Letter from the Department to the Committee
Clerk (PC 01H)
You wrote on 31 November asking for some additional
information in connection with the Work and Pensions Select Committee's
current inquiry into Pension Credit.
You asked for information relating to the Department's
IT systems, particularly difficulties reported recently in the
press. You also requested sight of guidance for Pension Service
staff in relation to the small number of customers for whom Direct
Payment is not suitable. You were also interested in some detailed
information relating to the take up of Pension Credit, the savings
reward and the basic State Pension.
I have provided a response to each of your requests—attached
at the annex.
(The Pensions Group Bulletin 301/04 and
the figures for Pension Credit Recipients by Parliamentary
Constituency, October 2003 to September 2004 were attached
as annexes to this letter and available from the Department.)
Annex A
IT Difficulties
You asked for a written statement as to the
impact on customers and staff of the IT problems reported in the
press on Friday 26 November.
On Monday 22 November, a routine security upgrade
to desktop configurations caused disruption to 40,000 desktop
PCs (out of 130,000) throughout DWP. The disruption was resolved
in less than three days and was blown out of all proportion in
the media. All DWP business areas report a return to normal working.
The Department's large mainframe computers,
which handle payments to existing customers, were not affected
and customers who usually receive regular pension and benefit
payments continued to receive their money. Although there were
some delays in dealing with new or amended claims, it is important
to remember that a delay in processing a claim does not usually
mean a delay in payment and the actual impact on our customers
was minimal. The Pension Credit Application Line remained open.
Approximately 80% of our staff who deliver our
services experienced some sort of problem but business continuity
procedures came in to operation effectively to minimise the disruption.
We have commissioned an inquiry from our suppliers.
This report should be available before Christmas and we will share
findings with the Committee when they are available.
DIRECT PAYMENT
You asked for sight of the guidance for Pension
Service staff relating to decisions on the appropriate method
of payment for customers.
Existing guidance on cheque payments is contained
in Pensions Group bulletin number 301/04 for Pension Credit staff
and in Pensions Group Bulletin 321/04 for State Pension staff.
Following the review mentioned, these bulletins were supplemented
by Pensions Group Bulletin 374/04. Copies of these bulletins are
attached (at annex B).
The bulletins will in due course be consolidated
in the Pension Credit Procedures Guide and the Pensions Procedures
Guide as appropriate.
TAKE UP
On the subject of take up of Pension Credit,
you wanted to know the percentage increase of households in each
parliamentary constituency in Great Britain from 17 October 2003
until the most recent available data.
A table showing Pension Credit recipients by
parliamentary constituency at October 2003 and October 2004 is
attached separately (at annex C). The table also includes Pension
Credit take up figures relating to the beginning of April 2003
and October 2003.
You also asked what information the Department
holds in relation to the categories of pensioners who have not
taken up their entitlement to Pension Credit.
Robust statistics on non-claimants require detailed
investigation and validation of survey data. Drawing on the Family
Resources Survey, DWP statisticians aim to publish estimates of
numbers, and characteristics, of pensioners not taking up Pension
Credit in its first six months, by the autumn of 2005. Official
Pension Credit take-up statistics covering the first full financial
year since its introduction (2004-05) are scheduled to be produced
and published in the following year. When Family Resources Survey
data becomes available, statisticians involved in the construction
of estimates will consider whether statistics by component parts
of Pension Credit will be sufficiently robust to release.
We are of course using a range of data to inform
the take up campaign. In designing the marketing campaign we used
the data we hold within Departmental systems about our customers
and that available from outside to identify people most likely
to be eligible for Pension Credit and their key characteristics.
We then grouped them according to likely eligibility, likely barriers
and communications preferences and developed communications tailored
to our understanding of their circumstances. This has enabled
us to target specific groups of pensioners with differentiated
messages—for example, we have strongly encouraged those
who are very likely to be eligible to apply, whereas we have encouraged
those less likely to be eligible to consider additional information
and eligibility conditions before making an application.
During the current phase of the campaign we
targeted our direct contact appropriately we re-examined our customer
database and re-scored their Pension Credit eligibility against
a number of detailed factors to identify pensioner households
likely to be eligible for Pension Credit. This refined customer
segmentation focuses on type and amount of award and splits customers
into groups with high or medium eligibility. Other factors such
as age, disability and customer type have been fed into the profile.
