Draft Age-Related Payments Regulations 2013
The Committee consisted of the following Members:
Bradshaw, Mr Ben (Exeter) (Lab)
† Dakin, Nic (Scunthorpe) (Lab)
† Evans, Jonathan (Cardiff North) (Con)
† Fox, Dr Liam (North Somerset) (Con)
† Fullbrook, Lorraine (South Ribble) (Con)
† George, Andrew (St Ives) (LD)
Godsiff, Mr Roger (Birmingham, Hall Green) (Lab)
† Hemming, John (Birmingham, Yardley) (LD)
† Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/Co-op)
† Javid, Sajid (Financial Secretary to the Treasury)
† Jones, Mr Marcus (Nuneaton) (Con)
† McCartney, Jason (Colne Valley) (Con)
† Milton, Anne (Lord Commissioner of Her Majesty's Treasury)
† Raab, Mr Dominic (Esher and Walton) (Con)
Ruane, Chris (Vale of Clwyd) (Lab)
† Ruddock, Dame Joan (Lewisham, Deptford) (Lab)
Shannon, Jim (Strangford) (DUP)
† Winnick, Mr David (Walsall North) (Lab)
Mark Etherton, Sarah Coe, Committee Clerks
† attended the Committee
Fourth Delegated Legislation Committee
Wednesday 20 November 2013
[Nadine Dorries in the Chair]
Draft Age-Related Payments Regulations 2013
2.30 pm
The Financial Secretary to the Treasury (Sajid Javid): I beg to move,
That the Committee has considered the draft Age-Related Payments Regulations 2013.
I welcome you to the Chair, Ms Dorries. The draft regulations confirm the rules surrounding proposed payments to holders of Equitable Life with-profits annuities that began before 1 September 1992.
In 2010, the Government established the Equitable Life payment scheme, which was designed to make payments totalling up to £1.5 billion to around 1 million former Equitable Life policyholders who suffered relative financial losses as a result of Government maladministration in the regulation of Equitable Life. Eligibility for the scheme is restricted to those who bought their with-profits annuities from Equitable Life on or after 1 September 1992. The reason why is because the scheme is based on the understanding that those people investing with Equitable Life relied on regulatory returns that were subject to Government maladministration. As such, they lost the opportunity to make a fully informed decision and, if they had had that opportunity, they might have invested elsewhere. The first returns that would have been different, had maladministration not occurred, were those of 1991, and they would not have influenced policyholders’ decisions until September 1992, so investment decisions made before that time were not included in the scheme. However, since the scheme was established, the Government have received many representations arguing that policyholders who bought their with-profits annuity from Equitable Life before 1 September 1992 should be included in the scheme.
The Government remain of the view that there is no basis to include such people in the scheme for the reasons that I have just given. The issue has been extensively documented and was debated in Parliament during the passage of the Equitable Life (Payments) Act 2010. Clearly, however, that group of policyholders are under significant financial pressure in their later years, as they have not received the income for which they planned from the Equitable Life annuity that they bought more than 20 years ago.
In the Budget, the Chancellor of the Exchequer therefore announced that the Government would make an ex-gratia payment of £5,000 to those individuals who bought their Equitable Life with-profits annuity before 1 September 1992 and were aged over 60 on Budget day. He also announced that an additional £5,000 would be available to those policyholders who
are also in receipt of pension credit to focus support on those individuals who need it most. As the Chancellor said in his Budget speech:“We are not doing this because we are legally obliged to; we are doing it because…it is the right thing to do.”—[Official Report, 20 March 2013; Vol. 560, c. 941.]
When we announced the policy, we anticipated that payments would most likely be made in the next financial year—from April 2014. We know, however, that the pre-1992 with-profits annuity policyholders are very elderly, so payment should be made as a matter of urgency. We have pulled out all the stops and have been preparing the systems that will deliver the payments in parallel with our work on these draft regulations, which means that we can make the payments soon after the regulations have been approved by Parliament. We now hope to make the payments not only in this financial year, but before Christmas, and I will make further announcements on the timing of the payments in due course. We are grateful to the Prudential, which has made ongoing annuity payments to this group of policyholders, for its support in the work on the payments.
