Members present:

Mr Archy Kirkwood, in the Chair
Miss Anne Begg
Ms Karen Buck
Mr Paul Goodman
Mrs Joan Humble
Rob Marris
Mr Andrew Mitchell
James Purnell
Andrew Selous
Mr David Stewart


Memorandum submitted by The Department for Work and Pensions

Examination of Witnesses

RT HON ALISTAIR DARLING, a Member of the House, Secretary of State, and MR PAUL GRAY, Head of Pension and Disability Client Groups, Department for Work and Pensions, examined.


  1. Good morning, ladies and gentlemen. Can I call the Committee to order in the formal proceedings this morning. We are delighted to welcome the Secretary of State for Work and Pensions this morning. The first thing I would want to say is that I hope, Secretary of State, that you will be able to give our best wishes to the Minister of State who was originally scheduled to do this. You have very kindly agreed to fill his slot and I trust that it will not be long before he is back, fit and well, and able to get back to his ministerial duties. In that regard, we are particularly grateful to you for picking up the report which is actually technically quite complicated and these are difficult matters. We have had some very good evidence from the pressure groups and some of the experts. The intention really that the Committee is seeking to achieve is to try and inform the process of the Standing Committee and the legislative stages when the Bill comes back from the House of Lords as it will probably, according to business managers, some time after Easter. It might help if you could perhaps start by saying a few words, maybe describing the work that Paul Gray does within the Department as that would help as well, and whether there have been any changes or any changes that you perceive as a result perhaps of proceedings in the House of Lords, if any, and make a short opening statement and then we can start with some of the questions that we would like to address to you this morning.
  2. (Mr Darling) Well, thank you very much, Archy. Firstly, thank you for your good wishes. I am quite sure Ian will come bouncing back very shortly. All of us know Ian very well and know that he will be only too keen to be getting stuck into this Bill when it comes to the Commons, which, as you say, is not too far away, so thank you for your good wishes. I have Paul Gray with me. Paul, as I think the Committee is aware, is in charge of overall pensions policy and strategy and has overall responsibility for that part of the Department. As I have told your Committee before, from the beginning of April the Department will be effectively run along client focus groups. There is the working age side, which we have discussed in the past, the pensions side, which exists alongside the Child Support Agency, and Paul is in charge of pensions. At some stage during the course of today's hearing, you may well want to ask me about the Pension Service which is fairly critical to take-up and making sure that people actually get their entitlement, and I will be happy to do that. I would perhaps also indicate, though it is possibly self-evident to everybody, that if the Committee Members want to ask me anything else about pension policy, then I will be more than happy to do that since you have got to look at the pension policy in the round and you cannot just look at one bit on its own. On the Pension Credit, perhaps it would be helpful if I just remind the Committee where we have come from on all this. In 1998 we published a Green Paper which set out our proposals for reforming the basic pension system in this country. The first priority that we had was to tackle pensioner poverty and that is why we introduced the Minimum Income Guarantee which of course is absorbed into the Pension Credit. The second thing that we wanted to do was to reform the basic structure of the pension system in this country, reinforcing the State Second Pension, with SERPS becoming the State Second Pension which becomes operational in April, and I may say on that that I do think it is very important that the partnership between what the state does and what individuals do is absolutely essential to the future of the pension system. I believe you need both and you need S2P. We have also made saving possible for people for whom it was not possible in the funded sector with the introduction of stakeholder pensions because we should always remind ourselves that whilst occupational pensions are a very important part of pensions, a lot of people have never had access to them and the stakeholder pensions have given them access. The third stage is of course to make saving pay and that is what the Pension Credit does. It is worth reminding ourselves that one of the fundamental flaws of the social security system since 1948 and probably actually in the days before that is that if you actually did what successive governments asked you to do, and that is to make provision for yourself, very often you could find that the state, far from rewarding you for your effort, actually penalised you because of it. The Credit changes that system round and it is done to make sure that if you go that extra mile and you save a , we give you something rather than saying, "Hard luck, you're not getting any help at all". For the sake of completeness, the next stage which we have already embarked upon is that this autumn we shall be publishing proposals which I think will represent quite a radical assault on the complexity of the system with regard to the funded sector. I said before that I think the system is over-complex and for all the reasons I understand successive governments have perhaps tried to regulate themselves out of problems to the extent where it has become counterproductive, so what we will be doing is publishing proposals which will build on the Pickering Report and the Alexander Report, both of which we will have by June of this year and then we will publish proposals this autumn which I think we will re-consult on because we will need to take people with us. What you have got are reforms which started in 1998 which reinforce and reform the partnership between state and individual, we have made saving for people by extending options like stakeholder options, the third stage is the Pension Credit and the next stage will be that simplification. The last thing that I would say to you is that I think the Pension Credit I regard as being absolutely essential to underpin all pension policy. Not only does it tackle pensioner poverty by introducing the guaranteed minimum, but I really want to emphasise that to go back to a system that actually almost builds disincentives into the system seems to be fundamentally wrong. It will benefit nearly half the pensioner households in this country by topping them up by 400 a year, but actually I think it is a major step forward in our social security reforms. So that is really what I want to say at this stage by way of introduction. I have not the slightest doubt that you and your colleagues will want to question me further on that and other aspects of pension policy.

