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Session 2003 - 04
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Standing Committee Debates
Pensions Bill

Pensions Bill

Standing Committee B

Tuesday 16 March 2004

(Afternoon)

[Mr. James Cran in the Chair]

Pensions Bill

Clause 220

Persons entitled to more than

one Category B retirement pension

Question proposed, That the clause stand part of the Bill.

2.30 pm

Mr. Nigel Waterson (Eastbourne) (Con): It is a pleasure to see you in the Chair, Mr. Cran. I was hoping that one of the Ministers would tell the Committee a bit more about what the clause attempts to do. I am sure that they are proud of it; perhaps they would talk us through it.

The Minister for Pensions (Malcolm Wicks): I, too, welcome you to the Chair, Mr. Cran, and back to the country after your visit to Turkey. You were probably not thinking about category B pensions on the return flight, but the clause is concerned with that matter.

The purpose of the clause is straightforward. It ensures that if a person is entitled to more than one category B pension, he or she is able to choose between them. For the enlightenment of Committee members who are not category B pension anoraks, a pension is payable by virtue of the spouse's qualifying years of earnings. Those who can get a category B pension are married women, widows and widowers. The clause primarily affects widows already entitled to a category B pension who remarry. People are already able to choose if they are entitled to two or more retirement pensions of different categories. The ability to choose which category B pension existed in law until April 1992. The ability to make that choice was then inadvertently omitted when contributory benefits legislation was consolidated into the Social Security Contributions and Benefits Act 1992. That was not our mistake.

When we discovered the omission in 2001—[Interruption.]—shortly after we came to power, and took steps to correct it. We did not want people to lose out through a mistake not of their own making, so we provided for the most beneficial category B pension to be paid on an extra-statutory basis until such time as we could amend the legislation. That time is now.

The clause restores the choice that existed in legislation before April 1992. It is important to give pensioners choice and we must put the payments back on a statutory footing. That will provide reassurance to recipients of the payments and reassure taxpayers that their money is being paid legally. In practice, no one has lost out because of the error in the 1992 Act, and no one will lose out as a result of our decision to restore this piece of legislation.

Mr. Waterson: I am glad that I raised the matter. It is an object lesson to the Committee on how things can

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inadvertently go wrong. That is why Opposition scrutiny of the sort that we offer is so important. From the Minister's chronology, it sounds as though the result was a score draw: a Conservative Government dropped the ball, but it took the incoming Labour Government an almost equal period to notice that it had been dropped.

Malcolm Wicks: A Conservative Government dropped it; we picked it up.

Mr. Waterson: I have not played rugby for a few years, as is apparent from a glance at my shape, but I think that taking four years to pick up a ball that has been dropped is about as bad as dropping it in the first place.

I am pleased that no one has lost out, and I am sure that those who have continued to receive their money are blissfully unaware that they have been doing so illegally and that the Government could have claimed it back from them at any time. It is right that we should support the clause now that we know exactly what it is for.

Question put and agreed to.

Clause 220 ordered to stand part of the Bill.

Clause 221

Deferral of retirement pensions and

shared additional pensions

Mr. Steve Webb (Northavon) (LD): I beg to move amendment No. 8, in

    clause 221, page 147, line 26, at end add—

    '(5) At the end of section 15 (3) of the State Pension Credit Act 2002, insert ''but capital shall be deemed to exclude lump sums payable under Schedule 5 or 5A to the Social Security Contributions and Benefits Act 1992 (c.4)''.'.

It is a pleasure to serve under your chairmanship, Mr. Cran. It was thought that this could be a Conservative amendment, which would not be inappropriate because some unselected Conservative amendments are in the same spirit. All Opposition Committee members want certain matters to be clarified.

The amendment refers back to the aforementioned 1992 Act, where an earlier Government dropped the ball, because that is what is being amended. The clause amends the application of schedule 5 and 5A to the 1992 Act. The amendment would change a reference to the 1992 Act contained in the State Pension Credit Act 2002. As amendment No. 7 shows, we had one go at that and got it wrong. We may well have got it wrong in this amendment as well.

However, there is an issue of substance to consider: the very narrow issue of how the lump sum allowed under clause 221 is to be treated in the rest of the benefits system. After discussing that, we should have a separate and substantive debate on the clause itself because it involves a much wider range of issues. At the moment, however, I shall restrict my comments to the narrow terms of the amendment.

