Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 240 - 256)



  240. Is it your estimate that the take-up of means-tested benefits generally is rising or falling?
  (Mr Darling) If you ask me to cite evidence I will go back to my impression, as I said to Karen earlier, that people's propensity to take up some of the new tax credits and so on is increasing.

  241. But you have actually got no firm evidence that this is true?
  (Mr Darling) Which?

  242. The take-up of the means-tested benefits.
  (Mr Darling) I can tell you in pensions, for example, there are now two million people getting the Minimum Income Guarantee which is more than were getting basic Income Support before, so I have got that evidence. I think you were asking me generally: is it my impression that people have a greater propensity to take these things up. My impression is that it is increasing and I can point to specifics, like the Minimum Income Guarantee. People increasingly will come to regard things like the Pension Credit, Working Families Tax Credit, as they do the tax system generally. They know the tax system takes money away from people but they also know the tax system gives them allowances and credits and so on for perfectly good reasons.

  243. What targets have you got for 2005, 2006, etc?
  (Mr Darling) What we have done is we have published the figures which show what we think to be a sensible take-up assumption. My objective is to make sure that as many as possible who are eligible for the Credit get the Credit.

  244. Okay. Let us move on to a question about take-up and complexity, and there are two quotes which give completely different points of view. Baroness Hollis said in the Lords about take-up: "the pensioner does not have to do the calculating. The skill is in helping pensioners to know that there is an entitlement for them to apply for"; but Mervyn Kohler of Help the Aged said: "people need to know roughly that they are going to be entitled to a benefit before they pick up a phone". Given the complexity of the whole system now, how quickly can you be sure that the proportion of people who you believe over time will take up the Pension Credit will take it up?
  (Mr Darling) In order to deal with that, as I said to your colleagues earlier, our intention is that as somebody approaches retirement we will write to them, as we do now, telling them what their Basic State Pension entitlement is and in the same letter pointing out they may be entitled to the Pension Credit and we will explain that it comprises a guarantee if your income is below £100 next year and also explaining how your savings and your earnings can be rewarded. That second part of it does not happen at the moment, we only write about the pension, so what we will be doing is writing to people telling them of an entitlement which many people may not know about at the present time. I think that in time more people will become aware of these things. The Winter Fuel Payment, you will not find many people who are not aware of it now, is an extremely popular measure. In time you will find that more and more people will know about these things and they will say "yes, I would like it too". It does take time, it is new, that is perfectly obvious. You either press ahead and do that or I suppose you could take the view: "let's scrap the whole thing" and I do not take that view.

  245. Some of the pensioner charities who came to us complained that your Department has been "less than open" in assisting them in their role. Can you assure us that the situation will be different in the future?
  (Mr Darling) I do not think that we are. We work with a number of charities. We do not always agree but governments do disagree with lobby groups from time to time. If you take Age Concern, for example, we have had a number of very useful discussions particularly on the delivery of the Credit. I talked to Rob Marris about going to places where pensioners want to be, or find it more conducive to be, and one of the things we are looking at is working with people like Help the Aged in the premises that they work in. I think sometimes you do get people saying we are not being helpful but what they actually mean is we did not agree with the proposition that they put forward. All governments are going to do that from time to time.

  246. What are you doing to improve the take-up rate in particular among ethnic minorities? In my own constituency there are very large groups of elderly Asian people, it is a large percentage, among whom the take-up I would imagine, I do not have any figures, is on the low side. How are you going to reach that group, in particular when many of them do not even use English as a first language?
  (Mr Darling) You raise a very important matter. I am pretty sure that the take-up rate amongst ethnic minority families, particularly where there is a language difficulty, is far lower than it ought to be. The best and most effective way to do that is to work through organisations and people that these people work with on a day in, day out basis. If you come along as a stranger from the outside it is much more difficult. It is something the new Pension Service is going to pay some considerable attention to. Since you have been sitting peacefully all morning, it might be helpful if you would explain to Mr Goodman what we are going to do there.
  (Mr Gray) I think it is worth adding in the context of the Partnerships Against Poverty work, where the Department has been working with the sort of voluntary organisations the Secretary of State mentioned, that whole process is deepening and, for example, within that Partnerships Against Poverty framework it was not long ago that a special sub-group was set up with the local ethnic minority elders to try to help target support for those particular groups. There will be particular groups of the population for whom the access needs are different from the general and we will need to put special arrangements in place. It is all part of a growing programme to work increasingly deeply with the relevant voluntary sector organisations and the local authorities.
  (Mr Darling) It is not just for pensioners but in other areas as well.