  3. Well, I am grateful that you are willing to discuss things in the wider canvass. I want to come later on to the role that the State Pension Credit will play in the strategy and that is an important part of this inquiry, but we are all very aware that the Government's overall pension policy is under almost daily assault from press reports, like today in the Financial Times talking about the rebate levels of the S2P and whether that will achieve the Government's targets of getting people to make more private provision. People are allegedly being advised to go back into the state sector. Surely this demonstrates that there is at least in some of the professionals' minds in the industry some incoherence in the Government's plans. A lot has changed since 1998 and I just wonder if you think that the long-term plan, and there has got to be a long-term plan to succeed, is actually coherent.
  4. (Mr Darling) It sounds like a conversation I had with Mr Humphreys a couple of hours ago. Let me just go through what is happening at the moment and then if somebody does need some technical explanation, but I think it is a relatively easy concept. As you know, at the moment if you do not do anything, you are in the state system. You pay your contributions, you build up an entitlement to the basic state pension and if you do not contract out, you build up your entitlement to SERPS and, from the beginning of April, what becomes the State Second Pension. That is the starting point. If you have an occupational scheme or if you choose to go into a contracted-out private pension, then what you do is, in crude terms, you get your National Insurance out of the state system and you pay it into your private pension. What you see in the FT today affects people in private pensions more than company pensions because they are operated differently, but every year people who operate private pensions are dutybound to ask themselves whether or not it is right for that individual to stay in the private pension or whether or not they might be better coming back into the State Second Pension. What is driving all this, and indeed separately and for different reasons from what you read about company pension schemes, is largely because of the fact that the Stock Market has fallen in value very substantially for reasons which we are all aware. That brings me to the first point, that just as you should never make pension policy in response to day-to-day headlines because pensions are a long-term business and we will not make policy on that basis, we set out a course in 1998 which we have consulted on, which I believe is right and which we will stick to for the avoidance of doubt for anyone listening to these remarks, but, secondly, you do not reach a decision because of what the Stock Market is doing in any one particular day and somehow you need to start weaving here and there, but what is happening at the moment is that companies are for understandable reasons, and they do this from time to time, saying to you that some people ought to consider whether or not they should stay in their private pension or go into the State Second Pension. Some of them will actually be better staying where they are and some of them might be better coming into the State Second Pension. There are two points to be made here: firstly, everything they have saved in their private pension is still there and will be there with them when they retire; but, secondly, when they come back into the State Second Pension, they will be able to continue to build up entitlements under that. I do think it is an opportunity for me to re-emphasise the importance of the State Second Pension. If it was not there or if we removed it, as some people have urged us to do, then the people we are talking about would be in the uncomfortable position of being stuck in this funded pension whether or not it was good for them and that is why I think the S2P is important. Now, it is worth also bearing in mind that every five years the government actuary advises the Government as to what the rebate level ought to be and it is also fair to say that every time he does it, the cry goes up that it is not enough. We did increase it this year on his recommendation and something like 1 billion will go into the system in the next five years or so. I referred earlier to the review that we are conducting and the recommendations that we will publish later this year. One of the things that I think will come out of that is that the simplification that I think we are going to be likely to be proposing is that an awful lot more money is available to go into the pension pot rather than to the bureaucracy of running the thing which I think will be a help. What I would say as far as today's FT story is concerned is that we knew some time ago that this was likely to happen mainly because the Stock Market has been falling and it does happen in any event, and it happens in a number of years, but I do think it is perhaps a justification for us having a State Second Pension into which people can go to continue to build up their pension entitlement towards retirement. The last point on this is that you said I make no bones about the fact that I want over the long period to move more people into funded pensions because I think in the long term they will be better off, but you will find over the next 50 years the Stock Market will go up and it will go down, but we do not change our pension policy simply because of today's headlines even in such an august paper as the FT.

    Chairman: I am sure the Committee will want to pay careful attention to your consultations on simplification and indeed return to the wider picture, and that has been very helpful as an overarching statement, but let's just concentrate on the details of the evidence we have received and Pension Credit at the moment.

    Miss Begg

  5. If I may look at the issue of what we are receiving, you will be pleased to know that much of the evidence that we have received broadly welcomes the Pension Credit, especially for the way it rewards small-scale saving. However, there is one issue that has been repeatedly raised with us and that is the treatment of those without a full basic state pension. Your own Department estimates that there are a quarter of a million pensioners who will be affected by the ruling which says that if you do not have a full basic state pension, your savings are rewarded by the Credit. Can you explain the reasoning behind this aspect of the proposed calculation method?
  6. (Mr Darling) Yes, it actually goes back to discussions I have had with, I think, you and your predecessor Committee on the social security side and that is that one of the features of the contributory scheme is that if you do not contribute, you do not get something out of it. What the Pension Credit is doing is rewarding thrift, saving over and above what people put into the basic state pension. There are people who do not have an entitlement to a basic state pension because they did not make the necessary contributions. Now, if we got ourselves into situations where we rewarded people, in other words, they did not put enough contributions in to get their full basic state pension, but they had other savings, we would be rewarding them for that, whereas what we really want to encourage people to do is to make their contributions into the basic state pension in the first place, so that is the rationale behind it. My guess, Anne, is that over the years it is likely to be less of a problem because of course since 1978 it has not been possible for people to opt out and the people we are talking about to a large extent are people who have paid the married woman's stamp, as it was known in the old days. Now, people do pay their full stamp, but of course people in that position do benefit in other ways because the Credit does two things in that it tops your income up as well as rewarding savings, so somebody in that position, if they qualified for the guarantee, would have their income topped up, so they do get something out of it. The rationale and the answer to your question is that we wanted to make sure that we rewarded thrift rather than go back to the situation where we were rewarding someone who had not actually done what they were supposed to do and that is to pay their contributions towards the basic state pension.

