Examination of Witnesses (Questions 60-78)
DR KATHERINE
RAKE AND
MS AMANDA
ARISS
3 NOVEMBER 2004
Q60 Mrs Humble: The Government has announced
it is going to have a review of women and pensions next year.
So, presumably, this is something that you would want to highlight.
What other things do you think should be included? Katherine first.
Dr Rake: Can I just add something
on the Carer's Credit issue, which is to point out some of the
anomalies within the existing system that make Carer's Credit
not work as effectively as it could? The first overall point is
that it is very hard still to gain full entitlement to the State
Second Pension, because it is still based on Beveridge's old rules
that a normal working life is 49 years long, which, clearly, not
only has never been appropriate for women but is also increasingly
inappropriate for men's working lives as well. So the credit works
within a system that is still based on these very old assumptions.
It is very disappointing, I think, that that replicated those
old assumptions. The other thing I would point out is that Carer's
Credit only extends to the child's fifth birthday, whereas credit
within the Basic State Pension extends up to the age of 16, so
there are some anomalies there. Another issue, as Amanda has alluded
to, is that it operates on a tax year, so if you start your maternity
leave on 1 April and are terribly organised to deliver your baby
on 1 April then it is covered, but if it is delivered on 1 August
then you will not get a full year's entitlement. So there are
issues about why it is still based on an annual rather than a
weekly entitlement. The final point I would make around the Carer's
Credit is that there is an anomaly also around tax credits. Any
tax credit that you get to top up your earnings counts towards
your basic State Pension but it does not count towards your State
Second Pension. So there will be women out there who think they
are doing the right thing by going into the labour market and
getting some earnings and topping it up with Tax Credit; they
will be earning entitlement to the Basic State Pension but they
will get no State Second Pension contribution for that. So, again,
unfortunately, the Carer's Credit, although it is to be welcomed,
of course—any of these measures are to be welcomed—brings
with it some anomalies.
Q61 Mrs Humble: So that is an issue to
flag up to the Government for its report. What other issues would
you wish to see covered?
Dr Rake: I think, clearly, we
need on-going monitoring of the situation in terms of current
generations of women pensioners' entitlement and, also, some serious
projections looking at what the future entitlement is of younger
generations of women and looking at some of these issues of diversity
that we flagged up. Again, naturally, people tend to look at the
average position rather than at inequalities among the population.
On top of that what I would like to see is a report on action.
We are very long on analysis and very short on action. The Government
itself has produced some excellent analysis within the context
of the Green Paper that has just been further confirmed by the
Independent Commission. We have known, actually, for decades what
the problem with women and pensions is and what we are really
looking for now are some serious measures to tackle this because,
unfortunately, not only does it sell down the river current generations
of women pensioners but if the situation is not tackled now you
are going to lose many, many future generations of women pensioners
from full entitlement. I think one of the very real issues that
faces younger women is in terms of understanding the complexity
of the current pension system and knowing what kind of provision
they can make in order to top up their pension, and there is a
huge amount of confusion and uncertainty out there which means
that people are under-saving, as we know. I think we would be
very keen for some serious reporting on what the Government is
doing to address those issues, as I say, in order to save, if
you like, future generations of pensioners from the scandal of
pensioner poverty that affects older women today.
Ms Ariss: Again, we find ourselves
in agreement on many points. We are particularly keen that the
Government should use the opportunity of its commitment to publish
this report to explore some of the specific actions that could
be taken. As Katherine has said, there has been a lot of very
good analysis either already done or under way and it would be
a missed opportunity if the Government's report confines itself
to summarising that analysis. We would like to see something that
is more in the Green Paper mould of setting out a range of possible
proposals to tackle the causes of the problems and to consult
with the relevant stakeholders about what could be done. From
our perspective, the absolutely critical issue that we think must
be tackled is entitlement to State Pension. We are particularly
keen to see moves to widen entitlement so that the vast majority
or all women are entitled to the Basic State Pension, if not more,
and that is our priority, I think, in terms of what we would like
to see the Government focusing on in the report that it has undertaken
to do next year. We would also like to see some joining up of
policy. I think it is already apparent from the comments that
we have made that in order to tackle this problem it is not just
about the pension system it is also about making it easier, for
women who want to, to engage in the labour market in a way which
enables them to build up a pension in their own right, and there
is a need to join up what is being done on pensions policy with
action that is being taken to tackle the causes of women having
low pay and low income. That is as much about what is going on
in the labour market and what is going on in workplaces as it
is about what is going on in the pension system itself.
