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Baroness Hollis of Heigham: We do not anticipate much in the first few years, but over the next 10 or 15 years the savings will grow considerably. The total savings from the occupational and personal pensions changes are estimated at £190 million in year three.

The amounts received in occupational and personal pensions are substantial. Nearly half the IB recipients who also receive an occupational pension are in the top two quintiles of income distribution. Before any noble Lord points out that disability living allowance is counted in assessing people's position in income distribution even though the benefit is intended for specific additional costs, let me say that even if DLA is excluded from the calculations, nearly half of those with occupational pensions are still in the top two quintiles.

The growth of pension provision affects the degree to which people today face want, which is the contingency that IB is designed to meet. In Beveridge's day it could be assumed that inability to work meant lack of income, but that is no longer the case. Many people who take early retirement regard their occupational pensions as their main source of income and the true replacement for their earnings. For people with substantial pensions, IB is a secondary form of income--a supplement that the retired person may not even have anticipated in planning for retirement and that they may regard as an unexpected, though no doubt welcome, bonus.

The benefit is not performing the income-replacement role for which it was designed. There is considerable overlap and duplication with a form of income that is also intended to provide a replacement for earnings. The position is quite different from that which applies after pension age, when there is a clear and deliberately constructed relationship between occupational and second-tier pensions and the basic state pension.

The noble Lord, Lord Rix, asked me what the implications would be for the state pension. The state pension comprises the basic pension and an earnings-related element in SERPS. People can choose to

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have an occupational or personal pension instead of SERPS, so account is taken of occupational pensions in the state scheme. They are designed to be complementary. The basic state pension is a secure foundation and we believe that it is right that it should continue to be the foundation on which to build a second pension.

The Government's proposals are intended to inject some logic into the interaction between IB and private provision, to create a proper partnership that recognises that people with occupational and personal pensions are not in the same position as other IB claimants. Once a person has pension income above a certain level, it is no longer appropriate for them to have IB as well. Below that there should be a gradual taper so that there are no clip-edge effects. The amount at which IB ceases to be payable will depend on the level of the disregard and taper, which the Secretary of State will keep under review, and the amount of IB entitlement in individual cases. For a single person on the basic long-term rate of IB, a £50 disregard and a 50 per cent taper would mean that some IB remained payable until the pension income was nearly £10,000. Someone with an age addition and increases for a partner and one child would need a pension of nearly £16,000 a year before IB was withdrawn completely. We believe that that strikes a fair balance between state and private provision while still providing an incentive to people to save for retirement. It is considerably more generous than the JSA arrangements.

As the noble Lord, Lord Goodhart pointed out, as well as providing for pension income to be taken into account, the clause also provides for regulations to be made that would enable permanent health insurance linked to the ending of employment to be treated in the same way.

Our intention in taking payments from PHI policies into account against IB is to create a level playing field with the treatment of payments into occupational and personal pensions. Therefore, we shall take account of PHI only where it has been arranged by an employer and the contract of employment has ended with that employer. We have discussed that with the Association of British Insurers and it agrees that that is the right approach.

Therefore, I should make it clear that occupational sick pay or its PHI equivalent will not be deducted from incapacity benefit; nor is it the intention to take account of other forms of health insurance; nor mortgage protection payments. The only sort of insurance that will be taken into account is permanent health insurance and then only when it has been arranged by an employer and the contract of employment has ended. It will not apply to personal health insurance, nor mortgage protection payments.

I should add that any regulations providing for new forms of income to be taken into account will be subject to the affirmative procedure and so will be guaranteed close scrutiny by Parliament.

We also recognise that there will be circumstances in which it will not be appropriate for occupational and personal pensions to be taken into account. Therefore, Clause 58 provides power for occupational and personal pensions not to be taken into account where the pension payments are in connection with the death of a member of the scheme or where an occupational pension scheme is in deficit or has insufficient resources to pay the full

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pension. It includes a power to assume a notional income where a claimant deliberately fails to avail himself of an available pension payment so as to increase and maximise his benefit, which is a long-standing social security provision to prevent abuse.

I said at the beginning that the Government recognise that there are genuine concerns about the proposals in Clause 58. However, the Government believe that it is essential to modernise the rules of IB. I suspect that if Beveridge had anticipated the growth in private provision, he would have agreed. The Secretary of State has made it clear on several occasions that he will consider carefully the level at which pension income will be taken into account. But the principle of partnership and producing duplication between IB and occupational and personal pensions, which was not anticipated when IB and its predecessors were devised, is not something on which the Government feel they should compromise because they do not believe it would be right to do so.

