Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 160 - 179)



  160. Do you think everybody is going to be prepared to work an extra two years to subsidise millionaires in Mill Hill.
  (Mr Robinson) The issue about the retirement age is different. I think you are conflating how to sell a more generous Basic State Pension and simplify significantly State Pension provision with the separate debate we need now to enter into on raising retirement age. Remember raising the retirement age is only necessary to deal with the affordability issue in 30 years' time.

  161. Yes, but the point about it is that we have to adopt this policy now, do we not?
  (Mr Robinson) Are you telling me that when you go to the doorstep and you tell people that the Government will give them a Basic State Pension, there is also a State Second Pension, there is also the MIG, which we are going to supplant by the Pension Credit, and by the way here are the different options for private pension provision, they turn round to you and say that it is very clear, they understand that completely?

  162. What I do is take the ready reckoner out of the Pension Credit book and show them exactly where they are going to be and they find that very easy to understand. I have given out thousands of them. My basic question first of all is: where is the fair and equitable approach in all this? Have you done for your proposals work similar to that done by the IFS in their document which shows the gains from Pension Credit across the over-65 income distribution by decile, so we can see what the effect is? What is quite clear from the work they have done is that the proposals the Government now have are redistributed towards the less well off, whereas I get the impression that yours are not going to produce that result.
  (Mr Robinson) It is an interesting example of the difference between the use of the word "progressive" when it is used by economists like Andrew Dilnot, or myself, or by Her Majesty's Treasury and the words "fair and equitable". I have learned over the last 18 months that those words do not mean the same thing to people. Formally speaking the Pension Credit is very progressive. You can draw your decile diagrams and show that. The question is whether it is perceived as fair and equitable by the vast majority of people out there. It is the same issue with the Health Service. It would be progressive, using the language you have described, to means test health care, to confine free health care to average people and the less well off and make the rich pay for their health care. That is very progressive, using the way you are using the language. I am not sure it would be regarded as fair and equitable by people out there. You must not conflate those terms.

  163. Have you done the calculation?
  (Mr Robinson) No.

  164. Would you like to do it and let us have it?
  (Mr Hawksworth) For that you need a detailed micro model and to produce that sort of model would be a vast research project in terms of pushing it forward into the future. The IFS numbers are perfectly reliable as an estimate of what the current effect would be in 2003-04. We are quite happy to have a division of labour and allow them to do that.
  (Mr Robinson) What the IFS can do and what the Treasury can do is model the impact now or next year, given what we know about the current income distribution. It is a much more difficult and complex job to try to do that for 2050.
  (Mr Brooks) May I make two points about the distributional impact of our proposed reforms? The first is that our reforms would significantly benefit the very worst off pensioners who are entitled to but not claiming means-tested benefits. The latest figures for the numbers of those people are for 1999-2000 and they suggest between one fifth and one third of pensioners entitled were not claiming. The sums involved are not insignificant. The average payment unclaimed was £20. The median payment was £12.80. For people with a weekly income of somewhere around £70, £80, that is a really significant amount of money. Those people would certainly see our proposals as fair. The other issue to raise is that the current system of tax rebates under the National Insurance system is highly regressive. It gives much more to the better off. Under our proposals that money would be redistributed into a universal State Pension.

  165. May I put another point to you which a guy who used to be a bus driver, came over from the West Indies in the 1960s, retired a little while ago, put to me? He has a pension from London Transport of around £12 a week. He says to me that he worked and put aside his pension and everything else and he might as well have not bothered because the layabout down the road, who has not done a stroke all his life, is getting exactly the same as he is getting. That is not fair. Where is the just and equitable arrangement whereby effectively you are going to give everybody the same, not reflecting the fact that some people have scrimped and saved to put away relatively small amounts of money either through savings or through pension schemes? Those are the people on whom Pension Credit is targeted and who will be well off and answers their argument that it was worth their while after all to have done what they have done. This is the other argument I get all the time on the doorstep from pensioners. If you are knocking on doors you will be getting the same argument.
  (Mr Hawksworth) The argument is completely the opposite way round. Actually under this proposal they would have a Basic State Pension and they would keep all of the money whereas under the Pension Credit they would only keep 60 pence of every pound, so actually they would be more rewarded under this proposal.

  166. But everybody would end up on the same amount.
  (Mr Hawksworth) No; no. Everybody would get a Basic State Pension plus whatever other income they got from savings or other pensions they had put in. Okay there are some further complications with Housing Benefit and Council Tax Benefit which affect any regime, but ignoring that for a second, everybody would get the Basic State Pension plus whatever else. People who have not saved would just get the Basic State Pension, which would be a basic adequate minimum and they would not get the extra.

  167. Including people who had not paid full National Insurance contributions.
  (Mr Brooks) The question is: do you let those people starve?

  168. No, because that is where the MIG comes in. So people who have not paid National Insurance contributions will get the same under your proposals.
  (Mr Robinson) We would maintain the current contributions system so you would have to have paid your National Insurance contributions to get to the Basic State Pension and that would mean that the MIG would remain but as a residual for those people who have not paid National Insurance contributions, which is arguably what it was supposed to mean in the first place.