  7. But does that not undermine the other state policy which you mentioned in your opening, that the aim of the Government is to reduce pensioner poverty because the very people who are pensioners are the ones who do not qualify for the full state benefit and the ones with perhaps a low work record, and have been carers and are often indeed women, so does that not undermine that basic principle?
  8. (Mr Darling) No. If you take a woman who has not got the full basic state pension and, say, she was getting 60 a week, she would qualify and probably someone in that position will not have millions of pounds in the bank or anything like that. If she qualified for the guaranteed elements, it would bring her basic income up to 100, so the Pension Credit works in two ways. There is the measure that is designed to tackle poverty with the guarantee element because it says, "Here is the floor which you should not drop beneath", and then the second part of it is the savings element, but we wanted to avoid a situation where if somebody had not paid their full contributions, but for some reason or another they had got savings and they said, "Why don't we get some credit for that?", so what we wanted to do was to make sure that the assumption is that if people do pay their full contributions, we top them up as necessary and then we credit the savings over and above that. That is the rationale behind it, but there are two ways in which we deal with pensioner poverty. One is the Pension Credit, but you also mentioned people taking time off for caring and I come back to the S2P coming in from April where 18 million people gain from that, including carers, so that for the first time ever from April somebody who takes four years out to look after their child or a parent or an ageing relative or something like that, we assume that they are earning 10,800 a year. Now, that never, ever happened in the past and obviously that takes time to build up as the S2P is just coming in. I think we are doing a lot to deal with the underlying causes of poverty as well as dealing with people who over the years did not have the right contributions, but we will top them up, but the Credit element, the reward element, if you like, is applied to savings over and above that.

  9. But obviously the majority of people who fall into that category are already retired and are probably women, so it has been said that the Pension Credit will be of considerable help to women, but for retired women it will not really help them.
  10. (Mr Darling) Well, over half the people who benefit are women and my recollection is that half of those are over the age of 75, so if you look at who gets the lion's share of the gain of the Pension Credit, they tend to be older women who are precisely in the position that you refer to.

  11. What do you say to pensioner groups who actually say that the reduction of pensioner poverty is not the main aim of the Credit?
  12. (Mr Darling) Well, there are two aims. One is to continue to provide a means of tackling pensioner poverty because many of these same groups for years campaigned unsuccessfully, I may say, to get governments to do more for people on low incomes. The Minimum Income Guarantee started that and that is subsumed into the Pension Credit, so they get the guarantee. The second purpose of the Pension Credit is to reward thrift, so that if people, and half the pensioner households in this country are in this position, everyone of us representatives have been in the position where you meet somebody who has got a small works pension or they have inherited something from their husband and they are really fed up with the fact that they get nothing and the Pension Credit will change that. It is always the case that groups will say that you ought to do more, and I will be surprised if we ever get to the situation where that will not happen, but I do think that the Pension Credit is a major step forward in terms of poverty and rewarding thrift. Both are reforms that are long overdue and I am glad that many people who have supported us, particularly in the Lords, were Members who were not of our Party, but who could see the merit of it.

  13. So basically you are saying that the whole point of the Pension Credit is that you can say to someone, "It will always pay to save", but if you take the evidence that the Association of British Insurers raised with us, it is also to do with those who are not on the full basic state pension where they felt that it would be much easier for them in trying to sell the idea of the Pension Credit if they could always say in every case, "It will always be better if you save". Adrian Boulding of the Legal & General told us that stakeholder pensions, in particular, were sold to 'generic' groups, such as one firm's employees gathered in a room for a presentation and the individual advice in these circumstances cannot be given. Do the regulations that we have been discussing not make it impossible for him to say to everyone in that room, "If you save money, you will be better off in retirement"?
  14. (Mr Darling) Well, I think that what you are saying there is a slightly different one. There is always going to be a matter of judgment and a matter of advice as to whether or not an individual earning about 11,000 a year would be better off staying in the State Second Pension or perhaps buying a stakeholder pension, even someone just on the margins, because you have to take a view as to whether or not you will always be on that salary or whether you are simply travelling through and upwards, if you like, and that has always been a matter of advice. There is no system in the world that can get away with that unless you say that there is no choice in the matter, ie, it is all state or it is all private, and certainly I think that would be fundamentally flawed if you went down either one of those two extremes. On the Pension Credit, the position is though that if you qualify for Pension Credit and if you have a of saved income, then you get a credit for it. What I wanted to do was to get a system whereby I could say to somebody, "Even if you save a small amount through your stakeholder pension, through your works pension, whatever, your earnings, we will give you some reward, some credit for having done that". That is what the Pension Credit seeks to do. The Legal & General have been one of a number of companies who have said it has made all the difference. If we had not had it, then a lot of people could legitimately have said, "Well, I'm not sure. Is it worth saving into a pension?" The Legal & General have made it very clear that it has made a big difference, but the point you raise now I think relates to whether or not you should advise somebody on a low income, particularly somebody who has been on a low income throughout their working life, as to whether you advise them to go into a funded pension. I have said time and time again that I do not think people on low incomes will, generally speaking, do well in a funded pension, but that is a judgment that they have to reach as individuals.

  15. Can I just be clear that you are actually saying that when you are saying, "It is better to save", it is actually better to save through pensions, not just save if you have not paid your National Insurance contributions?
  16. (Mr Darling) It is better to save and I want people to save through pensions, I want people to save through ISAs, for example, and 12 million people are saving something like 60 billion now through ISAs, a lot of them low-paid people, or if they work into retirement, I want them to be rewarded for that as well, but the philosophy of the Pension Credit is that for the first time in the social security system to make sure that where people make the effort, where they have been thrifty, they actually get something for it. Now, that is a fundamental break from the past and that is what it does.

