Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 200 - 219)



  200. I think the principal message that you will get rewarded by something, as you say, is a clear one, but is people's behaviour going to be significantly affected again, people of 45-years-old being told that they will have the right to £13.80 a week?
  (Mr Darling) Yes, I think so, Karen, because especially when people start to think about these things, the thing that we have found and Anne was referring to, the pension companies and so on, when people say, "Shall I save?", and then when they under the present system find out that actually it is only worth saving if you can beat the threshold because you are just about where the limit happens to be, you could find that if you work hard, you make sacrifices all your life, you get nothing out of the system and the person down the road who did not, gets help, and that is perceived as being unfair and I think that that would have been a disincentive. The whole point of the Pension Credit is to turn that situation round, so even if you save a modest amount of money you will get a reward for having done so; if you work then the earnings will be rewarded as well and we will give you something for that. The fundamental structure of the Credit is absolutely right. It builds on all the other things we have done. I mentioned the next stage, when we look at stripping away some of the complexities, and I think that will make significant inroads into the second problem you describe, which is getting younger people to save. Part of the problem in getting people interested in pension planning is the complexity. When you consider it takes you six hours to sell a pension to someone, commonsense says you have to strap someone to a chair to make them listen for that length of time before they sign up. I attach a considerable importance to stripping away some of the complexities to make pension products, savings products, more readily accessible than they are at the present time. That will go a big, big way to getting rid of some of the problems you quite rightly raise.

Mr Stewart

  201. Secretary of State, could I move on to another area which is of interest to this Committee and that is the treatment of earnings. Could you clarify exactly how pensioner earnings will be treated in the calculation of the Credit, including for those aged 60-64?
  (Mr Darling) Basically, in simple terms, earnings are treated in the same way as savings. I am not sure you have them here but you will know that when the Government published its final proposals on the Pension Credit in Annex A, there was a table which showed how savings are rewarded. It is the same for earnings except that we disregard the first £5, which comes in from the inherited systems so we do not have any losers. It will be actually beneficial to people because they get a higher rate of return on their Credit. As I said when I first made the statement to the House about the Pension Credit, I wanted people who had savings to be rewarded and also if they worked they would be rewarded. On the second part of your question, the reward element, the guarantee comes in from 60, the reward element comes in from 65.

  202. Can I move on to the second part of the question. During the debate in the House of Lords, your colleague, Baroness Hollis, rejected the idea of a complete disregard for earnings under the Pension Credit. However, would you consider, as has been suggested to us, a disregard of, say, £30 to £40 a week, effectively allowing a full day's work?
  (Mr Darling) As I said in reply to an earlier question from Anne, I think, all social security benefits, all rates and allowances, have to be looked at by me every year. What we are proposing at the moment is to bring across the disregards which are the Minimum Income Guarantee—which is essentially £5 for a single person, £10 for a couple, £20 for a lone parent—and other calculations for people with disabilities and so on. I will look at all these things but I am not doing so with a view to saying, "I am about to change these things." The principle of taking earnings into account must be the right thing to do, and increasingly more people will work beyond age 65, and certainly the Government is keen to encourage that. I want to have a situation where if you had two people living next door to each other, one whose income came from pensions and savings, the other who worked, the person who went out to work was also getting something for their efforts. You can calculate the actual amount by reference to these tables. As I say, I do not want to get into a situation where I am holding out hope where none may be immediately forthcoming but of course I look at all these things every year.

