Clause
4
Category
A and C retirement pensions: abolition of adult dependency
increases
Question
proposed, That the clause stand part of the
Bill.
Mr.
Waterson:
I am sorry for rising belatedly to speak, but I
was under the impression that, as there are no amendments, the Minister
would introduce the clause. However, let us proceed the other way
round, just for fun.
On
first blush, one might think that the clause is pretty uncontroversial.
Indeed, that might yet prove to be the case. It certainly has no
enemies, because nobody has tabled any amendments to it; but does that
mean that it is a wholly innocent part of the Bill? There might yet be
a torrent of written evidence stacking up somewhere—it has not
reached me, but presumably
someone would be looking at it—but, as far as I recall, no
outside body has taken it upon itself to make representations about the
clause to us either. It might therefore be quite easy to write off
adult dependency increases as just an historical anomaly—an
outdated matter that needs to be tidied up round the edges, as part of
the wider reform. However, there are a few issues
that I should like the Minister to deal with in his summing-up. The
first is the extent of the savings likely to be made by scrapping ADIs.
Figures have been bandied around in supporting documents, but I shall
deal with them in more detail in a moment. The second is the extent to
which there will be net losers as a result of the proposals and how
many there will
be.
Again, it is
perhaps an indication of the strange status of clause 4 that one must
fall back on the excellent Library brief to find out the effect of the
provision. I have to say that ADIs have not featured high on my list of
interests within the DWP brief until fairly recently. According to the
brief, however, a married man on the basic state pension can claim an
increase for his wife provided that she does not have earnings or an
occupational pension of more than £57.45 a week. That is paid at
the same rate as the category B pension, about which we heard so much
earlier. A married woman can claim a dependency increase for her
husband only if she received an increase in incapacity benefit for him
immediately before she qualified for her own pension. It is perhaps not
surprising, therefore, that according to the brief, more than 99 per
cent. of adult dependency increase recipients are men. That figure is
based on DWP
statistics.
The White
Paper announced that ADIs will be abolished in April 2010. It might
help if I quote the reason for that given in the White
Paper:
“Our
conclusion is that the concept of ‘dependency’ on which
the ADI provisions are based has little relevance in today’s
society in which partnerships of equals are the
norm.”
If I may, I shall
come back to that in a moment. Again, as I understand it, all existing
entitlements to ADI will be protected up until 2020. On the question of
possible losers, as I understand it, the average weekly pension for a
person with a category A pension with no dependants was £94.77,
but for those with adult dependants it rose to £144.51. In May
2006, 59,000 were in that category—pensions with an
ADI—at a cost of £160 million. Some 59 per cent. of
recipients are men aged 65 to 69. One begins to see the shape of any
likely overall saving in that £160 million
figure.
Child
dependency is another issue. Any new claimants were effectively shut
off as a result of the Tax Credits Act 2002, but existing ones
continued to receive increases. Again, in May 2006, 5,300 pensioners
received an increase for a dependent child. The average increase was
£104.63. The clause would abolish such increases to pensioners
caring for children. I have made the point already that new claimants
are dealt with under the child tax credits legislation. According to
comments in the debate on 6 January 2006, overall savings, as a result
of the abolition, will be about£500 million by 2015,
and about £1.2 billion by 2020. It will be interesting to hear
from the Minister whether
those figures have changed in the interim. The Department has estimated
that 660,000 people would otherwise have received increases in
2020. It is interesting
that, as the Library briefing points out, this part of the Bill has
received so little comment outside this place—in fact, I feel
sort of guilty to be the first to add a comment. Perhaps people do not
appreciate what is happening, do not understand the way in which it
works, or have not done the calculations. I am not in a position to
comment. However, there has been intervention by Saga Magazine,
which, as we all know, is a powerful voice for the over-50s and offers
a very decent rate of insurance for those of us who have passed that
magic milestone. Paul Lewis, in the magazine’s guide to pensions
reform in August 2006—I am sure that it has been required
reading for all members of the Committee—made the point that the
scrapping of new claims for the dependency increase will result in some
pensioners being worse off than others because of reaching pension age
the wrong side of 5 April 2010. That has the potential to be another
cliff-edge or steep-incline problem, and it needs to be addressed. One
sentence of Mr. Lewis’s piece
reads:
“There
will be a lot of people who will fall just the wrong side of this line
and who will get a much smaller pension than someone in the same
circumstances just a few days
younger.”
