|State Pension Credit Bill [Lords]
Mr. Boswell: When the Secretary of State was asked about that point on Second Reading by my hon. Friend the Member for Havant (Mr. Willetts), his response was:
That is unequivocal as regards his intentions.
Mr. Clappison: My hon. Friend is absolutely right about that. Earlier, Baroness Hollis had said much the same thing in the House of Lords by taking the example of Alfred, aged 68, who was married to Vera, aged 65. Vera's age seemed convenient for the Baroness' purposes because the incentives to work, the effect of the minimum income guarantee and the withdrawals from MIG—which would be the same for
Column Number: 208earnings as for occupational pensions or savings—would have an interesting impact for any lady aged between 60 and 65 who wanted to take on part-time work having retired at 60.
The Veras of this world who wanted to work a morning or a day a week would keep the first £5 of their earnings, but if they were entitled only to the basic state pension, the remainder of their income would be withdrawn from their MIG at a 100 per cent. rate pound for pound. I believe that that is what will follow if the two systems are to work in the same way. One wonders what effect that would have on the incentive to go out to work. How would people feel about having their income withdrawn at a 100 per cent. rate for the first £5?
Mr. Boswell: I have no intention of barracking throughout my hon. Friend's speech, or of delivering it for him, but does he agree that any work is likely to incur expenses that are not normally requited in the formula, and that that would be a further disincentive to employment when returns are so low, or even negative?
Mr. Clappison: My hon. Friend makes a fair point. People always have small expenses, such as bus fares, and £5 is not much to cover them. The same applies to other people who have a 100 per cent. withdrawal rate and who are entitled to MIG—for example, someone with an incomplete pension record.
A lady aged 60 who took on part-time work could look forward to receiving savings credit when she reached 65, to having her income treated as though it were savings under savings credit, and to being entitled to a withdrawal rate of 60p in the pound. By the age of 65, she might feel a little less like going out to work than when she was 60. In any case, a substantial part of her earnings would have been already withdrawn from her. In effect, the difference that her work would make would be much less than it would otherwise be. In those circumstances, one wonders what the effect will be on incentives to go out and work. In a way, that is the same as incentives to save, with which we have identified a problem with the pension credit, although that takes place much earlier in life and there is a certain amount of uncertainty attached to it. It is difficult for people to see exactly what the position will be.
Someone in the position that I have described knows exactly what will happen if they go out to work and are in receipt of the pension credit—their money will be withdrawn pound for pound. I wonder whether that will create an incentive to save. If one looks very carefully at the figures, and even if one takes the lower rate, rather than the 100 per cent. rate, of withdrawal that applies to the savings credit, one finds that the returns from having worked will be fairly low compared with what they would have been when someone could simply stay at home and receive the £100 minimum income guarantee. Anyone considering whether to go out to work will compare what they would obtain from their work with their position if they did not work.
The rewards will be pretty meagre, especially for people who are doing work at or near the minimum
Column Number: 209wage. They would be working for much less than the minimum wage once the withdrawal had been taken into account. We need to hear from the Under-Secretary on that because I, for one, will take a bit of convincing that someone who will be able to keep only £5 of what they earn, and who will see the remainder of their earnings withdrawn pound for pound or substantially taken away from them, will not have much of an incentive to go out to work.
James Purnell (Stalybridge and Hyde): I welcome the fact that the hon. Member for Northavon has brought up an important issue. It is worth emphasising that the Bill improves the situation for people who are earning in the sense that, as has just been said, they will be able to keep 60 per cent. of their earnings if they are entitled to the basic state pension. For those people, it is an improvement on the previous situation under both income support and the minimum income guarantee.
The agenda to raise the effective retirement age by encouraging people to work longer and to have an active retirement is important. The measures on anti-discrimination that the Government are planning to pursue are central to that. Unless I am mistaken, the Select Committee recommended looking into the cost of that. I have been told that if one took an extreme line, it would end up costing up to £500 million. If one disregards all earnings, that may be excessive, but it is an issue in which we should not jump too quickly. We need to work out how it fits into the overall pattern of raising activity in retirement, so I urge the Government to view it in that light.