  203. This Committee was recently in Brussels where we met Neil Kinnock, Vice President of the European Commission, and what we were talking about there was the importance of active ageing and making sure there are no disincentives for people over 60, for example, to work. One aspect of not allowing the higher earnings disregard was that this would stop people returning and overall would not help fight pensioner poverty.
  (Mr Darling) That is absolutely right. I have said on many occasions before that when people start saying, "Should we raise the retirement age", if we could get everybody to work to 65, we would be achieving something which no Government has done. The average retirement age in this country is closer to 58. Something like a third of everyone over the age of 50 but under retirement age is out of work and the majority of them depend on benefits for more than half their income. That is quite clearly unsustainable. You do have to look at pensions policy and your employment policy for the over-50s side by side, that is one of the rationales of creating this Department in fact. One of our objectives is to increase the employment rate for our over-50s population. We will do that in a variety of ways, it is not the subject of today's inquiry but I am happy to go into that. If you do not do that, you will make the problems faced for the retired population even more difficult. Remember, with the change in the Working Tax Credit which is coming in next year, the Working Tax Credit element will be available for people who work—we are moving away from the family element, WFTC—so there will be an incentive there for people to go on working, but also there will be people over the age of 65 who, depending on what is best for them, will be able to get the Pension Credit. So we are building in incentives there. But you are absolutely right, our objective must be to get people to work longer than at present. Many people will choose to go on working. We do not have a retirement age as such other than an age when there is entitlement to get the Basic State Pension, and I think people will increasingly choose to work over the age of 65 and we will certainly want to encourage that.

  204. Perhaps we should also look at the role of employers. I know in certain supermarkets they really encourage people of 65 to 70 to come back into the workforce. Do you think there is a bit of unconscious ageism going on among employers in the UK which we have to fight as well?
  (Mr Darling) Undoubtedly. By 2006 we have to introduce legislation which strikes at age discrimination but that is only one part of it because you are dealing with attitudes. You know I represent the centre of Edinburgh where unemployment is just over 1 per cent, and in Edinburgh we have a large part of the pensions industry, and I keep meeting senior people in the industry who say, "We can't get people to come and work for us", and yet we do have a problem, like everybody else in the country, where we have over-50s out of work. I think employers have to focus on the fact that your over-50 population will probably be more motivated; you can easily expect someone of 50 to work 15 years for you, and probably no 25 year old is going to work 15 years for an employer. They are usually disciplined, they usually have good skills; they are capable of learning new skills; so you do have to challenge people's attitudes so far as this is concerned. There is also the other side of it, of course, and part of the problem with the third of the over-50s who are out of work, is that it is critical we have policies which make sure when somebody comes out of work, say, at 52, we turn them round as quickly as we can. The obligatory work-focussed interview, which will come in with the Jobcentre Plus from the beginning of April, will make a difference. Remember that in the 1980s your obligation was to sign on for unemployment benefit every two weeks, which took you about ten minutes; nothing else happened, there was not much in the way of help, you drifted into Incapacity Benefit and thence frankly into long-term retirement and no one did anything to stop it. We have done a whole lot of things to try and turn that round. We now have a far tougher system to make sure that we help people help themselves. But you are absolutely right, the employment policy, particularly for the over-50s, is an integral part of your pension policy, and one will increasingly run into the other. So I want to keep more people at work, I want to encourage people and do everything we can to help them work longer, and critically, coming back to the subject in hand, I want a system which actually rewards people for what they have done, which is what the Pension Credit does.

Andrew Selous

  205. We have heard concern from both Help the Aged and Hertfordshire County Council about the interaction of the Pension Credit with home care charging policies. Hertfordshire County Council have told us in particular that they are getting software in at the moment which does not take account of the Pension Credit coming forward. Can you tell us what negotiations your Department is having with the Department of Health at the moment to make sure there is a good interaction, so that pensioners do not lose out as far as home care charging policies are concerned?
  (Mr Darling) We do discuss these matters with the Department of Health. On IT that is slightly more difficult. There are about 400 local authorities we have to deal with and, not surprisingly, they all have different IT systems, which is just the way of these things. We do have discussions to see what we can do to help on these matters. I cannot promise you a system where we all have the same IT system. Ours is big enough without acquiring 400 variants.

  206. Have you had any discussions with local authorities to make sure that the increases from the Pension Credit do not get eaten up by higher home care charges? Are you going to be issuing any guidance to local authorities in that area?
  (Mr Darling) What local authorities charge for home care is essentially a matter for them. The Government does periodically increase people's income, whether pensioners or other people as well. The Government also pays quite substantial sums to local authorities to help them improve the services and deliver them at a price people can afford, but no Government has ever reached a situation where it actually says what local authorities ought to charge for every single thing. Guidelines will be issued from time to time and, as I say, the financial help has increased to try and prevent charges going up unnecessarily where you would not want them, but the actual decision as to how much they charge, and what they charge for, is, to a substantial extent, something which will be in local authorities' hands. We can increase people's incomes, we can increase the amount of money we give to local authorities, and we are doing both, but no Government has ever offered, in effect, to take over local government as well.