He says
“a lot of people”. What is the Minister’s current
estimate of that
number?
The
Government’s position, of which we will hear more in a moment,
appears to be that the transitional arrangements will protect people
already receiving ADIs up to 10 years from now and that the money
saved—it would be interesting to have the net figure—will
provide better state pensions, particularly for women. Like the savings
made on contracted-out rebates, that is an example of money being
ploughed back into the pensions
system.
The gender
impact document published with the Bill contains some rather delphic
comments on the matter. It points out that ADIs will be abolished under
the reform proposals and
states:
“These
increases are less necessary where both members of the couple are
likely to be economically active and can also act as a disincentive for
women to work up until the State Pension
age.”
I have to say that
it sounds to me as though the amounts involved are not likely to be
sufficient to stop a woman working until pension age if that is what
she wants to do.
The
regulatory impact assessment states at page 29 that the rationale
is
“the principle that the
reforms would enable a person to accrue pension entitlement in their
own right.”
That is fair
enough.
“The
abolition of adult dependency increases removes a disincentive for
women to continue in work up to at least State Pension age and the
Government’s position is that the principle of dependency in the
benefit system is
outdated.”
That seems a
sweeping statement. Yes, as we constantly hear, and no doubt will in
the Committee, we have moved on from the days of Beveridge when the man
went out to work and the woman stayed at home, brought up the children,
looked after elderly relatives and usually never went back into the
jobs market. That has changed out of all recognition, but even in the
most modern societies there will be some dependency in the system. My
hon. Friend the Member for South-West Bedfordshire touched on that
point in our previous debate. If the Government hope, by diktat, to
scrap the concept of dependency altogether, they are making a
mistake. To summarise,
I have raised three broad issues that I wish the Minister to deal with:
first, the likely savings arising from the change, which he is
apparently relying on to help finance the rest of the pensions reform
package; secondly, whether there will be any losers in real terms; and
thirdly, whether he accepts that there will be situations in which,
through no fault of the individuals involved, dependency still exists
and where some people may be part of the group of potential losers that
I have
mentioned.
6
pm
Mr.
Laws:
The hon. Gentleman has given the clause a good
airing and I do not intend to go back over the wider issues that he has
raised. I do wish to make a couple of specific points. The hon.
Gentleman is right that relatively little attention has been paid to
the elements of clause 4 that he mentioned. Indeed, the Work and
Pensions Committee did not cover the issue during the course of its
inquiry, saying so specifically at paragraph 223 of its report, which
simply picks up and quotes from its earlier report, “Incapacity
Benefit and Pathways to Work”, where some concern about the
impact of the changes on people with disabilities is expressed. I
should be grateful if the Minister would tell me whether the potential
concerns have been addressed in any other way, or whether there are any
particular implications for vulnerable groups, such as for people with
disabilities.
The hon.
Member for Eastbourne said that he had had no representations on the
clause. We can declare one. The group to be commended is the National
Pensioners Convention, which raised a specific point about the
proposal. I will quote the group in order to give it full
credit:
“Most of
the increases in payment in 2010 will have come to an end before 2020,
as the dependants, of either sex, reach pension age and become entitled
to a pension in their own right. The cost of continuing those still in
payment would therefore be very small. If the increases are to be
abolished, it should be done gradually, over a much longer period, so
that the rights already accrued are
preserved.”
We
know that the existing clause 4 proposes to protect rights up until 5
April 2020, as the hon. Member for Eastbourne indicated. In addition to
his wider points about costings and effects, it would be particularly
helpful to know from the Minister who would still have some of the
payments owed to them beyond 2020 and who would suffer the loss after
the protected period ends. I should be grateful if the Minister would
let us know how many people he expects to fall into that category and
what the savings will be from bringing the guillotine down in 2020,
rather than allowing the costs to taper away. Also, why have the
Government chosen 2020? Was the issue one of costings, to correspond
with a date when some of the costs of the other pensions reforms really
click in? Was a judgment made that most of the accrued rights would
have been paid off by 2020 and continuing the
payments beyond then would be administratively complex? What were the
reasons for choosing that particular
date?