  247. Last, given the fact that more and more pensioners do seem to be relying on means testing, and you are relying on means testing as a kind of mechanism, what is the absolute maximum percentage of pensioners who you think could be means tested? Do you not face the risk here that you are going to end up like the Red Queen in Alice in Wonderland running harder and harder to stay in the same place?
  (Mr Darling) You have got a choice. You either give all pensioners exactly the same or you choose to do more for people who need help most. There are one of two ways in which you can increase people's incomes.

  248. But you do not have to means test to do that.
  (Mr Darling) In order to identify somebody with a low income you have to find some means of identifying that person.

  249. You do, but means testing is not the only means.
  (Mr Darling) I know that there is an opinion, which is one that I have seen, which says that instead of doing this individually we take the view that older people tend to be poorer—it is self-evidently so—and, therefore, you pay more to an older group and not to a younger group. It is a policy which you can understand but where I think it is misguided is that you also get poorer people who are under, say, 65-75 and you get people who are over 75 who are actually comparatively well off. Of course you can target money in different ways but there is no getting away from the fact that once you decide to target, as opposed to a universal approach, you have to identify these people. Whether you identify them by age cohort or geographical groups or whatever, or whether you do it individually, you have still got to make choices. I come back to the point that the tax system is means testing in some ways because it takes account of people's incomes, it is not a new feature.

  250. That is narrower under the tax system.
  (Mr Darling) The tax system takes a much broader approach than the benefits system. The benefits system basically works on the principle that you have to be right to the last penny every week, whereas the tax system takes the view that it should be there or thereabouts every year. Gradually what we are doing is we are seeking to bring together the tax and benefits systems so that it is seamless ultimately. Where I think the Pension Credit has its strength is that it takes each individual as they are. A policy that says, for example, that we will pay more to the over-75s but not to the under-75s falls down when you have got a poor 72 year old. It is no comfort to go to the poor 72 year old and say "stick it out until you are 75 and we will give you another fiver a week". I disagree with that approach, which is what you are working on at the moment, is it not, Andrew?

  Mr Mitchell: Secretary of State, I need hardly say to you that things are misrepresented in the Guardian. The point that has been made, that you have referred to, picks up a point that was made in the excellent speech that your shadow made just before he went to Birmingham last week, where he was pointing out that means testing does have a lot of problems with it, which is a point that Frank Field has made very eloquently, and that there is an alternative which is to target funds at particular groups, and he singles out in that speech those with young children and the elderly who, as you rightly say, are an element of society who tend to be less wealthy than they were earlier on in their lives and in their careers. Moving aside, can I move on to—


  251. We have got one further very important area, we are about to run out of time, but could I prevail on you for another ten minutes maximum?
  (Mr Darling) Yes. I was looking forward to getting stuck into the Conservative Party policy.

Mr Mitchell

  252. Secretary of State, we are not here to debate Conservative Policy.
  (Mr Darling) Just as well for you, Andrew. What is your question anyway?