  207. Moving on to hospital down-rating, we were all pleased to note the recent announcement by Baroness Hollis in the Lords on that subject. We have been contacted by the Disability Alliance, who are concerned about the number of benefits which are not covered by the changes to the down-rating rules, specifically: Disability Living Allowance, Attendance Allowance and Invalid Carers Allowance, as well as the Severe Disability Premium element of Income Support. I understand at present there are no plans to extend those. Can you tell the Committee if there is any chance that those benefits could also be included?
  (Mr Darling) No. What we have done is we have changed the down-rating rules, which have been fairly widely welcomed, because probably 13 weeks takes account of modern conditions more than the six-week rules did. Again, I think most of us have come across cases in our constituencies where someone is in for about seven weeks and they are really put in a difficult position. The DLA and AA remember are benefits paid to meet people's extra costs. So if you have somebody who is severely disabled, they get DLA for meeting those costs of living at home or buying in care or whatever. There does come a point, if you are in hospital for something like 13 weeks, where you say, "How much longer do you pay those costs which are designed to meet costs which you are not actually incurring?" I readily accept that you can make a case either side of these things but the Government reached a judgment that basically what people were most concerned about were those benefits paid to support people's income. I have here a schedule of all the benefits which are included, which is quite substantial. There are about 13 which are covered by this. But we do not have proposals so far as the DLA is concerned, we are not proposing to change that. Do not under-estimate the changes we have made. It had not been made for many, many years; we have made it, it costs something like £45 million, it is a substantial change, but there will always be a limit as to how far Government can go at any particular time.

  208. Is it not possible to introduce the changes before October 2003, which seems quite a long way off from where we are at the moment?
  (Mr Darling) You might think so. One of the things that you find—and Andrew Mitchell will have some experience of this as well—within the Department, which is so IT-intensive, is you think there cannot be any problem with making changes but actually it is quite problematic. You can only get into the system every so often to make the changes and, frankly, our IT system is very decrepit—it being replaced but it is very decrepit—so we do not think we can make these changes until October next year[3]. When I started doing this job four years ago, I just assumed if the Secretary of State decreed something it would happen, but I have discovered over the years that it is not quite as simple as that and we need to employ somebody with a screwdriver to go into a computer and change the instructions a wee bit.


  209. Can I underline the importance of the point Andrew made earlier about the relationship between the Department of Health and the Department for Work and Pensions. It is a small but significant point. The information we have is that there is no guidance. The DoH guidance, which of course is nothing to do with you, is pretty definitive in terms of how local authorities deal with residential and community care costs and fees. Would it be possible to get a note on where we are with that? It may be it is not yet properly sorted out but there was some real, genuine concern demonstrated by local authorities and they are still uncertain about how they are to be guided by the Department of Health in the fulness of time.
  (Mr Darling) The Department of Health have just issued guidance. I do not know what the etiquette is of me guaranteeing I will supply you with something from them. I can happily give you that assurance. What I had better say is that I will speak to Mr Milburn with a view to the Department of Health giving you some guidance as to where we are at the moment.

  Chairman: That is helpful. Thank you.

James Purnell

  210. In the evidence we have received, the commitment to up-rate the Minimum Income Guarantee and now the guaranteed Credit in line with earnings for the whole of this Parliament has been welcomed. I do not suppose you feel like giving us a view on what it will be for the next Parliament?
  (Mr Darling) No. You perhaps expect a rather fuller response than that. As you well know, the Government fixes its spending now in a three-year cycle. There are some things which all governments do at election time, they say, "This is what we think we can do in the next Parliament", but it would be very imprudent to start making promises way out beyond that on these particular things. We have given a commitment for this Parliament and I dare say the matter will be considered at the appropriate time whenever the end of this Parliament happens.

