huge additional increase in the numbers of people
entitled to benefit and will be a major administrative challenge.
There is a need for better links within the DWP and with other
departments dealing with financial assessments, particularly Housing
and Council Tax Benefit administration.
2.6 Age Concern welcomes the intention to
uprate the Pension Credit in line with earnings but believes the
State Pension should also be linked to increases in earnings or
another measure of general living standards. As a society we need
to acknowledge that in order to provide better pensions for an
increasing number of older people we will need to contribute more.
2.7 Age Concern believes it would be fairer
and simpler for both parts of the Pension Credit to be payable
from the age of 60 when the credit is introduced in 2003.
2.8 We welcome the decision to improve the
assessment of income from capital and agree that the simplest
and fairest way to do this is through a reformed assumed income
system. However the assumed rate for savings over £6,000
should be 5% and there should be a commitment to increase the
£6,000 level in the future.
2.9 Age Concern welcomes the introduction
of 5 year awards during which time people will not need to tell
the Pension Service about increases in income but will be able
to ask for a reassessment. It will be important to ensure that
people are given information on a regular basis and are aware
of when they should ask for a reassessment.
2.10 We are extremely disappointed that
hospital downrating rules will still apply. The introduction of
the Pension Credit provides the ideal opportunity to introduce
a better system so that older people avoid the financial worry
and major administrative difficulties produced by hospital downratings.
2.11 This paper comments on a number of
other features of the Pension Credit, namely: the position of
those who do not have a full pension; the interaction with Housing
and Council Tax Benefit; additional premiums and housing costs;
income assessment; and paid work.
2.12 We are unclear what the Government's
intention is now in relation to moving towards more integrated
tax and benefit systems and we see little in the Pension Credit
proposals that achieves greater integration. However it is important
to try to align systems where possible and to improve administrative
links.
2.13 As MIG is also the basis for other
charging procedures and benefits it is essential that in developing
the Pension Credit, the DWP works closely with other relevant
Government Departments. Charging procedures, such as paying for
care, should also recognise the need to reward saving.
3. THE
ROLE OF
THE PENSION
CREDIT WITHIN
THE GOVERNMENT'S
PENSION STRATEGY
3.1 In 1998 the Government published A
new contract for welfare: Partnership in pensions following
its review and consultation on pensions policy. The overall framework
is described as:
`The Government's overall approach
to pension reform is to build a modern and affordable pension
system which ensures that everyone has the opportunity to achieve
a decent income in retirement; enables people who can save to
see the benefits of saving for their retirement and provides security
for those who cannot save.'
3.2 Main Government policies to achieve
this are:
Basic pension: above inflation increases
in 2001 and 2002, but the longer-term intention is to link the
Basic Pension with prices increases (subject to a minimum increase
of 2.5%).
Minimum Income Guarantee: income
and savings limits have been raised and the intention is for the
benefit to be increased in line with average earnings.
State second pension: this will replace
SERPS in April 2002 and provide an additional second pension for
some low earners, carers and disabled people.
Stakeholder pensions: a new type
of non-state pension aimed at those on moderate earnings.
Other benefits and concessions: measures
include non-means-tested benefits such as Winter Fuel Payments
and free TV licences for people aged 75 and other targeted help
such as grants under the Warm Front scheme.
Pension Credit: the proposed system
to reward work and saving.
3.3 Age Concern believes that all older
people have a right to an adequate income in retirement and there
should be a clear and agreed way of defining adequacy, for example
through the use of income or budget standards. While an adequate
income can be achieved through a combination of state and private
support, the Basic State Pension should be sufficient to cover
basic living costs. We have welcomed the measures already introduced,
such as winter fuel payments and improvements to MIG which have
increased the incomes of older people. We also welcome the commitment
to tackle poverty among pensioners and to address the long standing
concerns of those who feel the current systems penalise them for
having saved.
3.4 However missing from Government policy
are: clear goals in terms of the levels of income that pension
policies should achieve; specific targets for reducing poverty;
and a clear strategy for achieving these goals ideally through
broad political agreement. For example, in terms of state provision,
a number of questions arise such as: how can the State Pension
be the foundation of income in retirement if it continues to lose
its value in relation to earnings and general living standards,
and how does targeting help on those in most need tally with providing
tax-free winter fuel payments to all older people regardless of
need?
