State Pension Credit Bill [Lords]

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Mr. McCartney: It is important to get our head around this. I shall give way later to the hon. Gentleman, who usually makes a point that is worthy of a response.

Pensioners may at any time provide the actual rate. That is important, and that answers one of the points that the hon. Member for Northavon legitimately makes. We do not have a system that is designed to simplify for the back office but gives problems for pensioners. It is designed in the opposite way—to ensure that the back office deals with the technicalities and responds to pensioners and that pensioners believe that if an assessment is wrong, they can intervene directly and have the matter resolved in their favour.

Minimum income guarantee claimants must give details of pensions that they receive now. It is better to ask at the claim point how their pension goes up than to ask every year. That is part of the process in developing a rolling programme for pension credit.

Having dealt with those who are currently in the system and moving automatically to the new system, the relationship will be different for those who come later. It will not be the old-style relationship but one from the point of their application for pension credit. The simple but effective questions that need to be answered in order to assess them for pension credit will

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be asked at that point, rather than year after year. It is important to make that distinction. The hon. Member for Northavon is right. If it were the old-style way of dealing with matters, it would not work. It would be bureaucratic and ineffective.

We are also allowing for non-standard ways of increasing pensions. Each year, we shall tell pensioners what figures we are using. That is, again, important. Pensioners will have a clear knowledge of the transparent relationship. Transparency is important in the relationship with pensioners. The system will be proactive on behalf of pensioners and sensitive enough to take into account changes in their income that necessitate our increasing their income. That is how we have designed the relationship.

From 2003, the assumed rate of return on capital will be £1 for every £500 above £6,000. We intend that that will be reviewed annually as part of the normal uprating process, as hon. Members will understand.

Mr. Brazier: Perhaps the Minister will deal with a particular example. If the amendments are not agreed to, how will the system deal with the case of a pensioner, one of whose sources of income is an occupational pension from a pension fund that has discretion? To add a further dimension, let us suppose that the discretion of the trustees for many years has been to index in line with inflation, but that the pension fund is now experiencing financial difficulties, and it looks as though for the next two or three years they may not be able to afford to do that. How would such a case be treated under the rules?

Mr. McCartney: If I get this wrong, I apologise, but I understand the situation to be as follows. It is best to take an example. The last figures from a survey on the impact of RPI on pension provision are from 1995. Those figures suggest that 82 per cent. of private pensions that year had a rate of increase of about 2.4 per cent. The RPI at the time was 3.5 per cent. Therefore, the vast majority of pension increases are in the ball park of the average RPI.

Secondly, as I said earlier, if an older person receives from us a notification that the percentage is, let us say, 3.5 per cent., and there has been no increase, the constituent may intervene and notify us that the increase is nil, and the calculation would be based on a nil increase. The system works in favour of pensioners. They will not be lumbered with a 3.5 per cent. increase if their increase is nil. We shall notify them of the assumed figure that we are using. If they respond and say that they receive no increase, that will be taken account of in that way. I hope that that answers the hon. Gentleman's question, but if not, it is not a resigning issue.

Amendment No. 28 would remove our ability to give effect to a change in the rate of return on capital or the amount disregarded as part of that process within an assessed income period. It would remove flexibility and tie the hands of future Governments, preventing them from ensuring that the rate of return on capital was applied equally, whether or not an assessed income period was in place. One pound in £500 strikes a fair balance between the treatment of capital and pensions. The Bill therefore provides the

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flexibility to alter the treatment of capital within an assessed income period, should it become necessary to do so.

We know that, in most cases, second pensions and annuities will be liable to be increased annually. We therefore propose to take powers to deem the amount of that increase. That will avoid the need for pensioners to report such changes every year, thereby reducing the level of intrusion into their private affairs. We also know that most private pensions keep pace with inflation. If a pensioner is unable to provide information about the rate at which their second pension increases, we shall assume that it is uprated at least in line with prices.