Mr Mitchell

  211. But this is a very small meeting, Secretary of State. Could you not give us a feel for how your negotiations are going with the Treasury at the moment?
  (Mr Darling) I tell you what, Andrew, I will make a deal with you: I read in the Guardian today that you have been called in to salvage your party's pensions policy, when you tell me which way you are going, I will consider whether I will tell you which way I am going! Despite the fact this is a very discreet meeting and I am sure nobody present would repeat anything I say, I will decline your kind invitation.


  212. In that case I will not say anything about Liberal Democrat policy.
  (Mr Darling) We would all love to hear it.

James Purnell

  213. In your long-term costs publication, you set out three scenarios. I do not suppose there is any chance of you giving us a view on which of those is more likely out of the three?
  (Mr Darling) This is a second attempt to get the answer you want! You are referring to the long-term projections which we have prepared for both you and the Treasury Select Committee, which was looking at the pre-Budget report and public spending in general terms. What we wanted to demonstrate here was two things. One is, people kept saying to us, "Would it not be better if we put up the Basic State Pension", and there are philosophical reasons why we should not put all our eggs into that basket, because it does not help address the problem of people on lower incomes, but we also wanted to show what the comparative costs were. The fundamental purpose of this document was to show our pensions policy is affordable. Remember, there are two essential parts of any pensions policy, which Andrew will want to reflect on. One is that it is workable and the other is that it is affordable. If it is not workable, if it is not affordable, the thing will collapse. Ours is workable, for the reasons I have stated earlier, and it is affordable. If you look at the amount of money which we expect to spend on any of these three scenarios projected out over the next 50 years, you will see it is eminently affordable. The Pension Credit puts a comparatively small amount of spending on the amount we are spending on pensions at a time when the pensioner population is increasing. What it shows is that it is affordable. But, no, I will not speculate on what we might do. Indeed, we still have to fight the next election.

  214. I understand why you cannot do that but does it not put pensions advisers in a difficult position, given the very long-term in which they are advising people, when they are deciding whether to take out pension products, given they will not know how this Credit will be up-rated? What advice would you give to them?
  (Mr Darling) You have to be realistic about this. If you seek to advise someone on their pension there are so many imponderables. Suppose I was going to sell you a pension, I do not know if you are going to have a job in five years' time, you do not know what you are going to have in five years' time, your voters have not decided whether they want you to have a job in five years' time. You might say, "It is all right, I have a safe seat, I will be all right", but you cannot tell me exactly how much money you will be earning, there might be a few directorships on the side, who knows; we do not know. There is also the whole question of longevity. There is an assumption you will live longer but there are imponderables about that. There are imponderables about whether you have other commitments, family and so on. It is not possible to sign and seal every imponderable. What I can say, and this comes directly back to the point I was making a moment ago, because I can say our pensions policy is workable and affordable, it is therefore likely to be sustainable, and therefore people can say, "The pensions policy the British Government has is one which is likely to last." Of course governments from time to time change things, all governments do, it is the nature of these things, but I think there is a certainty there, and of all the things the industry has said to us this is not one which has really figured. What they have said to us is, "You must do something about the regulatory complexities, the tax complexities and so on", which is something I have said for some time now I think we need to address and we will address with a proposal we are making later this year, but this particular one has not been a show-stopper or raised real fundamental problems.