3.5 The Pension Credit is the new element
of Government policy. Age Concern has long heard from many older
people who feel that the current system penalises people who have
contributed to second pensions and struggled to save, and we therefore
welcome the principle behind the Pension Credit. However, while
it is important that changes are made to the benefits system,
we are concerned that the Pension Credit will increase reliance
on means-testing unless the changes are also accompanied by ongoing
improvements to non-means-tested pensions including the Basic
State Pension. In this paper we give more information about why
we have come to this conclusion as well as commenting on some
of the specific aspects of the Pension Credit proposals.
4. PENSION
CREDIT AND
THE IMPACT
ON CURRENT
PENSIONERS
4.1 For current pensioners there are three
groups who will be helped by the Pension Credit:
Those who currently get MIG and will continue
to benefit from the earnings-related increases and, in some cases,
by the changes in assessment, but who will not get savings credit;
Those who will benefit both from improvements
to the guarantee element and will also be entitled to the savings
credit;
Those whose income and/or savings prevents
them from getting MIG/guarantee credit but will be entitled to
savings credit.
4.2 The improvements to MIG/guarantee credit
bring welcome additional income to many older people. (However
we have concerns about those who will not claim their full entitlements
as considered later). For those who are also entitled to the savings
credit we believe that the extra money will help to address some
of the current concerns about being penalised for saving.
4.3 For those who have income between the
guarantee level and £134 (single person) or £200 (couple)
views are likely to depend on people's perceptions, expectations
and understanding of the Pension Credit. Although most would consider
the maximum levels well worth claiming, many will receive much
less, for example in the case of a single person with an income
of £134 only 20 pence a week.
4.4 Age Concern questions whether those
who receive a small additional payment through the Pension Credit
will feel this is adequate reward and whether they will consider
it worth making an application and providing personal information
about their financial and other circumstances. We would like to
see research carried out among pensioners to assess the level
of `reward' they would consider appropriate.
5. INCENTIVES
TO SAVE
FOR YOUNGER
PEOPLE
5.1 One of the aims of the Pension Credit
is to ensure people are always better off from having saved and
contributed to private pensions. We accept that this is likely
to be the case[12].
However for those who currently feel that there is little point
in saving, the extent to which the Pension Credit will influence
their behaviour will depend on whether they understand how benefit
and pensions systems work, and if so, if they consider any additional
help through the Pension Credit will be sufficient to make it
worth forgoing current income in order to build up income for
retirement.
5.2 The range of state and non-state pension
and benefit systems are complicated and few individuals fully
understand how they work, even without the added complexity of
the Pension Credit. Even if people do have a good understanding
of the systems, there are so many unknown factors that it will
be very difficult for any individual, or indeed a professional
adviser, to know whether someone may be entitled to the Pension
Credit in the future, and if so how this will effect their income.
Such factors include: future patterns of work and earnings; personal
circumstances on retirement; possible changes to the Pension Credit
and other benefits in the future; and the performance of private
pensions and investments.
5.3 Although the Pension Credit is intended
to reward saving, because it does so through a tapered system,
people will still face high withdrawal levels of income. Given
full information people may decide that if say £10 of extra
income is only going to make them £6 a week better off (or
possibly far less if they are also entitled to other means-tested
benefits) it would be better to spend the money when they are
younger.
5.4 Age Concern believes that in order for
stakeholder pensions and the State Second Pension to succeed there
needs to be a Basic Pension paid at a level to cover basic living
costs uprated annually in line with earnings or some other measure
reflecting increases in general living standards. This would provide
a firm foundation on which to build up additional income and is
the best way to provide an incentive for younger people with limited
earnings to contribute to private pensions and build up other
savings because they will know that they are likely to gain from
any provision made.
5.5 In conclusion, we are not convinced
that the Credit, as proposed, will have a major role in terms
of encouraging people to save and contribute to additional pensions.
This is partly due to the levels of payment and withdrawal rates,
and partly due to the difficulty in understanding the systems
and predicting future circumstances.
6. COMPLEXITY
6.1 One of the main criticisms of the Pension
Credit has been that it is complicated. Baroness Hollis accepted
there was some justification in this claim but stated that the
arithmetic is `fairly simple' and that the concept was clear.