Andrew Selous (South-West Bedfordshire): I echo the comments made by my hon. Friends about the importance of encouraging pensioners to pursue an active retirement. The hon. Member for Stalybridge and Hyde (James Purnell) is right to comment that the Select Committee report referred to the need to look into the cost of that, and it would be irresponsible not to investigate it. When the Under-Secretary responds, perhaps the Committee can be given some information on the likely cost of that particular course of action.
There is a great deal of discrimination against older people. For example, they do not benefit from unfair dismissal legislation when they work. We have heard that the Government intend to tackle that area, but I understand that that will not be for several years and may not come from this House. I urge the Ministers to investigate that route.
The £40 disregard proposed by the Select Committee was particularly recommended by Age Concern, which gave evidence to the Committee. It would mean that many pensioners could do a day's work without suffering a 40 per cent. tax rate, which many of them will find fairly steep. Significant numbers of them are not higher-rate taxpayers and have been used to a 22 per cent. tax rate. A 40 per cent. tax rate on all their earnings above £5 would act as a considerable disincentive. I hope that the Under-Secretary will give the Committee some encouragement on that issue.
Column Number: 210Maria Eagle: This is obviously a good probing amendment as it has hon. Members leaping up on both sides of the Committee. I congratulate the hon. Member for Northavon on introducing it, and on having the candour to admit that he spotted a few of the somewhat perverse effects that it would have. He has had a stab at tackling the issue, and has decided that it is quite difficult to do.
The amendment would give pension credit recipients with earnings a higher savings credit than those without earnings, by increasing the amount of qualifying income for those with earnings. However, the savings credit is calculated by multiplying the amount of qualifying income by 60 per cent., with a maximum cap of £13.80 for single people and £18.60 for couples. The hon. Gentleman's amendment does not change the value of the maximum savings credit.
The hon. Gentleman is right to say that some of the amendment's effects would be perverse. For example, it would give a qualifying income to those with incomes below the savings credit threshold. They would therefore have the right to a savings credit, which is an added complication when he is calling for simplicity. However, he made the fair point that he tabled the amendment because he wanted to consider how earnings are treated. We know that the country depends on older workers. As the demography changes, that dependency is likely to grow. Currently, 50 per cent. of men and 25 per cent. of women aged 60 to 64 work, as do a further 800,000 people aged 65 and over. The way that we treat earnings is therefore important.
We value the work that older people put into not just their jobs but handing on skills and creating an intergenerational mix in the workplace. Those are the valuable social gains made through people who work later on in life. I certainly have no intention of packing up when I am 60 or 65, and I have said so before. I am sure that many hon. Members feel the same and do not want to retire.
Mr. McCartney: Speak for yourself. I am off.
Maria Eagle: Clearly, not everyone in the Committee feels as I do.
The Government are committed to promoting opportunities for older workers and are trying to reward them for their earnings. I have set out the case against amendment No. 38 in some detail, and I do not want to press those criticisms. However, I should say that it considers how earnings should be treated. The hon. Member for Hertsmere talked about women aged between 60 and 64 who work. He again made the point about the 100 per cent. marginal deduction rate that we encountered earlier. The amendment, too, would cause some people to have a 100 per cent. marginal deduction rate, because the hon. Member for Northavon has not suggested changing the maximum savings credit. The situation is unchanged, and we have come back to the subject of creating gender fairness in the general pension system.
The hon. Member for Daventry made a point about travelling to work. In considering earnings, we have chosen to carry forward income support disregards. The disregard will apply after deducting the cost of
Column Number: 211travel to work. There are therefore some benefits to considering the matter in respect of disregards. The proposed system does not change the current system.
|©Parliamentary copyright 2002||Prepared 23 April 2002|