Q62 Rob Marris: Talking about Pension
Credit and current pensioners before we move on, as we shall,
to future pensioners, which in a sense we have already touched
on, most people, including both your submissions, are concerned
about the level of take-up and the whole issue of take-up. Have
you got any evidence as to whether there is differential take-up
between different groups of women, such as black and minority
ethnic women, or women who have recently been bereaved, or older
women? If there is that differential take-up that you are coming
across, (Katherine was talking about action) what action would
you recommend to address that differential take-up?
Ms Ariss: We are concerned about
take-up, as you said. We were encouraged to hear that yesterday,
the Minister at a conference organised, I think, by the Association
of British Insurers was expressing sympathy and expressing the
Government's concern about take-up in this area. The EOC does
not have direct evidence of differential take-up rates, for example,
for ethnic minority women but we would be very surprised if there
were not differential take-up rates, because it is relatively
complicated to apply and for a number of groups of older women
who are particularly vulnerable that is going to present difficulties
and there is a wide range of reasons why people might have difficulties
with either the language or the numeracy issues that would enable
them to be aware of what they were entitled to and take it up.
So we are concerned about ethnic minority women. We would also
be concerned about the position of women who have recently been
bereaved simply because we do not think it is very likely to be
at the top of people's agenda at that time, and we have concerns
about older people who, if they are, perhaps, experiencing difficulties
with early signs of dementia, for example, are highly unlikely
to be in a position to claim what they are entitled to. We are
very keen for the Department for Work and Pensions to explore
methods which would generate payment of Pension Credit automatically
to people who were entitled to it. We think there is a possibility
of thinking about, if you have got information about tax records
and benefit records, whether it would be possible to identify
automatically if people were likely to be entitled to Pension
Credit; so to have a system which is geared to identifying people
who are entitled to it and giving it to them rather than waiting
for people to claim. We recognise some work would need to be done
to take that forward but we think it should be explored because
if it is feasible it would make a lot of sense.
Q63 Rob Marris: So information sharing
within the department.
Ms Ariss: Yes. There are obviously
issues to be addressed there about how one could do that, and
of course any system would need to take into account data protection
issues and so forth, but we think it should be explored because
if it could be made to work it would be a really good step forward.
Dr Rake: I would absolutely agree.
I would add to the issue of vulnerability. Clearly, one would
anticipate much lower take-up rates amongst, particularly, vulnerable
groups of women, although unfortunately we do not have the data;
I do not think the department collects the data in the kind of
detail you are suggesting.
Q64 Rob Marris: Do you think it should
collect that data?
Dr Rake: Can I come back to that?
I would add to the issue of vulnerability the issue of stigma.
I think there is still, particularly among older generations,
an issue about stigma about claiming means-tested benefits. I
think what that highlights is the overall context in which Pension
Credit is operating, which is obviously within a means-testing
context. Clearly, whilst one could make efforts to both get better
information about non-take-up and to extend take-up using all
the methods that Amanda stressed, which sound eminently sensible
to me, there are some serious cost implications of that. We have,
on the other hand, a Basic State Pension system which not only
has almost complete take-up but is actually very cheap to administer.
So there has to be some consideration of the cost-benefit of pushing
and pushing take-up of means-tested benefits in contrast to delivering
in other ways to the older population. I do think that good data
is always a good thing but there are much bigger questions about
how sustainable this means-tested solution is going to be in the
longer term—not mentioning, of course, all the savings disincentives
which, I am sure, we will come on to.
Q65 Rob Marris: Coming on to savings,
as we understand it, only savings above the level of Basic State
Pension are rewarded through Savings Credit. When we suggested
to the Government that they changed that, they rather sort of
slapped us down and said that would cost £8 billion, which
is an awful lot of money. Is there any other way that you think
we could move along those lines, which, as I understand it, would
disproportionately benefit women?
Dr Rake: It has to be said that
fixing the State Pension system is going to cost money, and there
are no two ways about that. We spend, looking internationally,
an extremely low percentage of our GDP on our pension system,
and I think that was underlined by the Turner Commission. We do
that at the cost of pensioners currently; we keep them in poverty
because we choose not to spend more of our GDP on the pensioner
population. So I think there is, ultimately, a political choice
that needs to be made about whether that is an acceptable way
forward. My personal view is that it is not an acceptable way
forward and we should go up to European averages and spend more
on our State Pension system in order to make it sustainable.
