Select Committee on Work and Pensions Appendices to the Minutes of Evidence


Letter to the Clerk of the Committee from Thomas M Ross (PC 20)

  Dear Mr Moon,

  I should first explain that the Pension Provision Group (PPG) has ceased to function, following the publication of its final two reports, on Pensions and the Labour Market and Pension Provision and Self Employment respectively. The Group are not, therefore, in a position to respond to your request for evidence, but I wanted to take the opportunity to make a few comments in a personal capacity.

  The PPG took a keen interest in the original Pension Credit proposals. Whilst welcoming the prospect that many of today's pensioners would gain from the proposals, we were concerned about their possible effect on the Government's long term strategy for pensions as set out in the 1998 Green Paper. Our specific concerns included:

    —  the Credit, as proposed could lead to less, not more, savings;

    —  the interaction with Housing and Council Tax Benefits was unclear and the benefits of the Credit (and its cost) would depend greatly on what was decided;

    —  difficulties of ensuring a good level of take-up of the Credit;

    —  the arrangement, as described, could encourage people to retire sooner;

    —  couples and those delaying receipt of their State basic pensions would be treated adversely;

    —  taking account of actual income from savings could lead to anomalies;

    —  the effect of the Credit makes it important that the self-employed are brought into the State Second Pension.

  We therefore proposed modifications that would make the Credit more of a transitory scheme, leaving universal State pensions to be the main driver of policy in the longer term.

  I believe that the Government's final proposals move some way towards meeting the PPG's concerns. In particular:

    —  as I understand it, the Bill is drafted in a way that de-links the starting point for calculating the Credit from the basic State pension after 2003. This flexibility would give future Ministers the opportunity to make the Credit a transitory scheme as the PPG envisaged;

    —  income from savings will be reckoned on a notional basis and the deemed rate of return of 10 per cent seems to me to allow reasonably for a running down of capital;

    —  Housing and Council Tax benefits will be adjusted on the lines of option C of the PPG's response;

    —  the combined amounts of the basic State pension of couples, in excess of the couple rate, will attract the Credit; so will increments for late commencement;

    —  the age from which the Credit becomes available will rise in line with the women's State pension age.

  I trust that these observations will be of interest to the Committee. I look forward to seeing its report in due course.

Thomas M Ross
Principal & Actuary
AOL Consulting

14 January 2002

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