However, in some cases retirement income will not increase. A significant minority of pensioners may have chosen a fixed annuity, for example, or been forced to do so under a defined benefit scheme. We do not want to assume that there would be automatic increases in income in such cases, which answers the point made by the hon. Member for Northavon. Amendment No. 29, however, proposes that we make such assumptions, although I accept that it was intended to elicit from me what I hope are the right answers to hon. Members' questions. If we assume that pensioners are experiencing increases in income, but they do not actually receive any, we will disadvantage them and their entitlement to pension credit will be reduced. Of course, pensioners will be able to ask for their pension credit to be reassessed at any time, but we do not want to pay out the wrong amount to this group of customers and to rely on them to tell us so that we can correct the problem later. That is, however, the effect of amendment No. 29. The hon. Member for Hertsmere seems to be setting the Pension Service up to get payments wrong. As it stands, the Bill enables us to get them right from the outset and to correct them quickly if we do not.

Mr. Clappison: I am listening carefully to the Minister's helpful explanation, but perhaps I can save him a little time. These are probing amendments, and he need not spend too long knocking them down. I want, however, to draw him out a little further on a point that runs throughout his speech. He said that the Government would tell pensioners about any technical changes, but will he say a little about how they will do that?

Mr. McCartney: As soon as we get permission from the House to enact the Bill, we shall have the opportunity to press ahead through the new Pension Service with a range of arrangements and a timetable. When work on those is completed, my right hon. Friend the Secretary of State or I will write to the hon. Gentleman and other members of the Committee to clarify what processes will be put in place to carry out the pre-work on notification. We will also discuss who will be notified first and what arrangements will be put in place to do that.

We also intend to provide Members of Parliament and their staff with a briefing pack, and it is important that we do so. I have no doubt that their advice centres and offices will receive inquiries in the course of their

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daily work, and we want to ensure that we take the strain off them. Hon. Members can rest assured that user-friendly materials will be available to cover the whole programme. It will be a big logistical operation to transfer more than 2 million people on to pension credit immediately and another 4 million within a year. That is a big exercise in anyone's language, and we are undertaking a great deal of work on planning and logistics.

In the past few days, we have published the Pension Service business plan for 2002–03—I hope that the hon. Gentleman has received a copy—which sets out many of the priorities in relation to pension credit. I shall write to hon. Members about the implementation process at the earliest opportunity, but I am not allowed to do so until the Bill has been enacted. At that point, we shall move forward quickly.

With those remarks, I hope that the hon. Gentleman will withdraw the amendment.

Mr. Webb: I want to take up a couple of points that arose from the Minister's response. As I understand it, the first assumption is that the applicant will be asked to say what the indexation rules are. The Minister is nodding, which is helpful. On the form, which will be cut down from 40 to 10 pages and will be very simple, one question will be: ''Please set out the indexation rules''—it will probably be put in simpler language—''that apply to each of your pensions.'' Given the breathtaking ignorance of many people about pensions, I wonder about that question. People come to the end of a private personal pension and do not realise that they can buy the annuity from anyone, not just the provider. They end up with less income for the rest of their life because of that. That is a fundamental aspect of pensions, which people do not understand.

The fact that people will receive this form and be asked for such complex information concerns me. Assuming that many of them cannot provide it, the Minister seems to be saying that the provider will have to do so, potentially for millions of pensioners. I confess that I have not studied the regulatory impact assessment for the Bill very closely, but will the Minister say whether it deals with that point and whether an extra administrative burden on providers is expected? Two other points are germane. First, there is take-up, for which the Minister says that there is a safety net. If things go wrong, pensioners will receive a letter telling them the assumptions that have been used. If those assumptions are wrong, the pensioners will inform the Pension Service. However, my fear is that because the matter is so complicated people will either file the letter in a shoebox or not understand it and will therefore miss out because they have not spotted that an incorrect assumption has been made.

The final aspect of the matter is limited price indexation. The Minister cites the case dating from when inflation was 3.5 per cent. and pension schemes typically increased by 2.5 per cent. It is all straightforward when inflation is low, but the Bill has to work in a high-inflation environment as well. Once inflation has risen above the limited price indexation covered by most schemes, there will be huge variations in the amount of indexation that will be ''deemed'' under subsection (4). That could cause

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real problems of non take-up. If the RPI is wide of the mark in a high-inflation environment, what pensioners actually get will vary enormously. Those are big unresolved issues.

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