  17. Perhaps I can bring up the issue of the notional rate of income on the savings. Many of the witnesses welcome the halving of the notional rate of income in the Credit proposals compared to what was under the MIG, but we have now received representations that 5 per cent would be a fairer estimate of the actual return on savings at present. Would you consider a lower notional rate for the Credit's calculations?
  18. (Mr Darling) Well, as I said, you will always get people coming up with strategies for more, but can I just perhaps make one point here which I think is important. What we are doing is we are disregarding the first 6,000 worth of savings and that covers 841/2 per cent of pensioners. Now, 841/2 per cent of pensioners today do not have 6,000. If you look at the people who have, say, under 10,000/11,000, that is something like 93 per cent, and what we have done is we have halved the rate, the notional rate. Some of you may recall that when we started off on this, when I made my statement to the Commons, I actually was attracted to dealing with the actual rates, but I was persuaded by Age Concern and by others that this would be over-complicated for people to work out, so that is why we have gone for a reduced and far more realistic notional rate. If you take somebody with 8,000, bearing in mind that you are ignoring the first 6,000, the actual rate, the equivalent rate is something like 2.6 per cent, so I think when you take into account the disregard, the rates for the vast bulk, I think probably under 95 per cent of people, the equivalent rate will be less than 5 per cent, so I think we have gone a long way, and I have to review these things every year anyway, but I think we have made a significant improvement there.

  19. As long as there are low interest rates, then obviously the pensioner with savings will seem to be clobbered particularly hard because 10 per cent is not ----
  20. (Mr Darling) No, but, Anne, remember that you leave the first 6,000 out of it, that is disregarded, so if you take the equivalent rate on your savings of, say, 10,000, then that equivalent rate is 4.2 per cent because you have taken out 6,000. Now, under the original scheme of our proposal, you would take all of those savings into account, so I know these things are complicated, and if it is any help, I would be very happy to let you have a table which shows what the equivalent rate is. I have got one here, and I have scribbled all over it, nothing offensive, but ----

  21. So that would give the equivalent rates including the disregard?
  22. (Mr Darling) What it does is it shows you a level of savings, an assumed level of savings before and after, if you like, but it shows how, by ignoring the first 6,000, your equivalent of interest rate is actually less than 5 per cent for, I think it is, something like 95 per cent, or it may be 94 per cent of people. Now, I would be happy to let you have that. It is also worth bearing in mind that if you are a single person and all your income was from capital, you would have to have more than 35,000 in the bank before you would exhaust your entitlement to Pension Credit. I think when you look at this and when you come on to it and perhaps other questions that your colleagues might put to me, this is a huge benefit to something like half the pensioner households in this country. It is worth reflecting on that, so that when people start criticising the thing, it is a big, big social reform here. I would like to say a lot for the future, but you would not expect me to be making promises that I could not identify at this stage, though I do look at these things every year, but I do think that if you look at the actual equivalent interest rate, it is a lot less than people who are campaigning for the 5 per cent figure will settle for, I suspect.

    James Purnell

  23. I have a quick supplementary on the entitlement to the basic state pension. As you know, one of the groups that do not build up an entitlement so easily are foster carers who do not get home responsibilities protection and there are those people who are taking time off work to look after their own children who obtain child benefit and, therefore, automatically get home responsibilities protection. Ian McCartney has written to a number of us saying that he is in discussion with the local authorities and others about whether the situation for foster carers can be looked at so that they can have extended to them the same protection. Is that something which you can look at through this Bill or is that something which you are progressing on in another way?
  24. (Mr Darling) That will not be in this Bill. Indeed your predecessor Committee, I seem to remember, conducted an extremely long inquiry and you arrived at the conclusion which was the same which I think most of us felt that probably a blend of all these things, contributory, means-tested, and the rest of it, is the right way to go. One of the contributory purposes is that if you do not contribute, you do not get anything out, other than a means-tested entitlement at the end, so yes, we will look at it, but I do not think it will be in this Bill.

