Select Committee on Work and Pensions Minutes of Evidence

Memorandum submitted by Age Concern England (PC 10)


  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.


  2.1  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.


  3.1  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.


  4.1  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.


  5.1  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.


  6.1  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.


  7.1  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.


  8.1  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.


  9.1  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.


  10.1  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.


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.


  12.1  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.


  13.1  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.


  14.1  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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