  253. I wanted to pick up a point that you made earlier about the fact that pensions are a very long-term business and, therefore, consensus where it is possible is enormously important. I remember I was a Government Whip on the 1994 Pension Bill where a little known junior Social Security Minister, William Hague, took it through against Donald Dewar. It was an enormously comprehensive piece of legislation but it was characterised by a consensual and constructive approach. It seems to me that, in so far as one can do this in pension policy, it is enormously important, and I would underline that point. You were saying earlier on how difficult it is to get younger people to focus on a need to make provision and it is much more difficult, of course, if the parties across the House of Commons are disagreeing on what is the right way to make provision for the future. Looking really at the Pension Credit, which again, as you said, in the Lords has been welcomed by a number of your predecessors from my side of the House, it does have a number of very valuable points but it seems to me that perhaps the most difficult point with it is its complexity. There are a number of points I want to make briefly but it is its complexity; it is enormously hard. I have sat through this inquiry learning a great deal about it and it does strike me that almost all the people who are going to be taking advantage of the Pension Credit are going to be reliant on the methodology that is given to them by the Department. It is very difficult indeed to understand. This complexity goes on in a number of other ways as well. Those who are engaged in selling pensions, and we heard from them, have pointed out that it is an extra layer of complexity to an already bewildering system of state pension provision for them, as well as for those who use it. One of them said to us that "Planning for retirement will become even more hazardous and many people are likely to conclude that it is more sensible to spend their money while they are young and let the future take care of itself." It does seem to me that this is a real danger. Do you agree? What steps are you planning to take to try and mitigate it?
  (Mr Darling) You asked a very long question, which had a number of bits to it, and I am wondering which bit you are inviting me to agree with. Can I just make a couple of observations and then I will come to your last point. On the political consensus point, as you will know from your past experience, a lot of people out there, the industry in particular, say "would it not be much better if the two parties could agree?", and I am sure if the Liberals joined in that would be absolutely fine as well. It is worth bearing in mind that actually in Britain there has been a fair degree of consensus on quite a lot: that essentially there should be a state element, there should be a private funded element, occupational pensions have had cross-party support for years. Even if you look at matters like the basic floor, Income Support or Minimum Income Guarantee, there has always been an agreement, from both political parties, that it has got to be somewhere. We will argue about the amounts, and those sorts of things will always endure, but essentially if you look at some of the main features of the pension system, they have endured for a long time. Of course there have been changes but essentially there has been a degree of consensus. Obviously if you can get cross-party agreement that is okay, although as you well know cross-party agreement is not necessarily a guarantee of success. The Child Support Agency circa 1993 is a superb example where a bit of opposition, and I say that at our own expense, might have been time well spent. I also think, to be scrupulously clear about this, you mentioned the Pension Bill in 1994 where there was a lot of consensus between Donald Dewar and William Hague, so in other words when we come to re-look at some of that stuff where both of our parties with the best possible intention maybe have imposed a layer of regulation that has not been effective and, therefore, it is in the interests of all parties to look at this thing again. Your point about consensus is okay although we will part company from time to time. We will wait and see, this is not the place to discuss your policy, there will be plenty of other opportunities to do so and I look forward to each and every one of them. On your more general point, the complexity point, which comes back to a point that Karen Buck was making, it is possible, I suppose, to have a very simple system but the difficulty with simplicity is you can end up with a hell of a lot of losers. Remember, a lot of the pension system has grown up for different reasons at different times and if you suddenly say: "let us strip it out and go back to a pretty basic pension and you are on your own after that" you will end up with losers and my guess is that would not be sustainable. I think the system in this country at the moment, where it is quite clear what the state will do either in a Basic State Pension or S2P and you give people the choice of going into a company pension or a private pension and all the rest of it, that is fairly well understood. I also think, despite the valiant attempt by the two of you to try and say that the Pension Credit is maybe a step too far because it is awfully complex and all the rest of it, I just do not think that stands up. The basic philosophic concept of saying, "if you save some money, you earn some money, we will give you a credit for it", is a fairly straightforward concept. My guess is that as we introduce it from next year, as it builds up and people can see the difference it makes, I think people will concentrate not so much on the wiring behind it but on what it actually does. Just as I defy anyone in this room to take us through the tax tables or to take us through how you actually calculate your Basic State Pension, to which each and every one of us in this room will no doubt be entitled, I think what people are more concerned with is what is the outcome here and as the outcome becomes more apparent then I think the acceptability, the desirability of the measure will become more apparent.