Q66 Rob Marris: More prosaically, in
terms of reforming Pension Credit, as we have now got it, in terms
of the way in which savings are treated and so on, now that the
Government has basically said it is not going to spend £8
billion in that way, have you got any other "tinkering"
suggestions along those lines?
Dr Rake: I have to say I would
caution against tinkering. We have had a very long history of
tinkering and this is where we have ended up, with this extraordinarily
complex system that becomes increasingly impenetrable to anybody,
any member of the public, expert or not.
Q67 Rob Marris: Give us some simplification
then.
Dr Rake: There are a number of
routes to simplification. Clearly, one of them is to—
Q68 Rob Marris: I mean in terms of Pension
Credit.
Dr Rake: That is difficult. I
think a Pension Credit layering on top of an already complex system
actually added an enormous amount of complexity to the system.
I do not know how, within the current system, to be absolutely
honest with you, we would simplify. I think we need to take a
step back and look at simplification in broader terms. That is
what I would suggest. I think, at this stage, more tinkering just
fills me, personally, with a bit of despair. It is great for those
of us that are pension anoraks and we can lead our lives knowing
more and more about the complexity, but for the average person,
both in retirement and, also, those planning to save, it just
becomes an impossibility.
Q69 Rob Marris: You are nodding agreement
there, are you, Amanda?
Ms Ariss: Yes.
Q70 Miss Begg: You have probably covered
most of what I was going to ask but there is one thing. You—particularly
the Fawcett Society—are still arguing for reform to the
Basic State Pension, and more accessible credits and so on, but
you are still sticking by the contributory system. Have you looked
at something which could be more radical than that? There will
still, inevitably, if you have a contributory system, be some
people that are going to lose out and they are likely to be women.
Dr Rake: Yes. I have a slightly
different interpretation of our standpoint, which is that what
we are saying is that we need a broader understanding of what
counts as a contribution, so we are not sticking by the old-fashioned
Beveridge notion of the contributory system being a contribution
within paid work. What we are saying is that you need to have
a much broader understanding of contribution and really recognise
the contribution that is made by unpaid carers, both in looking
after children and then later in life, and, also, actually, allow
people to make contributions. One of the many anomalies within
the system is the Lower Earnings Limit. In France there is no
Lower Earnings Limit—as long as you are in employment you
are within the social security system—whereas we operate
a Lower Earnings Limit which excludes 1.4 million women from making
any contribution, and they may not be aware of the fact that they
are excluded because of the Lower Earnings Limit. So what we are
saying is make the contributions work better but, also, broaden
out the notion of contribution.
Q71 Miss Begg: In that broader definition,
who do you leave out?
Dr Rake: We made, I think, what
was basically a political judgment in publishing this report.
At the time of publishing our recommendations the whole notion
of a universal, citizen pension, people's pension—whatever
you like to call it—was very much off the political agenda.
Now it appears to be shifting more towards the political agenda.
What we were proposing here were a number of measures that would
actually open the door to a universal or a citizen pension; they
certainly would not stand in the way of introducing, in the longer
term, a universal or a citizenship-based pension. So we did consider
those options, but we made a political judgment that some of those
options were out of play at that stage, but that what we might
want to do is actually increase women's entitlement in order to
solve some of the issues now.
Q72 Mrs Humble: Just on the issue of
the Lower Earnings Limit, I recollect that the Government, three
or four years ago, changed the rules so that women could be credited
with contributions even though they were below the Lower Earnings
Limit to actually pay the contributions. One of the issues still
arising for women is that they may have one, two or three part-time
jobs that are even below that new much lower limit. What is the
answer to that situation?