    Ms Buck

  25. I am a big enthusiast for the Pension Credit for today's pensioners, but I think one of the issues that we need to be convinced about is the impact that it is going to have on incentives for today's working population to save. You will know of the criticisms of the Bill and of the Credit and they tend to concentrate on the complexity of it and the difficulty people might have in working out calculations, and of course whether the amount itself is going to be sufficient to act as an incentive to save. Age Concern's MORI poll which they produced as evidence to us supports some of these concerns, saying that 70 per cent of people "had little or no confidence about their income in retirement". In the memorandum, you yourself was a little bit less than robust in talking about the confidence that people have in planning for their own retirement, saying, "With the introduction of Pension Credit it will be possible to make a reasonably positive statement that for most...people, most of the time, they would be better off saving for retirement..." I just wonder is that going to be sufficient to get a 36-year-old working at The Gap to think, "Blow me, this Pension Credit fund is going to reward me for savings, so I had better get myself down to start sorting out a pension"?
  26. (Mr Darling) Well, you raise an important matter. One of the big challenges for any government is how to persuade a 26-year-old or a 36-year-old that they ought to part with their money today for something they are going to get some time in the future because if it comes to a choice between a Friday night at the club or the pleasure of contributing to their pension fund, most people will choose the evening in the club. Indeed if you start to engage many people on pensions, it is one of the best ways of clearing a room. When Beveridge talked about slaying the five giants, with pensions you could add a sixth and that is sheer boredom. Now, it is quite clearly in every government's interest to encourage people to save. I am very robust on the Pension Credit, as everything else about pensions and do not read too much into it when these submissions are couched in more legalistic terms and so on, but I am very robust about it because I think that it makes a big difference. We can say to people, "Look, if you save something, even if you save a small amount, then it is worth your while to save". You actually raise quite a fundamental point which I would like to address. There is around a school of thought which says, "Because you have got the basic state pension, because you have got the State Second Pension, because you have got the Pension Credit, you have got company schemes, you have got group personal pensions, you have got private pensions, you have got stakeholder pensions, this is all terribly complex, so would it not be much easier if you just had a very simple system which was the basic state pension and then you are on your own after that?" Well, I think you need to be aware of people who say that there is a simple solution to these things. If someone tells you that with pensions there is a simple solution to these things, then you should start watching them very, very carefully indeed. I do not subscribe to the view that the only way to get people to save is essentially, in crude terms, to almost starve them out, to say, as in Victorian times, "There is absolutely nothing for you here, except the workhouse, so with that in mind, that is the real driver to get you to save to improve yourself". No government actually since the Second World War has accepted that, and Conservative governments, Labour governments, they have always had a floor, whether it is called income support or whether it is now the Minimum Income Guarantee, but they have always had a floor and the Government has reached the view that that is the floor, beneath which pensioners should not drop. Now, there is an argument to say that the minute you do that, you have taken away the incentive to save. Now, I do not accept that and I do not think any government actually would accept that, no matter what political colour that government happened to be. I do think though, having installed the floor, which the 100 Minimum Income Guarantee does, you need on top of that to have something like the Pension Credit which is why we have introduced it to say that, "When you do save a over that, you are not running the risk of disqualifying yourself from all state help", which is how the current social security system works, "but instead, you save a and we will give you 60 pence", and that incentive is then built into the system, so I do not subscribe to the view that if you have stripped away everything else and you had a simplistic approach with your basic minimum amount and everybody defends themselves, I do not think that would work and I do not think it would be fair. I think there is a broader question of how you get people to save, full stop, and my view has always been that a one-size-fits-all approach would never work and you have to take people as they are. We should build on what does work in this country, which is the funded system and the State Second Pension as well, but I think over-simplistic approaches to these things, they may be fine for an academic paper, but they do not make much sense for people in this country or for pension policy, for that matter.

  27. Sure, I understand, but you are really asking people to fire at a very small and moving target, are you not? On what evidence would you say that you bring about a behavioural change on the basis of the principle of a savings increment? What is the evidence for that?
  28. (Mr Darling) Well, it is not introduced, so you cannot point to it saying, "This will change people's behaviour". I think a lot of these things are intuitive. What I am very clear about is that if we maintain the present system, and it is fairly widely known how the social security system works in general terms and people understand that there is a floor and you qualify for that provided you have got less money than whatever the total happens to be at a particular time, that in itself is a disincentive if we did not do anything about it because people say, "Well, if I make an extra effort, I lose out on all that help". We have all met people like that who say, "I have worked hard all my life and I get nothing. The guy down the road was feckless and drank all the money and he is getting all this help", and so on. The Credit stops that from happening. Now, it takes time for people to become aware of these things, but just as with the Working Families Tax Credit, for example, which self-evidently no one could have heard about five years ago because it was not around then, it is starting to get around and the word on the street is that there is extra help and if you go to work, you are better off and you get help for doing it. These things take time to build up though, Karen, particularly in pensions where, as I said to you, engaging anyone on pensions is a difficult enough task as it is, but I think basically most people currently understand the contract. The state will do some things for you, but frankly most people would be better off making that extra effort and doing something for themselves as well.

  29. Of course you are right and it does take time to build up, but there is a very fundamental difference here and that is what the Government is thinking about doing, not what it will do. The Working Families Tax Credit is a take-up issue and somebody is going to ask questions about take-up later. There is a world of difference between promoting a benefit which people can ring a hot-line and get, which will be the take-up relating to pensioners, and promoting a message which says, "In 20 years' time or ten years' time if you take this particular path, then something will be here to act as an incentive for you". That is an entirely different issue from take-up and, therefore, you have got to keep control, I think, as the Government, of how you educate people about taking steps which will lead them to a particular outcome in 20 years' time.
  30. (Mr Darling) Up to a point. Firstly, before you do anything else, before you approach the population, if you like, you have to make sure that your basic structure is right, that the way in which you save, the stakeholder itself, and privately funded pensions are right to make sure that you have got the right incentives and rewards built into the system, so you have to get that right first of all and I think we are doing that. You then have to approach the population and say, "This is what we have got and this is what you ought to do". Now, you are right that somebody in their 20s will not be receiving a pension, let alone the Pension Credit for many, many years. However, when the Pension Credit starts to come in, the present generation of pensioners, about half the pensioner householders in this country, will be affected by it and they will know about it, they will talk about it, not just amongst each other, but they will talk about it with the younger generation as well, but it takes time to build these things up. It is worth bearing in mind, and I am happy to give you this piece of paper as well, and a lot of people will tell you that the basic state pension is dead easy. Have you ever explained to somebody how it is calculated? Let me just read the first page of the manual which we give our staff: "What you have to do is as follows: you have to consider for each week of employment whether class one National Insurance contributions have been paid above the primary threshold of earnings or whether they received above the lower earnings limit but below the primary threshold or whether it did not exist because the ones available are actively seeking work and capable of work and caring for a child and in receipt of full responsibilities protection..." and this goes on like this. It is not simple at all. The wording behind the pension is quite complicated, but the basic principle of there being a basic state pension floor plus a Pension Credit which is designed to reward people's savings I think it is a fairly straightforward one. If you ask me the broader question, "How do we engage the 20-somethings and 30-somethings to think about their pension?" I think you have to get the structures right, so there are other things you need to do to make sure that your incentives are right and to make sure that the tax system works appropriately and you have got the right products. I mentioned earlier ISAs. There are lots of people around who were very critical when we introduced ISAs and said that we would never sell them, but 12 million people have got 60 billion worth of assets in ISAs and it is worth bearing in mind that quarter of the people who bought cash ISAs have earnings of about 11,000 a year. It takes time, but I think there is a growing financial literacy in this country for a variety of reasons. Clearly trying to engage anyone of relatively young years on the merits of pension planning is always going to be a daunting task.