Moreover she stated that the pensioner will not need to do the
calculation but that the important point will be to help `pensioners
to know that there is an entitlement for them to apply for'.[13]
6.2 However it will not always be clear
who will qualify. For example while in general it may be possible
to say that the savings credit is available to people with incomes
up to a certain level, circumstances will vary. For example there
will be different levels for people with additional needs such
as entitlement to the severe disability or carer premium, while
some people will be in receipt of income or capital which is fully
or partially disregarded.
6.3 People are more likely to claim benefit
when they have a clear indication that they will qualify and an
idea of the amount of additional income they would receive. For
some people it is also important to be able to understand how
benefit is assessed. Some older people are very scared of making
an application for something they do not understand and worry
that benefit may be awarded incorrectly.
6.4 It is also important that advisers and
professionals working with older people can understand systems
and explain rules in order to encourage claims, assure people
their benefit has been calculated correctly and, if necessary,
help if it appears that errors have been made.
7. MEANS
TESTING
7.1 The Government paper "Partnership
in Pensions" stated that: `People who work all their lives
should not have to rely on means-tested benefits when they retire'.
We are not aware of any estimates of the likely numbers claiming
Pension Credit in the future, but as at 2003 it is expected that
over 5 million people will be entitled to the Pension Credit,
this will result in a large increase in the numbers entitled to
means-tested support. However it is possible that the Government
feels that the new Pension Credit will be so different from the
current systems of benefits that it should no longer be considered
a `means-tested' system in the accepted sense of the phrase.
7.2 Age Concern believes that while it is
important to improve the current benefit systems and right to
introduce changes that reward saving, the longer-term aim should
be to reduce the need for people to claim means-tested support.
Our main objections to means-tested systems are that: there are
problems in ensuring high levels of take-up; administration is
complicated and expensive; older people feel penalised for having
saved; and they reduce incentives for younger people to save.
These problems have been recognised and now we consider whether
the Pension Credit, and changes to service delivery, are likely
to address these matters fully, and the extent to which it will
make means-testing or income assessment more acceptable.
8. TAKE-UP
8.1 In the House of Lords Baroness Hollis
stated `I am sure that I will be told that this will increase
means-testing. However to say that the Pension Credit will be
means-tested implies that we will treat pensioners as though they
were under the dreaded family means-test of the 1930s . . . we
shall do a disservice to pensioners and their willingness to take-up
their entitlement if we use language that serves to stigmatise
that which is their right'.[14]
The implication here is that if everyone stopped referring to
the Pension Credit as a means-tested benefit then this would help
make it more acceptable and increase take-up. Another argument
that has been put forward is that income tax is based on an assessment
of income, but people do not describe this as means-tested and
do not feel there is a stigma in providing information to the
Inland Revenue about their income.
8.2 We agree that the language used in relation
to financial support is important but it is only one of many factors
that can influence take-up. These include: knowledge of benefits;
attitudes to claiming; administration; and the structure and other
features of the benefit systems themselves. A number of factors
highlighted by research as likely to limit the take-up of benefits[15]
are features of the Pension Credit including: complex rules; a
means-test; and a benefit that supplements other sources of income.
8.3 The research also states that `every
aspect of administration can potentially affect take-up'. This
might include: the way that benefits are promoted; the efficiency
of administration; standards of decision making; good customer
services; and the design and format of claim forms and literature.
The name Pension Credit itself may deter claims as researchers
looking at the take-up of Family Credit considered that the term
`credit' could put people off as it might bring to mind a loan.[16]
8.4 The greater the onus on an individual
to initiate a claim, the less likely it is that a claim will be
made. Age Concern therefore believes it is essential that Government
departments take responsibility for identifying people entitled
to additional help and for providing support and encouragement
in making a claim. If the State Pension is linked to prices while
the Pension Credit is linked to earnings, each year more and more
retired people will be able to claim. This will mean steps to
identify those newly entitled to benefit will have to be taken
each and every year not just when people reach retirement.
8.5 However, whatever steps are taken to
try to identify people entitled to benefit, claims will still
depend on people providing personal information. Requirements
under the tax system are very different from the benefit system.
Only a minority of older people complete an annual tax return
(12% of pensioners in 1998-99[17]
and since then changes have taken more older people out of self-assessment).
The majority of older people are not liable to pay income tax
or have tax deducted automatically through PAYE which takes into
account their State Pension. (Having said this some older people
do face problems with dealing with the Inland Revenue and it is
likely that many are failing to claim back overpaid tax on savings
income).