Dr Rake: In terms of the first,
what the Government did do was introduce a zero rate of National
Insurance above the Lower Earnings Limit, which means that, effectively
the employee makes no contribution, physical contribution, but
they get credit for that period. What we are saying is why not
just extend that downwards? Just to give you an example of the
lack of joined-up government, if you are working 16 hours a week
at the Minimum Wage you are not within the Lower Earnings Limit,
at the moment. So it is craziness, really. Why not extend that
zero rating band down and include a lot of low-paid workers, again,
who think they are doing the right thing by the Government, they
think they are making a contribution but, actually, because of
these ridiculous rules, are being excluded from the system. That
is the first principle. Then, absolutely, there are a huge number
of women who are holding one, two or three jobs at low pay or,
indeed, working seasonally. That is the other issue with the National
Insurance record: it is based on an annual contribution, rather
than weekly contributions. So, for example, dinner ladies who
are working only within school term-time actually do not, over
the year, earn enough to build up a full year's worth of entitlement
and nor do they have the money to make the backdated contributions,
or they are not aware of the benefits of making the backdated
contributions. Disproportionately, people excluded for those reasons
are women, and there seems to be no good reason for that to carry
on. It is a lot of old, administrative record-keeping that goes
back to Beveridge's time that, to me, seems entirely outdated
now.
Q73 Mr Waterson: You talked about simplicity,
which I think we can all agree is a good idea in itself, but something
that has superficial simplicity is the citizens pension, which
emerged rather late in the discussion. Can I just be clear of
your position? Are you saying you did not put any money on that
horse because you did not know it was running in the race but
if it is running in the race that is your favourite? Or do you
think there is a downside to it?
Ms Ariss: The EOC does rather
like the look of that horse. Perhaps we came to a slightly different
judgment from our colleagues in the Fawcett Society about whether
or not it was near the starting gate, I guess. Our main concern
in this area is that increasing the rate of the Basic State Pension
does not help women significantly unless entitlement is widened.
So it is the goal of widening entitlement that we are after. We
think that some form of universal State Pension or citizens pension
looks like the best way of achieving that goal of wider entitlement.
There would clearly be a debate to be had about how that would
work, at what level it should be set, what sort of residence qualification—if
any—there should be, and whether there should be any exclusions,
and so forth. We think it is the right direction of travel because
it would give individuals some certainty about entitlement, it
would therefore give people incentives to save because they would
have a platform, and we think it would give incentives to employers
to run good occupational schemes because they would know that
they were not just substituting for inadequacies in the State
system. We think it could be easier and cheaper to operate
than the current, highly confusing patchwork. So we can see a
lot of advantages in it and will be doing some more work over
the coming months about exactly how we think it could best operate.
Q74 Mr Waterson: That is very helpful.
Are you conscious of the definitional difficulties, particularly
relating to immigration and, also, other disadvantages of just
junking the contributory principle?
Ms Ariss: We would certainly see
that there would need to be a debate about whether there should
be a residence test. We can see there would be a very good argument
for that, because you could have a lot of unintended consequences
if you did not do that. However, there is a debate to be had about
how that should best work. Although there would be a change in
the way in which the system is working, I think we do feel that
one of the big disadvantages of the current system is that
it does interpret "contribution" incredibly narrowly;
it does only credit not just paid work but certain kinds of paid
work, because a lot of people are excluded from it. So we do not
think that the argument is "Is the contributory principle
a good thing or not"; I suppose we do not see ourselves as
junking that principle, we think it is just the best way of dealing
with the fact that the current system excludes a lot of people
who are making a contribution.
Q75 Mr Waterson: I just want to quickly
get a take on the Fawcett Society. Of the 1.7 million, or so,
people who are not claiming Pension Credit at the moment, we cannot
know how many of those are women, but presumably increasing the
State Basic Pension and taking people off Pension Credit will
in itself benefit a lot of women?
Ms Ariss: If you just raise the
level of Basic State Pension without broadening entitlement then
it would not because so many women do not have full entitlement.
Entitlement is absolutely critical.
Q76 Mr Waterson: But the ones who are
entitled, many of them will benefit.
Ms Ariss: Yes.