  31. So we are going to harness an army of grandparent mentors in order to promote this and given how quickly the 75p got around, there is actually a lot to be said for engaging grandparents in that process.
  32. (Mr Darling) Well, I have very recent experience of people telling me that people do not notice these things. I think that they do notice these things and they do so very, very quickly, but engaging young people, and I am not that old myself, in how to save is a difficult task. Try explaining to your eleven-year-old daughter that to spend money, you have to earn it in the first place. It is a difficult concept.

  33. 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?
  34. (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

  35. 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, particularly and including for those aged 60-64?
  36. (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 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.

  37. 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?
  38. (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.

  39. 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 allowing the higher earnings disregard was that this would stop people returning and overall would not help fight pensioner poverty.
  40. (Mr Darling) That is absolutely right. I have said on many occasions before that when people starting 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.

  41. 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?
  42. (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 middle 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 place interview which will come in with the Job Centre Plus from the beginning of April will make a difference. Remember, in the 1980s what happened was 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

  43. We have heard concern from both Help the Aged and Hertfordshire County Council about the interaction of Pension Credit with home care charging policies. Hertfordshire County Council have told us in particular 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?
  44. (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.

  45. Have you had any discussions with local authorities to make sure that the increases from 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?
  46. (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.

  47. Fair enough. Moving on to hospital down-rating, we were all pleased to note the recent announcement by Baroness Hollis in the Lords about that. 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, the Disability Living Allowance, the Attendance Allowance and the Invalid Care 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 those benefits could also be included?
  48. (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 rule 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 are 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 cost 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.

  49. 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?
  50. (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 has been replaced but it is very decrepit - so we do not think we can make these changes until October next year. 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.


  51. Can I underline the importance of the point Andrew made earlier about the relationship between the Department of Health and the DWP. 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.
  52. (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 Alan with a view to the Department of Health giving you some guidance as to where you are at the moment.

    Chairman: That is helpful. Thank you for that.

    James Purnell

  53. 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?
  54. (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

  55. 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?
  56. (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.


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

    James Purnell

  59. 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?
  60. (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.

  61. 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?
  62. (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 you are going to have a job in five years' time, you do not know you are going to have a 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.

  63. 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?
  64. (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 a damn sight easier to get than at the present time.

  65. 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?
  66. (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.


  67. Just to add to that. I am interested, you say the industry have 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.
  68. (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, the actual rates, 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: Okay. Rob Marris.

    Rob Marris

  69. 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 or whatever 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 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 the Automatic Credit Transfer, are you going to be able to cope?
  70. (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.

  71. 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.
  72. (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.

  73. Do you think, Parliament permitting, you are still on track for that?
  74. (Mr Darling) I very much hope so, yes, we are at the moment.

  75. What about the IT side of things? You mentioned the 400 odd local authority systems which there would need to be some interface with.
  76. (Mr Darling) To run Pension Credit, no, it is not like Housing Benefit, we do not need the direct interface with local authorities, no.

  77. There would have to be some kind of liaison.
  78. (Mr Darling) Basically what we are doing is we will run the Pension Credit off the Department's existing computer systems, probably for the first couple of years because the ultimate solution to this is to build a new one which would not be in by autumn next year. We are using the existing systems to run it for the first couple of years or so and then we will switch it over to the new ones.

  79. Are you talking about taking us up to roughly October 2005?
  80. (Mr Darling) We will use the existing computer systems to do that.

  81. With a system which you described this morning as decrepit, "very decrepit" I think were your exact words.
  82. (Mr Darling) Yes.

  83. You are suggesting it should go on until October 2005?
  84. (Mr Darling) We can do that because if we built a new computer system to run this, then I think it would be difficult to ensure that was there and ready to go in the timescale that we have in mind. It is not like going down to PC World and buying one, our systems are so big they need to be built especially to do these things. I want the Credit to come in as quickly as possible, I want it to come in from the autumn of next year so what we have done, and what we do with all these things is we reach a judgment as to how much we can run on the system at one time. It may mean shifting things around but the intention is that we use the existing systems to operate Pension Credit for the first two years or so before we switch on to the new one.

  85. If I went buy a used car and a salesman described it as "very decrepit" I would not expect it to run until October 2005. You are rather concerning me with what you are saying.
  86. (Mr Darling) The Departmental computer systems have been decrepit for years. Basically what happened was there was no investment in them for years. We were competing against health and education, who was going to buy a new computer for the DSS, as it then was? A lot of the systems that we are running off were designed in the 1980s. It is a tribute to those who operate the system that we are able to deliver benefits to 17 million people every week. We make changes, as all governments make changes to these things. Now, obviously, one of the things I always have to take account of is how much more can I run off this system.

  87. Yes.
  88. (Mr Darling) I think when we looked at all these things we concluded the safest way to proceed was to use the existing system to run a Pension Credit. Remember it is building up. The entire Income Support, JSA system needs to be in place by the mid part of this decade anyway. As part of that process we are rebuilding the system to serve the working age on one side and the pensions on the other. The pension system will be different and it will be new build. That was never going to be ready by the end of next year, it just could not be ready. What we are aiming to do though is to run the system off the existing IS system.