8.6 In contrast everyone claiming the Pension
Credit or other means-tested benefits will have to give full details
of their income and savings plus a whole range of other information
not needed by the Inland Revenue such as information about: cohabitation;
certain housing costs; other people sharing a household; short
trips abroad; admission to hospital; or to justify why capital
has been spent in a certain way.
8.7 Age Concern welcomes the ongoing initiatives
to increase take-up and steps to improve administration such as
the shorter MIG claim form. These should be built on, for example
by covering all the main benefits available to older people and
not just concentrating on MIG (or in the future the Pension Credit).
However take-up remains far from complete. The latest DWP estimates
suggest that in 1999-2000 between 390,000 and 770,000 pensioners
(22% to 36% of those entitled) were failing to claim the MIG which
they were entitled to. Since then the Government's take-up campaign
and other initiatives have resulted in around 120,000 extra claims
but this probably has not reduced the numbers underclaiming greatly
because changes to benefit rules in April 2001 brought many additional
people into entitlement.
8.8 Age Concern believes it is possible
to improve take-up and administration and it is important that
this is done. However we do not consider it is ever possible to
completely remove the obstacles that deter older people from claiming
benefits that are dependent on some form of assessment of their
resources. Furthermore the large number of extra people entitled
to benefit will mean that, even to maintain anything like the
current level of take-up, there will have to be a massive increase
of staff time to process claims and to encourage take-up and this
will have to be an ongoing process.
9. ADMINISTRATION
9.1 Over 5 million pensioners will be better
off from the introduction of the Pension Credit. Currently there
are around 1.7 million people over 60 claiming the MIG (including
those claiming on behalf of a couple). This huge additional increase
in the numbers of people entitled to benefit will be a major administrative
challenge. Age Concern supports the aim of the new Pension Service
to provide a better, more focussed, service to older people and
the willingness of the DWP to work with other organisations including
the voluntary sector to provide this. However claims for improvements
have been made in the past, including when the Benefits Agency
was launched, and we will wait to see if aims and objectives are
indeed met.
9.2 Many who will be eligible for the Pension
Credit will already be receiving means-tested help through Housing
and Council Tax Benefit but the systems are separate. We recommend
that better information sharing and joint processing is introduced
as soon as possible (subject to consideration of confidentiality
and data protection issues) to ensure that people need to provide
information only once and to improve take-up—for example
by using information already held by the local authority for Housing
Benefit to check entitlement to Pension Credit.
9.3 There is also a need to look at linking
MIG/Pension Credit administration to that of other benefits including
Attendance Allowance, Disability Living Allowance and help with
NHS costs (which although a Department of Health scheme is based
on a similar assessment of needs, income, and capital as MIG).
Similarly there could be closer links between the administration
of tax and benefits. For example, people claiming the Pension
Credit or other benefits should be alerted to the possibility
of claiming a rebate of overpaid income from savings, while Inland
Revenue staff should have general knowledge of benefit systems
in order to alert older clients to possible entitlements.
9.4 Crucial to the successful introduction
of the Pension Credit will be effective computer systems. This
will also be necessary if there are to be greater links between
different benefits and between the DWP and the Inland Revenue.
In addition there needs to be a commitment to adequate levels
of well trained, well motivated and supported staff.
10. UPRATING
POLICY
10.1 The intention is that the Pension Credit
will be uprated in line with earnings while the State Pension
will (unless inflation is less than 2.5%) be linked to prices
from 2003 onwards.
10.2 Age Concern welcomes the decision to
increase the Pension Credit in line with earnings thus recognising
that it is important that the relative value of income should
be maintained. However if the Pension Credit is linked to earnings
and the State Pension to prices, it will be harder for people
to build up sufficient income to avoid needing to claim benefits
on retirement and, as already stated, each year more people will
be brought into entitlement.
10.3 We recognise that improvements to the
State Pension and Pension Credit will, over time, mean that contributions
to state support in retirement will need to increase. However
we have long maintained that as a society we need to recognise
that if pension schemes are going to provide an adequate income
for an increasing number of older people then one way or another
we will need to pay more through increased state and/or private
contributions.