The Bill will create a new thing: a state pension lump sum, which would be created by deferring a state pension and later, instead of drawing a higher state pension, converting it into a lump sum. The

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Government have presented that—inaccurately, in my view—as a great new option for the poor. They have said that only the rich used to have lump sums and now the poor can have them, which is nonsense, but more of that later.

Somebody aged 65 will want to know whether it is a good idea to take the lump sum. Governments always pay lip service to simplifying pensions, but this is yet another complexity and involves another tricky decision. People spend most of their working lives making difficult decisions about pensions and just when they think it is safe to come out from under the eiderdown, here comes another one: a person reaches pension age and, instead of simply taking or deferring their pension, they have the further option of taking the lump sum. They will want to know what effect deferring the pension for five years and drawing a lump sum of £25,000, or whatever, will have on their state pension credit entitlement.

Despite the woeful take-up of the state pension credit so far, we are moving to a world in which between half and two thirds of all pensioners will be within the scope of means-testing. Therefore this is not a peripheral, nit-picking, marginal issue, but is absolutely central, because the majority of pensioners deciding whether to take a lump sum instead of their weekly pension will be within the scope of the means test.

If pensioners have a lump sum of £25,000, will the Government say, ''We will ignore the first £6,000, and impute you a socking great income from the rest, and you will not get pension credits''? The person would have to make a mental calculation: ''I will do without my pension for five years, I will take a lump sum, and, although I will enjoy that, I will deprive myself of quite substantial amounts of pension credit.'' If that issue is not made clear—it is not clear in the Bill as it stands—people will not know what to do. They may be well advised not to take advantage of the provision because it might only deprive them of future means-tested benefits.

We have probed that issue before. When I asked Ministers about the matter, they were a little vague. I think that they were not entirely sure themselves. So we visited the departmental website. I will not read the full URL of the relevant bit, just part of the fact sheet entitled ''State Pension deferral—taking up your State Pension later''. Page 3—it is in a question-and-answer format—discusses the impact of the lump sum on the pension credit. It states:

    ''we want to help people plan for their retirement in the most straightforward way,''—

ho, ho—

    ''so that they can get the best deal for themselves. Most people who are entitled to Pension Credit will not have to pay tax on the lump sum'',

    and we will talk about tax in a separate debate. This is the key sentence:

    ''We also want to make sure that the lump sum is ignored''—

that is the spirit of the amendment—

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    ''when most people claim Pension Credit, Housing Benefit and Council Tax Benefit''.

Which people? When, how and why, and where is that stated in the Bill?

The amendment tries get behind the Government's thinking. They say ''most people''. So some people, in contravention of what our amendment would do, will have the lump sum taken into account. Will people at the age of 65 know five years down the line whether they will be among the ''most people'' or the remainder? Will that depend on their circumstances at 70, or will they know at 65 for sure? Will they have to guess—to speculate?

So something presented as offering whole new vistas for pensioners turns into a rather complex and convoluted choice, on which people have incomplete information and the Bill is of little use. I hope that we will get a clear answer from the Minister about who are ''most people'', who are the rest, whether people will know in advance which category they will fit into, and how the Government plan to treat lump sums for the purposes of the pension credit and other means-tested benefits.

Mr. Waterson: Unusually, I should like to row in behind the amendment, but I shall add some thoughts of my own.

Let me put down a marker immediately, as the hon. Gentleman did: there is a much broader discussion to be had in the stand part debate. We are talking about a particularly narrow point and, as you will have seen, Mr. Cran, we Conservatives tabled amendments on it ourselves. However, we did so with such a monumental lack of skill that they were not selected. We were basically trying to achieve the objective that the hon. Gentleman seeks to achieve in the amendment.

We started with two concerns about the lump sum. The first related to the tax situation, and that issue seems to have been clarified, although the Minister may wish to touch on the subject again. The second related to how the lump sum is to be treated for the purpose of means-tested benefits. As the hon. Member for Northavon (Mr. Webb) said, that is an important issue. Only yesterday, we saw the latest figures for the take-up of pension credit. Although the numbers have gone up—with £47 million having been spent on advertising, why would they not have done?—they are still a long way short of what they could and should be. Not many more than half of those entitled are actually claiming. It is a Treasury assumption, or target, that 1.4 million pensioners will never get round to claiming it.

 
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Prepared 16 March 2004