State Pension Credit Bill [Lords]

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Mr. McCartney: I am not clear what subsection the hon. Gentleman is referring to. Subsection (2) takes what the hon. Gentleman said into account, because in the event of the pensioner receiving income additional to their original assessed income, they maintain the level of pension credit based on the original assessment for the period of that assessment. However the calculation is made, there will not be a net loss, whether things are put in separate boxes or not, during that assessment period. It could affect the next assessment, but for the period of the original assessment the pensioner will not suffer from any clawback or penalty. However the calculation is made, there will be no penalty of the sort that the hon. Gentleman described—I do not think that he is trying to trip us up.

When I explained to the hon. Gentleman why the new system was a virtuous circle, I was trying to show that, for the period of the original assessment, the sum payable under that assessment could not be affected other than by a loss of income, which could lead to its being increased. Wherever we cut the cake, the pensioner does not lose out. Clause 8(2)(b) gives power to make fresh determinations considering the net effect of change—I think that that is the hon. Gentleman's angle. It looks at the net effect of the change. If he is not sure about that, I shall write him a note.

I hope that, given my explanation, the hon. Member for Hertsmere will withdraw his amendment.

Mr. Clappison: The hon. Member for Northavon made his point about the operation of subsection (2) far more eloquently than I did. The Minister's explanation of that subsection matches my understanding of it after reading the explanatory notes.

Mr. Webb: My understanding of the Minister's reply is that the boxes are not completely separate. If something decreases by 10 and something else increases by 5, and the net effect is to make the person better off, the increase by 5 will matter and will mean that the improvement in pension credit is less than it would otherwise be.

Mr. Clappison: It is worth exploring the question. When I read the notes, I thought that I had grasped the common-sense meaning of subsection (2).

Mr. McCartney: No, that is exactly what I said to the hon. Member for Northavon. The net effect is important because that is the fundamental difference:

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under the current system, the effect would be deleterious and there would be a reduction in income, whereas under the new system, there will not be.

The hon. Member for Hertsmere may say that the change has been made in an unhelpful way, but I disagree. His original understanding of the clause stands true: it creates a virtuous circle and, if a pensioner's income falls during the assessed period, he or she may receive an increase. If the income rises, on the other hand, he or she continues to receive the same level of income from the assessment. In both circumstances, the pensioner gains the advantage. That is the net effect.

I am trying not to recast what has been said but to catch the interpretations of both hon. Gentlemen.

Mr. Clappison: That is helpful, and we can leave that point.

On a smaller point, will it be possible for a claimant to make an application for a fresh assessment at any time—for example, if one of his sources of income falls unexpectedly very early in the five-year period? If a claimant has had a reassessment on that basis, could he make a further application for another reassessment if another source of income went down?

Mr. McCartney: The answers to the hon. Gentleman's questions are ''yes'' and ''yes''.

Mr. Clappison: That is helpful; I do not think that I can do better than that. As this is simply a probing amendment, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 ordered to stand part of the Bill.

Clause 9

Duration of assessed income period

Mr. Clappison: I beg to move amendment No. 32, in page 6, line 29, leave out subsection (2).

We understand that the assessed income period will usually be five years, but the period could be shorter if it is considered that the claimant's income at the time of the claim and over the following 12 months is unlikely to be typical. Presumably, that covers cases in which there is reason to believe that the claimant's income will increase at some point beyond the 12 months. It would be useful to hear from the Minister on that point. Will he also tell us if he can add anything on the circumstances in which the assessed period will be set for less than five years? How will those considering the claim know that the claimant's income at the time of the claim and in the following 12 months is unlikely to be typical? That is an interesting question, and we would be grateful for any reflections that the Minister might have on that. Will he also tell us what happens if an assessed income period is not specified at all, which seems to be a possibility contemplated in the clause?

Mr. Webb: The hon. Gentleman has highlighted an important question. I am not sure how often the powers in the clause are likely to be used. One can imagine a circumstance in which the initial claim for

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pension credit was made when someone reached state pension age—although I note that the assessed income periods do not start until five years before the claimant is 65—when one could perhaps know that one was going to retire, as opposed to draw state pension, within three months. In other words, it could be apparent that someone's circumstances were likely to change in the near future, so that to set a five-yearly award based on the situation at the time of the first claim would give rise to an almost immediate change. I notice that the clause raises yet another exception to the principle of people having contact with the authorities every five years. Throughout our debates, we are finding more and more exceptions to that principle.

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I hope that the Minister will give us some idea about the scope of the subsection that the amendment would withdraw, because if the power is to be used widely, we must ask whether there will really be five-yearly means testing or something quite different.