11. PROPOSED
FEATURES OF
THE PENSION
CREDIT
Age limits
11.1 The guarantee credit will be available
from the age of 60, while the savings credit will not be payable
until people reach 65. A large group of people aged 60-64 (mainly
women) will be excluded from the savings credit. This is an added
complexity to a complicated system and will mean that for a significant
period many pensioners will, as now, receive no recognition of
the savings that they put aside. Older women tend to have lower
incomes than men and we anticipate many already receiving the
State Pension will be surprised and very disappointed to learn
that they will not be entitled to the savings credit until 5 years
after reaching State Pension age. We agree that the age must be
equal for both men and women but in principle believe it would
be fairer for both parts to be paid at the age of 60. We realise
there are legal issues regarding equal treatment but have not
seen any justification for these to require equalisation at 65
rather than 60.
11.2 Although the age for the guarantee
credit will initially be 60, it is in fact linked to women's state
pension age which will rise to 65 between 2010 and 2020. Individuals,
DWP staff, advisers and others working with older people will
all need full information about the changes.
The assessment of capital
11.3 The Government consultation paper published
in November 2000 proposed replacing the system of capital limits
and tariff income with a system assessing actual income from savings
and capital. However the Government has now decided instead to
reform the current system. It proposes: the abolition of the upper
capital limit; retention of £6,000 as the level of savings
that is ignored; and the halving of the assumed rate of tariff
income from 20% to 10%.
11.4 In responding to the consultation paper
Age Concern welcomed the Government's intention to reform the
capital rules. We could see advantages in assessing actual income
but envisaged some problems in relation to: protection for those
with up to £6,000 capital; practicalities in assessing actual
income; and fairness. We therefore concluded that unless research
with older people provided a clear reason for assessing actual
income from savings, the current system should be reformed with:
a substantial increase in the upper savings limit; a tariff income
of £1 a week for every £1,000 above a lower limit of
at least £6,000 (but with consideration to increasing this
to £10,000 in line with the limit in care homes); and a regular
review of capital limits.
11.5 We are pleased that the Government
has listened to the views of organisations, including Age Concern,
on this issue although do not know if our recommendation to undertake
research with older people to inform the proposals was taken forward.
However we continue to maintain that if the system of assumed
income is maintained, the tariff should be 5% for savings over
the capital limit, and that there should be a commitment to improving
this level. Too often in the past capital limits have remained
fixed for many years and have gradually lost their value.
Awards and changes of circumstances
11.6 It is proposed that for people over
65 awards will normally last for 5 years with people needing
to report only `major changes in their lives' which will cover
changes such as: moving; getting married; being widowed; going
abroad; and a stay in hospital. Pension rates will automatically
be adjusted each year. People will not need to report increases
in income although if their income goes down they will be able
to ask for their Pension Credit to be reassessed.
11.7 Age Concern welcomes the introduction
of much longer awards which will limit the contact older people
need to have with the Pension Service and avoid the distress and
administrative difficulties that are sometimes caused when, for
example, someone does not realise that they should have reported
a small increase in income.
11.8 However savings and income in retirement
are probably more likely to reduce than increase, so people will
need to be aware what information their current entitlement is
based on, and when they should ask for a reassessment. We welcome
the statement that people will be contacted regularly to ensure
they are kept up to date with changes and would expect this to
be at least once a year. People will also need full information
about the types of changes in circumstances that will still need
to be notified.
11.9 It will also be important that any
adjustments to the level of private pensions are accurate so,
for example, increases are not automatically assumed unless it
is a requirement that the pension is annually increased.
11.10 When fixed awards are reviewed this
should be through one form covering all income-related benefits
and if people do not return the claim form every effort should
be made to establish the person's circumstances before stopping
benefit.
Admission to hospital
11.11 While we understand that changes such
as bereavement will require reassessment, we are very disappointed
that people will still have to report admission to hospital and
lose benefit after a stay of 6 weeks (or possibly 4 weeks if current
rules on the severe disability premium are maintained). We have
recently highlighted the major financial and administrative problems
that can occur when benefits are readjusted because of a hospital
stay. If the aim is for people not to undergo regular reassessment
and to remove the `weekly means-test' then we believe that the
introduction of the Pension Credit provides the ideal opportunity
to introduce a better system and to avoid the financial worry
and major administrative difficulties produced by hospital downratings.
It would be entirely inappropriate if a substantial inheritance
or win on the lottery is not taken into account until the next
review, whereas a 7 week stay in hospital resulted in loss of
income and all the disruption of changes to benefit at a time
when someone is ill and least able to cope with bureaucracy.