  89. You are pretty confident that you can do that when you are means testing half the pension?
  90. (Mr Darling) Remember a lot of the process of assessing whether people are ready, there is some IT dependency but a lot of it will be done by the new pension centre that we are building. I believe that the Pension Credit, we are not going to rewrite this policy but it is eminently doable. What I have sought to do over the last couple of years or so is to make sure that we introduce it in a way that we can deliver it. The point I made to James, something has to be workable as well as affordable and the doable part is just as important to me.

  91. On the doability, can we shift the focus a bit to the new call centre model which is a kind of sexy way to go forward for a lot of the financial services industry and financial delivery. Is that going to work with pensions, particularly, for example, those with sight difficulties or hearing difficulties or ethnic minority pensioners? Is there going to be a call centre, for example, in the South East?
  92. (Mr Darling) Let me just explain the strategy and I will come to all your points. At the moment we run the pensions service in a variety of ways. We have some national centres, like Newcastle, for example, where pensioners get their money through ACT, where telephone claims are dealt with, it is all done nationally. It does not matter where you live in the country, if you phone that number you will be routed through to Newcastle, you may not know it as with any call centre but that is where your call will go. This is in the same way as we run Child Benefit from Washington, Washington as in the North East of England as opposed to the one in America. The vast majority of the people who deal with it do not know because they do not need to know or worry about where it is actually located. We process pensions, also, in over 400 sites across the UK. As a passerby, going past one of our offices in the street, you would not know whether the processed pension was there or not because they are usually back office functions. It is incredibly inefficient to run a pensions service on 400 sites, no commercial organisation would do this. What we are doing as part of the overall modernisation of the Department is concentrating pension processing on 26 sites throughout the UK. I have published a list of where they are, I have it here today if you want me to run through it. We have put them in places where we know we can recruit and retain staff. We have a big problem in the South East of England in recruiting and retaining. To train somebody to operate pensions is expensive, it is time consuming, we need to have people who will stay with us for some time because they are more experienced, you get a far better service. So when we chose the sites it was partly with that in mind. Now as far as the general public are concerned, because the contact with these 26 sites is by phone and, for example, someone living in Guildford will not necessarily be routed to the nearest call centre, it might be the one in Dundee for example, because they are call centres the location itself is not quite so important. On top of that, which is where the public interface is important, what we intend to do is to have a local service which will mean that if somebody needs to talk to somebody about things, they can do so, if they want to go through the form or something like that.

  93. More than 26 sites, the face to face bit?
  94. (Mr Darling) Yes. The face to face has to be available nationally.

  95. Right.
  96. (Mr Darling) The difference is that at the moment if you are 86 and you have a query you could end up in one of the job centres you saw in the Full Monty, where you really do not want your grandmother to be because that is not the sort of environment where you should be advising an 86 year old lady. So the new service will operate for the most part in places that old people like to go like libraries, we will do home visits, we will see them perhaps in the premises operated in conjunction with the voluntary sector and so on. There will be people who are good at face to face contact who will take the information they want but the processing, which, frankly, it does not matter whether it is done in a room in Guildford or a room in Motherwell or wherever, that will all be done on those 26 sites. It will be more efficient and more effective. As I say, you asked about IT, if you go into those 26 sites, the difference between those sites and the ones we have got at the moment, on the new sites you have got modern IT, you have very little paper going around the place, better working conditions for our staff, I think you will get a better service out of that rather than trying to maintain a system which is antiquated in modern terms. There will be a local service so that if someone who is elderly wants to sit down and see someone then we will have that facility. Also you asked about people who might be deaf or people ---

  97. Vision impairment.
  98. (Mr Darling) --- who need to speak to somebody in their own language, again that is something you can do far better from centralised sites because you could not have in every office somebody who could deal with whatever the disability was or, if you take London, for example, in any one office there might be 15 or 20 different languages. By centralising you can do these things a bit better. What you will get out of this is a far better operational delivery than at the present time. That and the changes that we are making in Job Centre Plus, if you look at what we will have done in the next four years it will be a world apart from the world we inherited five years ago. This was a service in desperate need of overhaul and that is what we are doing. It will be much, much better for the public.