Dr Rake: On the universal/citizen
pension, I would flag up three issues which are of concern to
me. The major one, which has not been mentioned, is if we do introduce
a citizenship pension at what level is it paid? One of the issues,
of course, is a simple cost one, which is that if you are going
to broaden out those who are entitled then you are going to have
to simply pay more out, or are we going to set it at such a low
level? I think the risk, in the British kind of tradition, of
spending very little on pensions may well be replicated in that
and the level of the citizenship pension would be set so low that
it really would not be meaningful. So if a Government commitment
were ever to be made I think I would await an announcement on
the level before being entirely convinced. The other two issues,
I think, are about who is counted as eligible. Clearly, all the
issues about residence are quite complex and, within the current
political climate, are very hot issues. The third is that people
clearly are attached to the contributory principle, and indeed
there is an enormous amount of support for this broader notion
of what constitutes a contribution. So when we polled and asked
people whether they thought that those who were caring for older
relatives or caring for children should be included within the
system we saw unbelievable results—a huge amount of consensus;
for caring for older people something like 93% supported that
and for caring for children it was 78%. You very rarely see polling
results of that nature, and there is a huge weight of public opinion
behind that broader notion of contribution. So I think, as I say,
ultimately the judgement is a political one. I think you could
keep the system as it is, add in this broader notion of contribution
and, effectively, end up with what looks like a citizenship pension—we
could name it as such, indeed—without having these problems
of residency or the problems of the undeserving individual who
does nothing through their lives, and all the rest of it. However,
as I say, I think this is why we are a bit reserved about it for
those concerns, specifically around the level and, also, around
the contribution.
Q77 Mr Goodman: Talking of horses that
are running or not running, one idea for reducing the level of
means-testing that is a kind of interim before reforming contributions
or looking at the citizenship pension is targeting money specifically
at older pensioners, because that would greatly help older pensioners
who are women, who are often among the poorest pensioners. What
do you think of that? Do you think that has got anything as an
interim measure or are you simply interested in a bigger simplification
of the contribution principle/citizens pension?
Ms Ariss: I think we would like
to see the medium to long-term direction being sorted out but
there are disadvantages to doing too much tinkering with something
that we do not see as being the right solution in the long term,
but would agree with you that older pensioners are disproportionately
likely to be particularly poor, and therefore if you are in the
targeting game that is a direction which one might target.
Dr Rake: I would absolutely agree;
it would be another sticking plaster measure but, of course, you
would never turn down money for older pensioners, especially given
that they are disproportionately women. However, it would only
ever be a sticking plaster measure.
Vera Baird: Just looking at, as it were,
the two alternatives to try and solve the structural problems
with the pension system—one to move to a universal pension
and the other one making the NI system much more inclusive rather
than exclusive of women, as it is at present—I suppose one
problem with the Fawcett approach, if I can just characterise
it thus (although I have heard what you have said), is that it
would take a long time for these changes to get through so we
will have another 30 or 40 years of women in the same position
that they are in now when they go on to a pension. The other thing,
and for obvious reasons we will need to ask you for brief comments
on this, is how practical and how possible it is to reconfigure
the contributory system so that caring and working are equally
credited? For instance, you are passported to the Carer's Credit
for caring for older people if the person you are caring for gets
Disability Living Allowance because they require 35 hours' work.
In any other situation you will not get a Carer's Credit. If,
for instance, two sisters are sharing the care of their mother,
so that each is doing 10 hours, how will you decide which of them
gets a credit or what level of credit each of them gets? If one
individual is going out and doing some part-time work but not
enough to get them a credit and the other part of the time they
are caring for their parent they are damaging their ability to
contribute to a pension by caring for their parent but they may
only be giving her Sunday lunch and a meal a day. Is that enough
to amount to a Carer's Credit? That seems to me to be, almost,
an acid test as to which way you go, whether you widen the contributory
principle or you do shift to a universal pension. Is it practical,
in fact, to swap the NI system around drastically to make it embracing?
Q78 Chairman: What I would really like—and
this is a bit hard because you have both been working very hard
this morning—is a note about that from you. I think it is
a key question and to ask you to do it in two minutes is not very
fair. You have been very good, coming at short notice, but would
you both give that a little thought? One side of A4 from each
of you would really be very helpful. It is a very, very important
question. I did promise you I would try and save the last 30 seconds
for you, because we have covered a huge amount of ground—and
very concise and powerful evidence it has been. Is there anything,
in the last few seconds before the bell rings, that you think
we should be thinking about that we have not asked you about at
all?
Ms Ariss: We have covered all
the things that I particularly wanted to raise.
Dr Rake: I would flag up just
two very small issues. One—that we flagged up here, in terms
of what we could do in the short-term—is that getting rid
of the 25% rule, again, would add a crazy kind of anomaly within
the system. The other thing is about Pension Credit and its rewards
to savings. Of course, it is a household means test so it does
not actually reward individual savings (it is very rarely said),
so lots of women in couples are not getting any of their savings
rewarded.
Chairman: We have caught both those points.
Thank you very much indeed. That has been helpful. Thank you for
your appearance. The Committee stands adjourned.
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