People who do not have a full Basic Pension
11.12 The examples given in the consultation
paper are written on the premise that single people are receiving
a full Basic Pension and that couples are receiving the full amount
based on the husband's contributions. In practice of course not
all pensioners have a full entitlement, particularly those who
have spent time abroad, or moved to the UK as an adult, and people
who had caring responsibilities before the introduction of home
responsibilities protection (HRP). The paper refers to rewarding
work and savings but some who have worked and paid into private
pensions for many years, but do not have a full Basic Pension,
will be disappointed.
11.13 There is a need to review the coverage
of the Basic Pension and consider issues such as extending HRP
to carers prior to 1978, and reducing the number of years of contributions
needed for a full pension. This could result in more people having
full contribution records thus extending the reward for work and
saving and providing incentives to save to more people.
Housing Benefit and Council Tax Benefit
11.14 The Government has said that no-one
will lose Housing or Council Tax Benefit and that the applicable
amount for these benefits will be increased for those aged 65
and over to ensure that people receive the full benefit of any
savings credit entitlement. Age Concern welcomes these assurances
as many older people entitled to Pension Credit will also be eligible
for Housing and Council Tax Benefit.
11.15 However, as is often the case within
means-tested benefit systems, ensuring that people do not lose
out results in added complexities—in this case introducing
a different level of applicable amount/guarantee level for the
different benefits. It will also mean that Housing Benefit will
be calculated in three different ways depending if someone is
under 60, aged 60 to 64, or 65 and over. This complexity is one
of the reasons we have argued for introducing both parts of the
credit at age 60.
11.16 The suggested measures will ensure
that all who are entitled to these benefits gain but it will still
mean that many people are facing high withdrawal rates. The Pension
Credit will remove the 100% taper for those with income more that
the Basic Pension and replace this with a 40% taper. However the
combined HB and CTB tapers are already 85% and our understanding
is that for some people who are also entitled to the savings credit
this will interact to produce a taper of 90%. There will therefore
be people in some income bands where any extra income produces
little gain. Age Concern has long argued that taper rates of 85%
are already too high but one of the problems with means-tested
benefits is that reducing the taper brings more people into the
system.
Additional premiums and housing costs
11.17 We welcome the intention to continue
to take into account the needs of those currently entitled to
the severe disability premium, carer premium and help with housing
costs for homeowners within both parts of the Pension Credit.
It will be important that information, publicity, and staff training
take these into account to ensure that people receive their full
entitlement.
Income assessment
11.18 Full details of how income will be
assessed are not yet available. However in many respects it is
likely that the assessment of income will be similar to that for
current income-related benefits. For example state pensions, private
pensions and the assumed income from savings will be fully taken
into account while Attendance Allowance and Disability Living
Allowance will continue to be disregarded. However there are a
range of other types of income that a minority of older people
receive. The explanatory notes state that the intention is that
regulations will reproduce the capital and income disregards provided
for in current Income Support regulations.
11.19 However there will be some differences
in assessment and Baroness Hollis outlined a number of these including
stating that charitable and voluntary payments will be ignored.
This is one change that Age Concern had suggested and we are pleased
that this has been accepted. We look forward to full details of
the treatment of income and hope every effort is made to simplify
the current system and to minimise the amount of information that
needs to be collected. People claiming the Pension Credit will
need clear details about what types of income need to be declared.
Earnings and paid work
11.20 Age Concern recommended that the rules
which prevent people working more than 16 hours a week from claiming
MIG were abolished and we are very pleased that the Minister has
stated that the number of hours worked will be ignored.
11.21 In terms of the treatment of earnings,
despite the consultation paper being published in November 2000,
at the time of writing (January 2002) there are still no details
of how earnings are to be assessed.
11.22 It is important that older people
are encouraged to continue to work if they wish to and are able
to, and we believe that people should not lose out due to earnings
from a small amount of part-time work. In responding to the consultation
paper we argued that instead of the current disregards of £5,
£10, or, for some carers or disabled people £20, there
should be a single disregard set initially at around £30—broadly
in line with a day's work at the level of the minimum wage. We
continue to consider this is the minimum acceptable level of disregard
and can see a case for a more generous system particularly in
the context of a five-yearly assessment and the fact that earnings
are more likely to fluctuate than other sources of income.