  254. Will you at least bear in mind the point was made by those who are involved in the private pension industry, and I read the quote from one of them, basically saying it is getting so complex now, so difficult to advise, that it is almost an encouragement to adopt the old policy of eat, drink and be merry for tomorrow we die.
  (Mr Darling) Do bear in mind that you will find people in the industry who would very much like us to have a situation where there is a Basic State Pension at a fairly low level because it makes selling a damn sight easier, because they would say "you have got to buy one of our products" even though it may not be the best thing for that person. I take the view, and I do not know what your view is on this, for someone on a low income, or low-ish income, they are probably better off in the state system than in a funded system because they are never going to save enough to make it worthwhile. There is a view out there, and some salesmen will tell you, "if you did not have that floor or these things then perhaps people would buy funded pensions" but I do not think that is the right thing for them to do. What I can say the Pension Credit does is it does remove the dilemma for a number of people because even if you save a modest amount, if you were getting ten quid a week in your pension, the Credit will give you more. That removes one of the disincentives, one of the problems that was facing people selling products. If you want to look at complexities and things, as I said to you earlier, I think you would be far better looking at how we can strip away some of the regulatory complexities, the tax complexities, to make these products easier to sell. At the moment selling someone a pension is very, very difficult, as you probably know. I once asked one of the companies in Edinburgh, when I was in Opposition in fact, to take me through the process and after two hours I could take no more of it, and this was just a pretend attempt. I think when you get to that stage you really have to ask yourself whether or not that complexity can be justified. Those complexities are a more serious barrier to selling than the fact that you have the Pension Credit which, as I say, removes some of the disincentives from the system.

  255. Let me ask two final questions which are more directly related to the matter before us today. Can you tell us how the Pension Credit and the State Second Pension complement each other? I ask you that point in the light of something that Andrew Dilnot said when he came to talk to us because he told us that he could not see the State Second Pension lasting much beyond the introduction of the Pension Credit. Do you suspect that he is right?
  (Mr Darling) No, and I will tell you why. Remember, most people will not be in one sort of pension throughout their 44 years of working life. If you take, for example, somebody who leaves university, they work four or five years for, say, a local authority, so they have got some local authority pension scheme rights, and then they take time off to have children for four or five years or so, what will happen to that person is they will have access to the State Second Pension then. We assume they earn £10,800 a year at today's prices so they get four years' worth of pension there. Then they go into a private company, so they have got some occupational rights. Later on they may take time off to look after an ageing relative or something like that, back into S2P. So when they come to retire their pension income will be made up of a number of sources, as many people in this room will find they have got a bit of SERPS, for example, as well as a bit from occupational pensions or whatever. The reason I mention that is I think people fail to take account of the fact that whilst some people might be on the State Second Pension all of their lives, there will be other people who will come in and out of it depending on what is happening during the course of their working life. The fact is that 18 million people will gain from S2P, people with broken work records, people who are carers, people with disabilities and so on, and it is an important part of our strategy to help people build their pension entitlement up. Of course S2P is creditable, is rewardable, just in the same way as your company pension or your private pension or whatever. I think what some people fail to understand is they tend to look at these things as if you will be in S2P all of your life. Some people will be but I think most people will come in and out of it. The other thing about S2P that is worth bearing in mind comes back to the point the Chairman asked right at the start. If you remove the State Second Pension two things would happen. One is you would remove at a stroke the underpinning of the company pensions because they are funded, as you know, on the contracted out rebates, which is a proposition that I find difficult to understand, especially at the present time. The other thing is if you do not have one there when someone might be advised that their private pension is not quite right for them, where do they go if you do not have it? I do think you need both.


  256. Thank you very much.
  (Mr Darling) Is that it?

  Chairman: That is it. I am grateful to you. We hope to get this Report in time for the Commons stages, as I said earlier, and your evidence this morning has helped us enormously to do that, so thank you very much. Again, our best wishes to the Minister of State.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 12 April 2002