  215. Some of the evidence we have received has raised the issue that under the most ambitious up-rating scenario, you end up with about 70 per cent of the population benefiting from the Credit. Does that worry you in terms of its effect on incentives to save and in terms of its overall cost?
  (Mr Darling) No, it does not. I will tell you why. Remember, this Pension Credit is a means by which you can reward people for their thrift, and just as it does not worry me the tax system affects a large proportion of the population in this country, it does not worry me that the Pension Credit does. I will come on to the administration which is critical to this. The tax system operates in a way, if you take pensions, that people gain through the tax system and people do not worry about the fact they gain through the tax system. They should not therefore worry they gain through the Pension Credit. If we are helping more people and rewarding more people, whether it is through the tax system or the Pension Credit, that should not concern us. The second thing which we also ought to address is that we do need to make it easier for people to get their Pension Credit, which is why I attach considerable importance to the changes we are making whereby at 65 we will do an assessment which will then not be disturbed for another five years, unless something changes quite substantially. In many cases, the situation we are moving towards is that when someone is approaching retirement we will calculate their Basic State Pension—and, remember, we will have to make some calculations there—we will calculate their Pension Credit, we will calculate anything else which they might be entitled to, so for the vast majority of people at 65 they know where they are, that is fixed unless something changes until they are 70, when we will look at it again and so on. I know in evidence you have discussed these things and I do not know whether you want to come on to it, but we are making the administration of this thing better and it will run from about 26 centres throughout the country. The whole pension service will be run from about 26 centres so people can do this over the phone, in future they will no doubt want to do it over the internet, but it will make it easier to get than at the present time.

  216. We will come on to that but one last question I wanted to ask was in terms of the affordability that you mentioned. Under some of the scenarios, it seems to me the growth in cost appears to mean there will be a rise in the cost of GDP pension provision. Is that something which worries you?
  (Mr Darling) It is about a 1 per cent increase over 50 years, so let us get it into proportion. There is nothing wrong with making sure people have adequate incomes on their retirement. Do not knock it, it is a good social policy, and I suspect no matter what the Governments are in the next 50 years they will take the view they ought to maintain spending on the older population. Remember, in about 20 years' time the majority of the population will be over 50. There will be a hell of a lot of people who will have a lot at stake here. I do not think it is a bad thing that we are increasing spending on pensions by about 1 per cent on the long view at a time when the pensioner population will increase by 50 per cent. If it was reducing, people might have something to say about it. I just come back to the point, that the two ingredients for a pensions policy are that it is workable, which I think our system is, and it is affordable. You should look at anybody's alternative proposals with both those things in the very front of your mind. Ours is both.


  217. Just to add to that. You say the industry has raised the various scenario options. I think listening carefully to you this morning and listening to the evidence that we have had, my clear impression is that everyone is assuming that option one is the preferred aspiration because it is the only one that makes sense.
  (Mr Darling) Yes. That is another valiant attempt to get out of me something that you are not going to get. There is some spending that we can project like Basic State Pension, we can project all that out, which is what you are asking me about, the performance of our spending, we do it in three-year rounds, which is a huge improvement from what used to happen. In this particular case we gave a commitment for this Parliament, quite properly, it is the sort of thing that political parties do during the election time but it is not reasonable and in any event even if it was, I am not going to tell you because these things have not been decided; what we might do come the next election.

  Chairman: Rob Marris.

Rob Marris

  218. I am not going to try and get it out of you, unless I do so inadvertently. You have said that administration is critical and you referred to the 26 call centres and so on. It does seem from the evidence we have heard, that this system of Pension Credit is going to mean means testing half the pensioner population and that population is growing. I believe the introduction of the Pension Credit has already been delayed by six months from April next year until October next year. You are going to try to introduce fairly innovative things like for the preferred method of payment to be the Automatic Credit Transfer, are you going to be able to cope?
  (Mr Darling) Certainly I intend that we should cope. It was always intended that it should come in from the end of next year. There is a lead time in getting IT in and getting everything in place. It is up to the House, of course, but once we get Royal Assent, which I hope we will get by the summer, we have got to lay secondary legislation, it is something that we need to consult upon. It is all capable of being objected to, these sorts of regulations are. It does take time to get these things. We have to make sure, also, the administration is right.

  219. That is what I want to focus on a bit, the back office stuff, if I can call it that, without jumping the gun on Parliament's decision.
  (Mr Darling) On the time, I have always said that it would be the end of next year, autumn of next year before the thing would be introduced. I think I saw something in the newspaper last week which sought to make some mischief, as sometimes happens, about these things. I think I am right in saying I have always said the autumn of next year.

3   Note from the Department for Work and Pensions subsequent to the oral evidence session: Changes such as these which affect a number of benefits and require changes to different computer systems take time to plan and implement. We need not only to set it right but also to ensure that it fits in with our current modernisation and simplification programme. Back

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