11.23 Also important for older people who
have paid work is how the Pension Credit will interact with the
new Working Tax Credit as there may be people who are eligible
for both. The Inland Revenue consultation paper on new tax credits
stated that the Government will need to `look closely at the way
that the two forms of support will interact'. Our understanding
is that the Working Tax Credit will be taken into account for
the Pension Credit. Given that the two systems are assessed and
administered differently, it is likely that individuals will need
help to understand the systems. Both Inland Revenue and DWP staff
will need to have a clear understanding of how the different systems
work in order to provide information.
12. INCOME
TAX AND
THE PENSION
CREDIT
12.1 The November 2000 consultation paper
described the Pension Credit and associated changes as `a further
step towards tax and benefit integration'. The paper states that
ultimately the Government wants to make the receipt of the Credit
more automatic and to `merge support for older people through
the Credit and the tax systems to create a seamless and integrated
system of support'.
12.2 It is clearly logical to try to align
systems as much as possible and to try to improve administration
through closer links between tax and benefits. We can also see
merit in the longer-term goal of merging the systems especially
as currently there are some older people who both pay income tax
and receive.
12.3 However there are fundamental differences
between tax and benefit systems. One of the main ones being that
income tax is based on individual assessment while for means-tested
benefits couples are assessed together. Also the current means-tested
systems are more sensitive to specific needs such as housing costs,
disability and family members, as well as being able to respond
rapidly to changes in circumstances. The decision not to move
to a system of assessing actual income from capital gives a further
indication of the difficulties in trying to align schemes that
have different purposes.
12.4 We are unclear now what the Government's
intention is in relation to moving towards more integrated tax
and benefit systems and we see little in the Pension Credit proposals
that achieves greater integration. We would see much more scope
for alignment if, there was a much higher level of Basic Pension
(or some other form of basic non-means-tested income) which meant
fewer older people were reliant on means-tested supplements.
13. PEOPLE
IN CARE
HOMES AND
OTHER CHARGING
PROCEDURES
13.1 The current MIG assessment is also
the basis for other charging procedures and benefits including:
local authority charges for people in care homes; local authority
domiciliary charges; the planned Supporting People charges; and
the low income scheme for help with NHS costs.
13.2 In trying to ensure that the different
systems of support are co-ordinated it is essential that in developing
the Pension Credit, the DWP and Treasury work closely with the
Department of Health and the Department of Transport, Local Government
and the Regions (the department leading on Supporting People).
Change to the assessment of income, capital and other circumstances
of older people should also be mirrored in work of other Departments
as far as possible.
13.3 In addition to co-ordinating procedures,
it is important that other assessments ensure that older people
are rewarded for having saved. Older people awarded the savings
credit will feel cheated if they lose all or most of this through,
for example, increased care charges. This will include people
living permanently in care homes who are currently having to manage
on a personal expenses allowance of £16.05 and will also
expect to be better off from the introduction of the savings credit
and from having worked and saved.
14. CONCLUSIONS
14.1 In this paper we have looked at a range
of issues in relation to the Pension Credit. As stated at the
beginning of this paper Age Concern is supportive of the need
to reform current means-tested benefits in order to ensure that
older people feel they are rewarded for having saved. However
we are concerned that the Pension Credit will increase the reliance
on means-tested systems. There is scope for improving current
and future administration but we believe that these will never
completely address the problems of: complexity; expensive administration;
low take-up; stigma; and the savings trap. In considering these
issues we remain convinced that, while there should be improvements
to means-tested support, this must be accompanied by increased
state pensions and moves towards a reduced reliance on means-testing.
January 2002
12 Currently a small minority of people with additional
income are actually worse off than those on MIG. For example this
applies to some older homeowners who, after paying essential housing
costs, have lower incomes than people in the same situation receiving
MIG because the MIG assessment takes certain costs into account
but the Council Tax Benefit assessment does not-it is not clear
if the Pension Credit will prevent such anomilies occurring. Back
13
House of Lords, Official Report, 18 December 2001, column
144. Back
14
House of Lords, Official Report, 18 December 2001, columns
141-42. Back
15
Changing perspectives on benefit take-up Anne Corden, SPRU,
1995. Back
16
Why didn't they claim? Stephen McKay and Alan Marsh, PSI,
1995. Back
17
House of Lords, Official Report, 15 February 2001, column
302. Back
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