Segmentation has been used primarily to target
direct mail activity and govern the number and sequence of contacts,
which include outbound calling by the application line and Local
Service visits. The segmentation splits the most eligible pensioner
households into six groups, according to factors such as:
— Single or part of a couple
— Likelihood of being eligible for
guarantee element or savings element or both
— Receipt of Disability Living Allowance
or Attendance Allowance, Council
— Receipt of Council Tax Benefit or
Housing Benefit
In addition, as part of the 2003-04 Social Research
Programme we will continue and develop the tracking survey that
has already been running. The objectives of this research are:
— To continue monitoring awareness
of Pension Credit and eligibility rules
— To gauge older people's attitudes
to Pension Credit
— To assess why some people are not
taking up Pension Credit and what might encourage them to do so.
Responses will be analysed by age, socio-economic
group and gender to pinpoint differences between groups. For example,
we will examine the responses of those who have not applied who
appear to be entitled to a small amount. This analysis will assist
the campaign and delivery staff in their efforts to encourage
people to apply.
Findings from previous data collected by the
tracking survey have been deposited in the House of Commons library.
The report from the proposed new wave will be published on the
internet and be accompanied by a press release.
REWARDING SAVINGS
In its first report on Pension Credit the Committee
recommended that the "Government should inquire into the
immediate and long-term costs, benefits and affordability of extending
the Pension Credit in this way [rewarding people with deficient
NI records] and make public the results." In response the
Government said that removing the savings credit threshold altogether
would cost around £8 billion on top of the existing Pension
Credit package.
You suggested in your letter (31 November) that
alternatives to removing the Savings Credit threshold altogether
would be to:
(i) reward all savings in excess of the Basic
State Pension in payment (excluding any increments for deferment);
or
(ii) for single people, reward all savings
in excess of the Basic State Pension in payment (excluding any
increments for deferment); and, for couples, reward all savings
in excess of either the Basic State Pension in payment (excluding
any increments for deferment), or the full married couples rate
of the Basic State Pension, if that is lower.
You asked for an estimate of the cost of this.
If possible, it would be useful to have an estimate of the current
cost and for 50 years in the future.
The estimated costs are as follows:
(i) reward all savings in excess of the Basic
State Pension in payment (excluding any increments for deferment)
2004-05 prices £0.5 billion
-£2 billion
Cash Terms £0.5 billion -£8
billion
(ii) for single people, reward all savings
in excess of the Basic State Pension in payment (excluding any
increments for deferment); and, for couples, reward all savings
in excess of either the Basic State Pension in payment (excluding
any increments for deferment), or the full married couples rate
of the Basic State Pension, if that is lower.
2004-05 prices £0.5 billion £0
billion
Cash Terms £0.5 billion £0
billion
In both cases we have assumed for the 2050 costing
that all individuals in 2050 will have full individual contribution
records and therefore full BSP. This is to account for the anticipated
improvement in contribution records over time, particularly amongst
women. All costs are rounded to the nearest half a billion and
are given in 2004-05 prices and also cash terms.
BASIC STATE
PENSION
In connection with protecting entitlement to
basic State Pension, you ask:
(i) Whether it is possible to extend existing
credits for periods prior to 1978;
(ii) Whether it is possible to credit other
activities for periods post 1978; or
(iii) Whether any new credit regime could
only apply going forwards.
Home Responsibilities Protection was introduced
in April 1978. It protects the basic State Pension of men and
women whose working patterns do not enable them to establish sufficient
qualifying years for pension purposes because of caring responsibilities.
It protects the basic State Pension position
of those who don't work at all, or don't earn enough in a tax
year (and don't have sufficient credits) for that year to count
as a qualifying year for State Pension purposes and
— Care for a child under the age of
16, or
— Care for a sick or disabled person
(and do not receive Carer's Allowance for the same period), or
— Are a registered foster carer.
In order to qualify for a full (100%) basic
State Pension, a person must normally have qualifying years for
about 90% of the years in their working life (currently working
life for men is normally 49 years and for women it is 44 years).
Therefore, to qualify for a full State Pension a man requires
44 qualifying years and a woman requires 39 qualifying years.
HRP works by reducing the number of qualifying years needed for
a full State Pension—so when calculating a person's basic
State Pension entitlement, the number of years in which they are
entitled to HRP is taken away from the number of qualifying years
required for a full State Pension. However, HRP cannot reduce
the number of qualifying years required below 20 (22 for men from
2010 and gradually rising to 22 for women by 2020 when State Pension
age for men and women is equalised at 65 years).