  169. But they would get exactly the same as the people on the Basic State Pension, or less. If you put in a Basic State Pension of £100 and you are maintaining MIG as well, people on MIG would then get the £100 as well.
  (Mr Robinson) Yes, as in the current system.

  170. So whether or not you have paid the National Insurance contributions becomes irrelevant to how much you get from the state.
  (Mr Robinson) That is the same now. If you have not made National Insurance contributions you will be brought up to the MIG.
  (Mr Brooks) At the moment not only is the Basic State Pension lower than the MIG but your additional savings —

  171. That is where the argument comes from, from people who say they might as well not have bothered.
  (Mr Hawksworth) The Pension Credit does not solve that. For people currently, without the full contribution record, with only the Basic State Pension, getting less than that there would still be 100 per cent withdrawal rate under the Pension Credit. So the Pension Credit does not actually solve that particular problem. Maybe it could do if there were greater cost but it does not solve that problem.

  172. The last point I want to put to you is about Housing Benefit and Council Tax Benefit. How is that going to relate to your proposal?
  (Mr Robinson) The statement we make here is the statement that you would find in every government document, which is that it is very important to reform Housing Benefit and Council Tax Benefit but we do not do that here.

  173. What does that mean? Does that mean people will lose out or not? We know that with the Pension Credit the Government is working to make sure people do not lose out.
  (Mr Robinson) It means perhaps the next major piece of work we do or John does or the IFS does is how we reform Housing Benefit and Council Tax Benefit.
  (Mr Hawksworth) One point to make is that, under the Pension Credit proposals, the Government has proposed that the applicable income instead of the MIG should be the MIG+£13.80, say, for a single pensioner, so that you do not get the clawback until that higher rate. Possibly one could have some similar regime. Obviously it would be a cost and you would have to look at that. Maybe you could say that above the Basic State Pension the applicable income for Housing Benefit and Council Tax Benefit would be, I do not know, 10 to 15 per cent above the Basic State Pension. To parallel the existing regime, you would have to look at what the precise cost of that is. I would admit we have not done that.

Ms Buck

  174. About a quarter of an hour ago I wanted to query something Peter said, which was that everybody would be £20 a week better off. They will not be, will they? The way the presentation of your report has come over today is very clearly that there is a trade-off, that we get rid of this complex system—and I accept that there are serious weaknesses in its complexity—that the trade-off is that everybody is then £20 better off. May I just summarise what I think and then you can tell me whether I am wrong? People who are going to be better off are the group who do not claim—an important group—and those who are above the current MIG level. They are the ones who would be up to £20 a week better off. For everybody else their trade-off for their extra two years of working life is that they are paying for an end to the means test. If that is the doorstep trade-off, I am very pleased for you to go out and do it. We have to be very, very careful that the presentation does not come over as being that everybody is going to be £20 a week better off, because they are not. The poorest pensioners on MIG are gaining nothing from this whatsoever, are they?
  (Mr Robinson) I am sorry, if I said everyone is going to be £20 better off, I apologise. I should not have said that.
  (Mr Hawksworth) The whole point of this is that it is meant to be broadly financially neutral, so inevitably there will be winners and losers.

  175. You were not attempting to be misleading for a second. The point is that in terms of presenting this as a simple package, whose strength is its simplicity against a package whose weakness is its complexity, there is a real danger that it just comes over as being that we will get rid of the credit, we will get rid of MIG in exchange for which everybody is £20 a week better off, but nearly a third of pensioners gain not a single penny from what you are suggesting.
  (Mr Robinson) The easiest way to think about the distributional consequences of what we are proposing is that over this decade there is a re-distribution from me to my parents. My parents are retired. They will get an extra increment to their Basic State Pension. I will lose my rebates. Over the long term I will have to work two more years, so that when I retire I can be assured that I will get £100 a week in today's terms from the state which then gives me the complete clarity to make my own provision on top of that through my own private savings. That is the trade-off for people of my generation.

  176. Which is great but what I am concerned about is a 35-year-old plasterer on a fairly low income who is now being expected to work an extra two years to give an extra £20 a week to the person who is retired on a very substantial private pension.
  (Mr Robinson) The argument would be the same for them, that in return for their extra two years of work they can be absolutely guaranteed that they will get £100 a week from the state non-means-tested and any provision they have made on top of that will go to them completely.

  177. But they will be guaranteed that they are not going to go below that anyway.
  (Mr Robinson) They will be guaranteed that they will not be caught in the means test.

  178. Exactly. So the deal is not the money, the deal is the means test.
  (Mr Robinson) Yes.

  179. As long as we are clear about that. I just want to be absolutely clear that the deal for most of those people is the paperwork not the pounds.
  (Mr Robinson) It is the clarity. It is the argument that people currently cannot really determine what kind of means test they may face in the future and that if they are presented with a very simple deal—work, you get your £100—and then the additional savings you make you retain completely, which is the selling point.

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