Lord Ashley of Stoke: I thank my noble friend for her response to the debate. No one does it better on behalf of the Government. But she has heard the condemnation of Clause 58 from all sides of the Committee. She knows where we stand. We want the Government to reconsider this matter. If they do not, we have spelt out clearly the course of action that we intend to take on Report. I stand by that, but I thank the Minister for her reply.

Clause 58 agreed to.

Clause 59 [Incapacity benefit: persons incapacitated in youth]:

Lord Rix moved Amendment No. 124A:

Page 68, line 1, leave out ("20 or, in prescribed cases,")

The noble Lord said: In moving this amendment, I must express my pleasure at enjoying a last waltz with the Minister. Such is my anticipation of the pleasures ahead that I insist on at least three circuits of the floor.

Baroness Hollis of Heigham: Is the noble Lord, Lord Rix, suggesting that we should dance to "Strangers on the Shore"?

Lord Rix: I begin by paying tribute to the Minister and the Government for raising non-contributory incapacity benefit to the level of contributory incapacity benefit for young entrants. Back in 1975, some of us, particularly those at MENCAP, were less than wholly convinced by the logic of giving someone with a few weeks' of work and contributions one level of benefit for long-term incapacity and giving someone whose ill health or disability prevented him ever working a much lower rate of long-term incapacity benefit.

The Government have partially corrected that anomaly and what they have done deserves credit and thanks. But having paid that tribute to the work that no doubt went on behind the scenes to secure that plus in the tally of welfare reform plusses and minuses, when the Minister responds, I anticipate a general rebuke to the effect that an agenda for change which was all plusses and no minuses would be inconsistent with the Government's commitment to maintaining tight control of public expenditure.

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Reading the debates in another place, I am conscious that among the critics of some of the proposals in the Bill are those who want much more radical cuts in the welfare budget and certainly do not favour all plusses and no minuses. I need, therefore, to show my colours which are, I hasten to add, not party political colours, unless a disability party has emerged while I was not looking. My starting point is not that we are spending too much money on sick or disabled people, or that the wrong people are entitled to benefits, or that some people are entitled to too much benefit; my starting point is that benefits are too low, that too many people who are entitled to benefit are not receiving them, and that too few people are entitled to benefits. All research evidence seems to bear me out, as do the rates of benefit when contrasted with earned incomes and the costs of disabled living.

That is the background to what I want to say; but on this amendment to this clause I am saying something much more modest. The Government's proposals started with a cut-off age of 20. Below that age, people would qualify for the non-contributory incapacity benefit if they satisfied all the other conditions. Below that age, if receiving severe disablement allowance when the new rules came into force, they would transfer across to non-contributory incapacity benefit. The Government were quick to recognise the argument for catering for those studying between the ages of 20 and 25, and they raised the cut-off point selectively to 25 for that particular group, and only for that group, and only for new entrants.

So, as the Bill stands, for most people the cut-off point is 20. It is 20 for those already on SDA and at college and aged between 20 and 25. It is 20 for those at a social education centre receiving outreach education, but not actually at college. It is 20 for those who have had a gap in their education before the age of 20, perhaps looking for work, and who then go on to college. The magic age is 25 only for a quite narrowly defined although important group of continuous college students.

I have to say that for those young people with severe learning disability who follow the traditional route of recent years through special school and then into a specially designed college course, benefit is likely to be claimed and received from age 16. However, even those young people will not benefit from the transfer from SDA to non-contributory incapacity benefit and the extra income that goes with this if they are on SDA and over 20 when the rules change. For those who follow a mainstream route and do not claim benefit, and for whom recognition of the reality of being unable to work comes later, the age-25 concession would be really valuable, were it not so tightly limited.

My amendment is designed to simplify what is potentially a confusing and unfair situation by making age 25 the cut-off point for all purposes. Keeping to my main concern--young people with severe learning disability who are born with that disability, live with it and die with it--my amendment will mean that there are no uncomfortable distinctions made between them according to where they happen to be educated, or gaps in their education while agencies fight over whether they can continue their education. If they satisfy the other

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conditions, they will be able to claim incapacity benefit at any time under age 25 and be able to transfer from SDA to IB if they are under 25 when the rules change.

All cut-off points are to a degree arbitrary. My amendment will not help those who have been on SDA since schooldays because of congenital disability but who are aged 25 or over when the rules change. However, it provides a fairer, tidier and more consistent approach than does the Bill as it now stands.

Perhaps I should conclude by noting that learning disability is, by definition, a condition in which extended education in a variety of settings is very much what is needed to help people to fulfil their potential. Indeed, a right to education up to age 25 is something for which we have long argued. Alongside that, I note the reality that no more than 10 per cent of people with severe learning disability of working age are in any kind of paid employment and most of those are in low paid and often part-time work. The benefit needs that I have touched on cannot be answered realistically by the argument that all of those concerned should be working. I beg to move.

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