The vast majority of people acquire HRP automatically
through receiving Child Benefit for a child under 16. (Most carers
for the disabled receive Carers Allowance which entitles them
to be credited with National Insurance contributions each week.)
It would not be possible to extend HRP to periods prior to 1978,
since there was no system in place to recognise those potentially
eligible for HRP before this time. The current arrangement requires
Child Benefit Office to notify the National Insurance Recording
System that someone is the payee for Child Benefit for a child
under 16 and a marker is put on their account so that they can
be awarded HRP, if needed. The Child Benefit system was not fully
computerised until the end of 1978 and, indeed, Child Benefit
was not payable for first or only children before 1977. There
would therefore be no practical way of identifying eligibility.
With regard to the issue of extending the range
of pension protection which is available, I should point out that
the position of female pensioners today is largely a legacy of
the past. A look at the position of people of working age now
indicates very little difference between the proportions of men
and women accruing state pension rights.
The reasons for this are twofold. First, a far
higher proportion of women now work outside the home and therefore
pay, or are treated as paying, National Insurance contributions.
Secondly, because measures such as HRP and, more recently, State
Second Pension have been introduced to protect the pension of
people with caring responsibilities. Furthermore, people who work
for low wages and receive Working Tax Credit are also credited
with National Insurance contributions if their earnings are too
low to pay these.
However, for today's pensioners there was a
legacy of injustice to deal with in 1997. Hence the introduction
of Pension Credit—and before it Minimum Income Guarantee—to
improve the situation of the poorest pensioners—many of
whom are women.
We are looking at a number of options which
could help those with incomplete National Insurance records. In
examining options, we would need to take account of affordability
and complexity and any impacts on other aspects of social security
benefits and the wider economy. We intend to produce a report
on women and pensions which will be published by the end of next
year.
We are committed to a pensions system which
has the basic State Pension at its core, gives special help to
the poorest and provides incentives for hard-working families
to save whatever their wealth or income.
RESIDENCY INFORMATION
You asked what residency information the Department
holds, particularly information needed to establish entitlement
to a Category D retirement pension.
A Category D State Pension is non-contributory.
It is payable when a person:
— satisfies certain residence conditions;
and
— is not entitled to another category
of State Pension, or is entitled to one at a lower rate than the
Category D rate (in 2004-05 this is £47.65 a week).
To get a Category D State Pension a person must
meet all the following conditions:
— be aged 80 or over; and
— at the time of claiming, be ordinarily
resident in Great Britain; and
— have lived in Great Britain for a
total of 10 years or more in any continuous period of 20 years
after their 60th birthday.
Periods of residence in another member state
of the European Economic Area, or in Switzerland, may, depending
on the person's status under EU law, count towards the satisfaction
of these conditions.
INFORMATION RELATING
TO RESIDENCY
The information required to establish the residency
conditions that need to be met to establish entitlement to a Category
D State Pension is collected on claim forms.
The claim form that is normally used by a person
when they wish to claim their State Pension is the BR1. In the
majority of cases this will be completed to ensure payment at
State Pension age, although it will also be used in cases where
people defer their State Pension to earn increments.
There is a form specifically for claiming Category
D State Pensions—the BR2488. This form asks the applicant
whether they normally live in Great Britain and about countries
they have lived in abroad.
Regulation 3 of the Social Security (Claims
and Payments) Regulations 1987 (SI 1987/1968) provides for certain
exceptions to the requirement to make a claim. Regulation 3(b)
relates to Category D State Pensions:
"Claims not required for entitlement to
benefit in certain cases
3. It shall not be a condition of entitlement
to benefit that a claim be made for it in the following cases:
(b) in the case of a Category D retirement
pension where the beneficiary:
(i) was ordinarily resident in Great Britain
on the day on which he attained 80 years of age; and
(ii) is in receipt of another retirement pension
under the Social Security Act 1975"
A Category D State Pension claim made on a BR1
form could be accepted by the Secretary of State as a claim made
in a sufficient manner, as long as the supplementary information
about residence was provided in enough time to ensure that the
claim was not ruled defective.
In cases where a person under the age of 80
has claimed and is entitled to a State Pension at less than the
Category D rate, when the person reaches the age of 80, the Department
can ascertain whether or not the person has reported a change
of address, particularly a move overseas, that may impact on their
entitlement to a Category D State Pension.
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