    Mr Goodman

  99. Secretary of State, I am sure you would agree that if large numbers of those who would be eligible for a Pension Credit do not take up the Pension Credit then it will scarcely be possible to describe it as a success. I want to open a series of questions about this by looking at where we are now. As you know, something like 57 per cent of all pensioners will be on means testing of one sort or another by 2003, a rise from about 38 per cent in 1995. By 2025 something like 70 per cent will be eligible for Pension Credit but, here we come to the key point, with MIG there are up to 750,000 pensioners who did not take it up. So given the record with the MIG, which is frankly not very good, how is the Pension Credit take up going to be better?
  100. (Mr Darling) Let me deal, first of all, with the Minimum Income Guarantee. What you are referring to is the annual survey which has a huge variation in estimates as to how many people take up these things. It ranges from something like 300,000 to 700,000. It is important also to understand how we get these things. They are done by interviews with people and people are asked where their income comes from and how is it calculated and a lot of people do not know. What they get on their order book, if you like, in many cases is "The bottom line is X" and they do not necessarily know where it comes from. I have always had doubts as to whether that figure is right. Indeed it is worth bearing in mind that the authors of the report also say that they have doubts too as to what the actual figure is. What I can say to you is that there are now just about two million people getting the Minimum Income Guarantee. We know that when we ran the advertising campaign last year we had many more inquiries which showed that people did not have a reluctance, because that was the old idea, people were reluctant to claim these things, we got a huge response. The reason a lot of them did not qualify, of course, was because of precisely the reasons we have discussed all morning, they were just over the limit which the Pension Credit is designed to help. So the first point I make to you is that I think that 700,000 figure is difficult to attach too much significance to, as the authors of the report say themselves. I think where we need to do a lot more, and where we are going to do a lot more, is the way in which we approach people as they approach retirement. Remember at the moment when you retire, if nothing else happens, you will be approached and you will be told that "According to our calculations your basic pension is such and such" and that is it. So if you do not do anything, you would drift along on whatever the basic state pension happened to be at the time. In the future what we will do is we will approach people saying "This is what your basic state pension appears to be. These are your contributions" and then we will say also "If you have got savings, if you have got earnings, you will be entitled to Credit" and we give examples of what it would mean. Because I think the processing will be better, in reply to Rob's point, then I think we can steadily increase the take up and make sure that we get more people who are entitled to it. I think, also, that in time, just as people have no qualms about claiming a tax allowance, which is their entitlement, which is their right, I think people will also say they have no qualms, just as increasingly we are talking about Working Families Tax Credit, they will have no qualms about claiming their Pension Credit, they are entitled to it. I think probably you deliberately chose the term "means tested" and sometimes - and certainly I am not accusing you of doing this here today - people go on about the criticism of means tested benefits for these pensions. What they actually mean is that they do not want to give them the extra money. You have a choice, either you give everybody the same, which I do not think is sustainable, nor do I think it is right in social policy terms, or you give more to those people who need the help most. At the moment this year pensions are going up for a single person 3 but some people are getting about 6 a week extra. I think that is the right thing to do. Now the way in which you do it, it is comparatively new territory for us in the sense that we are doing something on a fairly large scale, and we are using new methods, but I do think the policy is right and I think in time, especially because people do get to learn about these things and when you bear in mind that about half the pensioner households in this country are on average 400 a year better off, what we have found is when you increase the amounts of money available, the interest in the thing tends to go up a wee bit. Conversely, if it were to be your view that this was a bad thing, then you would have to be saying to people: "I think it is a bad thing, I am going to take it away and it is going to cost you 400." If you do that I will look forward to listening to you.

  101. But, Secretary of State, just going back to one figure you gave to us, you gave your lowest figure of the number of people not taking up the MIG at about 300,000 people but that by definition means that you have 300,000 people who by not taking it up in fact have stopped taking up Pension Credit and are at the bottom of the pile.
  102. (Mr Darling) We do not know who they are.

  103. They are there.
  104. (Mr Darling) The FRS, it is a useful measure, it is not the only measure. My view is that in time, as people realise what the Pension Credit does, and the gain they can get from it, my guess is that you will see a steady increase in the people who want to get it.

  105. With respect, that was not what I was asking. The question I was asking was this. There is still, even on your lowest estimate, a large number of people who, because they are not applying for one reason or another, are getting nothing at all and that is the difficulty, is it not?
  106. (Mr Darling) In the same way as if you have a tax allowance you cannot compel someone to accept it. There may be people in the country, I have not met one, who say "No, no, I want to pay more tax". The same with a Pension Credit, we cannot ever get ourselves in a situation where you are compelling someone to take something. What I can say to you is that I think that as the thing is introduced, as it builds up and we make it easier for people to get their entitlement, I think more and more people will take the thing up.

  107. I am sure you got the point about it taking time. This is a musical theme almost that has come out.
  108. (Mr Darling) That is the merit of being true.

  109. But, let us have a look at your target for take up next year, 2004, you are anticipating a take up of 67 per cent which even you describe as ambitious. Given that the whole process takes time, and I think you are absolutely right to stress this, are you really going to hit this target?
  110. (Mr Darling) What we have published here is our estimate of what we think the first year of take up will be. Assuming we get all the legislation through and everything else, we will do everything we possibly can to make sure that take up does rise to that level and beyond it as the thing builds up. I will come back to the central point, the argument here is whether you have a Credit or you do not. I think Credit is an excellent reform. I think, also, the way in which we intend to administer it will be a lot better than the present time but of course these things take time to build up. If you take, for example, PEPs and TESSAs which your Government introduced, they took time to build up. ISAs take time to build up because you cannot force people to take these things up. When people see the attractive proposition in front of them you will find that the propensity to take these things up tends to increase.

  111. What about the 33 per cent who will not get anything at all even if you hit your target?
  112. (Mr Darling) Gradually in time the take-up will increase. As I said to you, you will never, ever get a situation where people will take everything they are entitled to but just because that is the case is not a good reason for not doing it in the first place.

  113. Is it your estimate that the take-up of means tested benefits generally is rising or falling?
  114. (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.

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

  117. The take-up of the means tested benefits.
  118. (Mr Darling) I can tell you in pensions, for example, there are now two million people getting the Minimum Income Guarantee which is a damn sight 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 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.

  119. What targets have you got for 2005, 2006, etc?
  120. (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.

  121. Okay. Let us move on to a question about the take-up and complexity really 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?
  122. (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, it 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.

  123. 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?
  124. (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 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 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.

  125. 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?
  126. (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 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.

  127. 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?
  128. (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.

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

  131. You do, but means testing is not the only means.
  132. (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.

  133. That is narrower under the tax system.
  134. (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 ----


  135. 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?
  136. (Mr Darling) Yes. I was looking forward to getting stuck into the Conservative Party policy.

    Mr Mitchell

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

  139. I wanted to pick up a point that you made earlier on 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 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 a 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?
  140. (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 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 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 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.

  141. 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.
  142. (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 Pension Credit which, as I say, removes some of the disincentives from the system.

  143. 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?
  144. (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.


  145. 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.