Dr Liam Fox (North Somerset) (Con): I am extremely grateful to the Minister for talking about the timing because he has anticipated a point that hon. Members on both sides of the Committee would have made. Many of those who may receive the money are elderly and vulnerable, and it is genuine pleasure to hear a Minister responding to real concerns from real people.
Sajid Javid: I thank my right hon. Friend for making that point. He can be absolutely assured that we will make the payments as quickly as possible, and we will announce a definitive date shortly.
Mr Dominic Raab (Esher and Walton) (Con): I also thank the Minister. Many of my constituents are Equitable Life policyholders—they include a number of pre-’92 annuitants—and they will be pleased that the Government are grappling with the issue and showing extra flexibility. Will he commit to updating the House on the precise timing before Christmas, through either an oral or written statement, so that we know precisely where we are?
Sajid Javid: I thank my hon. Friend for his comments and support. We will shortly, by either written or oral means, make the date of payment clear to Parliament.
I know that the matter concerns our constituents. To provide certainty and information about eligibility for the payment, the Treasury wrote in September to all those who were expected to be eligible. The letter gave more detail on the payments and encouraged people to check their pension credit status with the Department for Work and Pensions by 1 November. This week, the DWP is working to identify which pre-September 1992 annuitants are in receipt of pension credit, which will allow their payments to be increased from £5,000 to £10,000 without the need for them make an application. I am grateful for the DWP’s close co-operation with the Treasury in that task.
We are committed to paying all individuals who are eligible for a payment. If something prevents a payment from being made automatically, eligible individuals will
be able to make an application. The regulations provide that should an annuitant be eligible for pension credit on 1 November, but not be on DWP records on that date for any reason, they can apply directly to the Treasury for the additional £5,000 that is due to them. Should an eligible annuitant have passed away after the Budget announcement on 20 March 2013 but before receiving their payment, that payment will be made to their estate, unless there is a surviving joint annuitant who is eligible for it. As payments to estates involve a more complex administrative process, the Treasury has already started writing to the personal representatives of deceased policyholders with details of how to apply for a payment.Jonathan Evans (Cardiff North) (Con): Will my hon. Friend share with us the Treasury’s assessment of the likely overall cost of the measure?
Sajid Javid: Our assessment is that the overall cost will be between £50 million and £55 million. With that, I ask the Committee to join me in supporting the regulations.
2.37 pm
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): It is a pleasure to be in Committee once again hearing from the Minister. It is fair to say that many members of the Equitable Members Action Group were pleased that he kept the responsibility for dealing with this issue from his previous portfolio. It would be churlish of me not to recognise that—[ Interruption. ] However, that might be the only kind thing I say to the Minister in the next few months, so perhaps he will make the most of me being on side today. I do not intend to divide the Committee on the regulations because it is important that they are agreed so that those who will get most benefit from the payments receive them. However, it would be helpful if the Minister answered a few questions.
I was going to ask about timing, but the Minister made it clear that he wished to see the matter proceed as quickly as possible. I note that the explanatory memorandum states that there is no proposal to issue guidance on the regulations. I understand that he wants things to move forward quickly and does not want problems due to delays, but if there is to be no guidance, will he say a bit more about how he will ensure that every effort is made to contact all those who might be eligible? The joined-up approach with the DWP is of course welcome, as is the fact that people will not have to apply—I hope that that process will go smoothly—but will he respond to that point?
I was pleased to hear that the payments will be made in time for Christmas. The Equitable Members Action Group and the all-party group on justice for Equitable Life policyholders did much work on that, and I know that it impressed the Minister.
Will the Minister comment on people who may not have received their payments by April 2014 being able to make applications directly to the Treasury? I am worried that vulnerable people who do not receive their payment might not know that they could apply to the Treasury, or that they might find the process too bureaucratic. How will we ensure that all policyholders
may get the cash to which they are entitled? What ongoing checks will be made to ensure that progress is made?Regulation 3(8) provides that payments “may be made” in other currencies. Will the Minister clarify whether recipients will have a choice in that, or will that be done automatically on the basis of the individual’s domicile?