The other question in the back of my mind is: if the process of picking up changes is as straightforward as we have been told this morning—if people will receive an annual letter, and if fluctuations in earnings are not a problem because they will be reported—why do we need a separate bit of the Bill to deal with cases in which a five-yearly assessment is inappropriate because the situation is atypical? We have just discussed a raft of procedures for dealing with changes in circumstances, which are supposed to be simple and not onerous, so why do we need a separate regime for people whose circumstances, we are fairly sure, will change?

Mr. Brazier: I congratulate my hon. Friend the Member for Hertsmere on the depth of his probing amendment. My point follows directly—for the second time this morning—from the question asked by the hon. Member for Northavon. In fact, it makes the point that I thought he was about to make. I do not understand why we need the subsection when changes in circumstances are addressed in so many other places.

How will likely changes in circumstances during the first part of the five years be thrown up? Specifically—to revert to something that we discussed earlier, but which is also relevant here—does the Minister envisage the Department entering into correspondence with everyone's pension funds and their other sources of income when they first retire? Someone who has reached 65 may have one occupational pension from one source and a self-funded annuity from another part of his working life, because every year, circumstances become more complicated for the typical pensioner, as people's career patterns depart from the tradition of working in one industry all their lives. If the Minister does not envisage the Department writing to all a pensioner's main income sources when he retires, why is there a separate provision in the Bill alongside all the existing measures designed to pick up substantial changes in income?

Mr. McCartney: The Government have a strategy of encouraging all pensioners to take up their

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entitlement. Research has shown that pensioners are currently put off claiming their entitlement because of the intrusive nature of the MIG claims process, so in this clause we are taking steps to reduce the barriers. We have already reduced the MIG claim form from 40 to 10 pages. In devising pension credit, we are determined to make further significant improvements. We have therefore introduced the proposals for an assessed income period.

I think that we have all accepted the introduction of the five-year period, and our debates on clauses 6, 7 and 8 have reflected that. We are confident that the changes will help pensioners who have settled and regular income that is not subject to frequent changes, and to do so in an unintrusive way. The assessed income period dramatically reduces the number of changes that a pensioner needs to report; it effectively removes the weekly means test that Opposition Members keep banging on about. [Interruption.] I am not saying that in a derogatory sense. I have been banging on about the five-year term. The assessed income period will take a significant step towards removing the reasons why pensioners do not claim their entitlements, thereby encouraging them to claim what is rightfully theirs and, in turn, helping to reduce pensioner poverty.

Clause 9 contains the provisions that govern the length of the assessed income period; indeed, it is at the heart of our proposals to abolish the weekly means test. For the vast majority of pensioners aged 65 and over, the assessed income period should last for five years. During that period, pensioners will not be required to report any increases in their retirement provision—that is, non-state retirement pensions, income from annuity contracts or income from capital. Under the MIG rules, however, pensioners must report any changes, however small, to the first two items and to capital over £6,000. With pension credit, pensioners will no longer have to endure the continuous requirement to report changes, or annual inquiries into their financial affairs. That is a radical step, which will make it easier for pensioners to claim their entitlement.

Amendment No. 32 seeks to remove subsection (2), and with it the Secretary of State's power to set an assessed income period of less than five years—or not to set one at all. It would mean that all pensioners over 65 would have a five-year assessed income period. However, we realise that some pensioners' retirement provisions may not be finalised when they claim pension credit, particularly if they do so as they approach pension age. Some may expect an endowment policy to mature; others may find that their occupational pensions have not been finalised. Some pensioners' incomes may always be subject to wide fluctuations—for instance, the erratic payment of foreign pensions. Some of us regularly receive letters from pensioners who worked for other Governments in the old empire days, or for other countries in the Commonwealth and elsewhere, about the erratic nature of their payments, and we have to be able to intervene in a positive way.

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Subsection (2) provides that when consideration is given to setting an assessed income period, if the income is not likely to be typical of the next 12 months, a shorter assessed income period may be set. Indeed, one may not be set at all. That is all about assisting pensioners, and it works like this. As people near retirement, as part of the assessment for the basic state pension and for pension credit, they are asked specifically whether there will be any other significant item of income during the next 12 months. Gentleman A or woman B may say, ''I have an endowment policy coming up in the next three or four months.'' Surely it is reasonable to set the assessment period and then to reassess. However, it should be remembered that pensioners will be asked if their level of income is likely to remain the same for the next 12 months; if it remains the same, the assessment will commence from that point for five years. As in the previous debate—the virtuous circles debate—the net effect will remain the same, and they will not lose.

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