James
Purnell:
Scrutinising such a proposal as this is exactly
what the Committee is for. As the Opposition Front Benchers said, the
issue has not been hugely looked at. We had one response in the
consultation, from Carers UK, which agreed that ADIs were outdated.
Other than that, they have not been the top subject of conversation
down in “The Dog and Duck” or, indeed, in pensions
circles.
The clause
abolishes increases in state pension entitlement in respect of a spouse
or an adult who has the care of the pensioner’s children. The
clause would have effect for new claims from April 2010, but would not
apply to certain existing claims until April 2020. Our big-picture
argument is that the whole concept is outdated. The idea of one person
being dependent upon another purely because of their age is outdated.
When the hon. Member for Eastbourne quoted the remark about adult
dependency being an outdated concept, we do not mean that adults can
never be dependent, just that the particular principle—there
should be a payment to someone who is over state pension age because
their spouse is under state pension age—is, I think, pretty much
agreed by everybody not to be something that anyone would come up with
today. The core reason why abolishing this is important is not so much
because the cost is huge now. However, because of state pension age
equalisation, every couple—unless both were born on the same
day—would in effect have one person who was thought dependent on
the other under the provisions. The costs would increase significantly
over time.
That is why
the clause intends to remove the provisions in the Social Security
Contributions and Benefits Act 1992 that enable a person claiming a
category A or a category C state pension to receive an increase in
their pension in respect of a spouse or alternatively an adult who
cares for a child on their behalf. I should explain that none of the
increases in respect of category C pensions are in payment, nor will
any arise in the future. That is one of the parts of the legislation
that shows for how long today’s debate will have an effect,
because category C pensions are payable only to people who were over
state pension age in July 1948 and their widows but they are still in
the system and those pensions are still being paid. Only widows remain
and they will not be affected by the changes.
Our intention is that from April
2010 increases of pension in respect of adult dependants will no longer
be available. Any such increases in payment immediately before the
proposed change will cease, if they have not already done so, in 2020.
The clause is part of our policy to simplify the rules for state
pensions. The current dependency increase provisions are a hangover
from the immediate post-war period when single-breadwinner households
were the norm. There is little justification for that in the 21st
century. As I have said, only a small number of people benefit: only
around 65,000 men and a handful of women receive an increase of pension
for an adult dependant. Over the past decade the proportion of men
receiving an increase for an adult dependant has fallen from about 2.5
per cent. to about 1.5 per cent.
However, between 2010 and 2020
those numbers are forecast to increase roughly tenfold for two reasons.
The first is the increase in women’s state pension age, because
the dependency increase provisions benefit only those couples in which
the wife has not reached pension age when the husband claims his
pension—in effect they are applicable only to the minority of
couples where the wife is more than five years younger than the
husband. As women’s pension age increases, the provisions are
set to have far wider application. The second reason is that from 2010
the dependency increase provisions were set to extend to
women—that is to enable a woman to claim an increase of pension
for her husband—and to people in civil partnerships. As a result
the net costs of paying increases foradult dependants were
estimated to rise to around£1.4 billion by
2020.
The hon. Member
for Eastbourne will be glad to know that we are reinvesting the money
that will not be spent on our reforms to the state pension scheme. By
taking money out of paying people as dependants, we will be paying
people in their own right. That is why the analogy about a cliff edge
does not quite run. For any couple who retire after 2010, although they
would not get an adult dependency increase, the spouse would get the
benefit of a far more generous pension provision. There is no strict
analogy, as the hon. Member for Yeovil will see, with the issue that we
debated earlier because of the compensating benefits for anyone who
retires after 2010. He is furrowing his brow, so I do not know whether
he wants to intervene.
Mr.
Laws:
I am grateful to the Minister for making those
points. So that I can, perhaps, get my mind around all the issues in my
own time, can he still answer my question about the number of people
affected beyond 2020? If he does not have that information now, perhaps
he could write to the Committee about it so that I can give some
thought to the matter of whether there will be any losers as a
consequence of the changes in the cohort beyond
2020.