The Minister explained how the first £5,000 will be paid and that there will be an additional £5,000 if pension credit comes into play. However, in the event of a person’s death, the treatment of those two entitlements appears to be different. Will he clarify why the first £5,000 can be paid to the next of kin or appropriate representative, but the additional £5,000 cannot?
Regulation 3(5)(c) refers to benefits similar to pension credit that are paid to people who live overseas. Given that no guidance will be issued and for the avoidance of doubt, is there a definitive list of what those similar benefits are? How many people are likely to be covered?
It is clear from the regulations and the explanatory note that the intention is that the payments will not be taxed and that they will not affect entitlement to social security, meaning that people will get the full benefit of all the money. However, EMAG has raised concerns about the impact of payments on the council tax reduction. It was suggested that there would be liaison with the Department for Communities and Local Government and local authorities to avoid unintended consequences through which people could lose out. Will the Minister update us on that? As I said, I do not intend to divide the Committee on the regulations, because it is important that people get this cash.
2.43 pm
Sajid Javid: I thank the hon. Lady for her warm comments—they were unusual, but most welcome. I am also grateful for her support for the regulations. Before I begin to answer her questions, I can be a little more specific in response to the question asked by my hon. Friend the Member for Cardiff North: the total cost will be £51 million or thereabouts.
The hon. Lady asked about the absence of guidance. We believe that the process will be straightforward, primarily because the regulations are not complicated. More importantly, all the annuitants affected already receive payments through Prudential, so the identification exercise has been a quite straightforward. As of 15 November, the Prudential’s view was that there were 9,273 such annuitants. Each of them has already been sent a letter by the Treasury to make them aware of the payments and the related process. As all the annuitants already receive payments from the Pru, their bank details are known, and we intend to make the correct payments directly into their bank accounts, thus cutting out the need for any bureaucracy or form-filling. However, it is still possible that, inadvertently, an individual who should have received a payment could miss out, but we would be able to deal with such a case efficiently and quickly through other means. The individual might apply directly to the Treasury or contact Prudential, which is already aware that it should put such a person in touch with the Treasury.
The hon. Lady also asked about payments in other currencies to annuitants based overseas. Prudential estimates that there are approximately 200 overseas annuitants, of
whom about 120 are in the European Union. Some of those annuitants may ask for the payment to be made in the local currency where they reside, which we are happy to consider, because that might make the process a bit easier for them. However, the annuitant is overseas in a minority of cases.The hon. Lady asked about people living in the EU who are in receipt of something similar to pension credit. In such cases, it is appropriate that we consider making the top-up payment. However, given the number of countries involved, we did not think that it would be a worthwhile use of resources to try to identify those benefits in advance. We have allowed such individuals to raise their cases with us and we have committed to reviewing each one. If it is clear that they are receiving a similar payment to pension credit on similar terms, we will look at making the top-up payment, and we think that that is the fairest way to proceed.
The hon. Lady asked about the situation when an individual has passed away since the announcement was made. In such circumstances, their estate will be eligible for the £5,000 payment, but not the top-up payment of £5,000, even if the individual was receiving
pension credit. The reason why is simple: the top-up payment is being made to recognise that individuals who receive pension credit are generally more needy than ones who do not. Given that the individual in the example has sadly passed away, the need is no longer there, so we will not pass the top-up to the estate.The hon. Lady asked about the council tax reduction. As that reduction is not classed in legislation as a social security benefit, it is possible that a council could take this payment to annuitants into account. When we looked carefully at the numbers and discussed the matter with DCLG, it seemed that that would be relevant in only a few cases, and that even then the impact could be marginal. Having said that, we are working with DCLG on sending specific guidance to councils in which we ask them not to make any changes to council tax reductions as a result of the payments. The decision is ultimately up to each authority, but we believe that that guidance will get a positive reception.
If hon. Members have no further questions, I commend the regulations to the Committee.