James
Purnell:
I am struggling to think whether those people
would be affected beyond 2020. I am happy to write to the hon.
Gentleman, but I will come to that later in my speech.
The savings are not the only
reason for abolishing the increases for dependants. That will be
particularly interesting to those members of the Committee who favour
pension simplification. The rules governing entitlement to those
increases are mind-bogglingly complicated as a result of tinkering by
successive Administrations in order to restrict entitlement. Under the
current rules there are three different earnings limits depending on
whether the dependant is the pensioner’s spouse, living with the
pensioner or employed by the pensioner as a child carer. In addition,
“earnings” does not mean only earnings. The legislative
definition also includes some, but not all, occupational or personal
pensions paid to the dependant. Entitlement to the dependency increase
is determined on a weekly basis, depending on the dependant’s
earnings, either in that week if she is his wife and lives with him or
the previous week if she does not.
The “earnings”
limits operate on an all-or-nothing basis; if the dependant earns over
the limit, no increase is payable. For example, if a woman’s
husband is claiming an increase for her, even a modest wage increase
can result in withdrawal of the dependency increase, which can create
the disincentive to which the hon. Member for Eastbourne
referred.
Mr.
Waterson:
I am massively impressed that a system that
cannot change its programming in less than two years can track the ups
and downs of married life week by week.
I ask the Minister
to answer two questions. First, leaving aside the potential losers
after 2020, I can see that a tremendous surge of people would then be
entitled. A ballpark figure would be helpful of people who, up to that
date, might well be losers in some shape or form. He is expressing
quite eloquently the complications of ADIs; can he say what estimate
has been made of the take-up level? Presumably people have to fill in
forms, and given the relative anonymity of ADIs until this moment I
assume that the take-up is rather small.
James
Purnell:
I shall deal with the point about losers later.
If the hon. Gentleman will trust me on that it would be great. However,
I am happy to tell him that the computer indeed says no to those cases,
as they are not done by the computer; they have to be done clerically
because they are so complicated.
I am sure that the
Committee will agree that these complicated arrangements are difficult
for the customer to understand and for Pension Service staff to
administer. But for all the complexities, increases for adult
dependants are of little or no help to the poorest pensioners, as the
increase is simply offset against the pension credit guarantee credit
and other income-related benefits. Indeed, to pick up on one of the
points raised by the hon. Member for Yeovil, ADIs are not paid if the
dependant is getting a disability benefit such as incapacity benefit in
his or her own right.
For those reasons
we propose to remove these outdated provisions in two
stages—first, by abolishing increases for adult dependants for
new claims from April 2010; and secondly, by ceasing to pay them in
transitionally protected cases from April 2020. The transitionally
protected cases will be those where entitlement was established before
6 April 2010.
We anticipate that payment of
the increase will have ceased before 2020 in the majority of
transitionally protected cases, because the wife will have reached
pension age and become entitled to her own state pension. In the
minority of cases in which a couple is still in receipt of an increase
at the point of change, we will ensure that they are made aware of
other benefits for which they may be eligible, particularly pension
credit. By and large, any people losing their ADI at that stage would
be looking forward to receiving a state
pension.
The transitional arrangements
are appropriate, given that everyone recognises that the principle of
the existing arrangements is many decades out of date. Preserving it
for another 15 years would involve a fair
amount of transitional protection. We estimate that the case load in
2010 will be 60,000 people, and that about three-quarters of them would
have ceased getting ADIs before protection ends in 2020, so between
15,000 and 20,000 ADIs would be switched off at that stage. That is the
answer that the hon. Member for Eastbourne was seeking. Given that they
would be later, and that there will potentially be an increase in
pension credit, we think that that is the right balance. We do not want
to keep the system going for decades to come, for a small handful of
cases. These are complicated and arcane
provisions. They do not benefit many people at the moment, but they
would create a significant spending increase for those who had not
reached state pension age. We therefore think it right in principle to
remove them.
Question put and agreed
to.
Clause 4
ordered to stand part of the Bill.
Further consideration
adjourned.—[Mr.
Heppell.]
Adjourned
accordingly at fifteen minutes past Six o'clock till Thursday 25
January at ten minutes past Nine
o'clock.
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