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These notes refer to the State Pension Credit Bill [HL] Bill STATE PENSION CREDIT BILL [HL]
EXPLANATORY NOTESINTRODUCTION
1. These explanatory notes relate to the State Pension Credit Bill [HL] as introduced in the House of Lords on 28th November 2001. They have been prepared by the Department for Work and Pensions in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.
2. The notes should be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. Where a Clause or part of a Clause does not seem to require explanation or comment, none is given.
SUMMARY3. This Bill introduces a new State Pension Credit for persons aged 60 and over. This subsumes the Minimum Income Guarantee (the minimum level of Income Support payable to persons aged 60 and over under Part VII of the Social Security Contributions and Benefits Act 1992). State Pension Credit, hereafter referred to as Pension Credit, comprises two elements:
BACKGROUND TO THE BILL4. A glossary of pension provision is at Annex A.
5. The Green Paper, "A new contract for welfare: Partnership In Pensions" (Cm 4179), was published in December 1998. It proposed a series of changes to improve both privately provided and state pensions. In sum, the main changes proposed were as follows.
6. In his March 2001 Budget the Chancellor of the Exchequer announced that the Minimum Income Guarantee would be replaced from 2003 by a Pension Credit.
7. The Bill implements Pension Credit. It takes account of responses to "The Pension Credit: a consultation paper" (Cm 4900) which was published in November 2000. Copies of all responses are available from the Department for Work and Pensions and have also been placed in the libraries of both Houses of Parliament.
Minimum Income Guarantee (MIG)
8. The MIG arrangements are Income Support for people, aged 60 or over, who are not required actively to seek work and whose income is below a certain level. As from 9 April 2001, the guaranteed level is £92.15 a week for a single person and £140.55 for a couple. The MIG payment makes up the difference between the guaranteed level and income from other sources, including income from pensions. The MIG level is set higher for carers and those with certain disabilities.
9. As is the case for other categories of Income Support, the amount of MIG payable is affected by people's savings.
10. Single people and one, but not both, members of a couple can claim MIG. About 1.7 million pensioners currently receive payments under MIG.
THE NEW PENSION CREDIT11. From 2003, the new Pension Credit will replace the Minimum Income Guarantee. It consists of a guarantee credit and a savings credit and will include simpler administrative arrangements for claimants. It can be claimed by one, but not both, members of a couple.
The guarantee credit12. The guarantee credit will bring recipients' incomes to a guaranteed level and will be payable to both men and women at or over the minimum qualifying age for women to receive the basic state pension. This is currently 60 but, under the Pensions Act 1995, it is set to rise by stages to 65 between 2010 and 2020. The guarantee credit will subsume the premiums currently paid to carers and the severely disabled under MIG.
13. The Government announced its intention, in "The Pension Credit: a consultation paper" (Cm 4900), that the guaranteed income level of Pension Credit will keep pace with the growth of earnings over this Parliament.
14. For everyone aged 60 and over it is intended that regulations under the Bill will end the assumed rate of return of £1 for every £250 of capital held. It is also intended to end the £12,000 upper capital limit and with it the presumption that pensioners should draw down on their capital to ensure an adequate weekly income. The intention is that a ten per cent rate of return will be applied to capital that exceeds £6,000 (£10,000 in cases of people in residential care and nursing homes). Capital below this amount will not be taken into account in the assessment. (Actual income from savings will not be used in the calculations.)
The savings credit15. The savings credit will reward those aged 65 and over who have built up a modest income for retirement. It is intended that claimants will receive a cash addition of 60 pence for every pound of pension (such as occupational pensions and SERPS for example) and income from savings they have above the level of the savings credit threshold (expected to be around £77 in 2003). Single pensioners will receive a maximum savings credit that is expected to be around £13.80. For every pound of income a pensioner has above the level of the guarantee credit (expected to be around £100 in 2003), the intention is that the pensioner's savings credit will be reduced by 40 pence.
16. The savings credit threshold for couples in 2003 is expected to be around £123, the level of the guarantee credit is expected to be around £154, and the maximum savings credit is expected to be around £18.60.
17. The Bill also introduces measures to ensure that pensioners with additional premiums for extra costs (i.e. disability or caring) and other amounts (such as housing costs) that are added to the standard minimum guarantee, also gain from the savings credit.
18. The chart below shows the impact of Pension Credit.
19. Tables showing how Pension Credit will work are at Annex B, and some examples are at Annex C.
The claims process
20. In the current Income Support system all income, regardless of source, and most personal circumstances have to be reported and there is a continuing obligation to report changes as they occur. The Department's research (DSS Research Report No.100, Overcoming Barriers: Older People and Income Support' - copies available at http://www.dwp.gov.uk) has shown that these and other requirements create a claims and administrative process which, for pensioners, can act as a significant deterrent in claiming entitlement. Various features of Pension Credit should reduce the deterrents.
21. The requirement to report changes in personal circumstances as they occur will be changed for everyone aged 65 and over. The Bill introduces an assessed income period which will normally run for five years. There will be no requirement to report changes in income from any retirement provision that a pensioner has made during the assessed income period although benefit upratings and changes in income from private pension will be taken into account annually. In the main, only those types of changes that must be notified for basic state pension purposes will need to be reported. These include significant life events and changes in the composition of pensioners' households. When these occur the assessed income period will end and entitlement to Pension Credit will be reassessed. This will include consideration of setting a new assessed income period based on the pensioner's circumstances at that time and normally running for five years from the date of the new assessment.
22. At the end of the five-year period, a reassessment will be made and any adjustments in income will only take effect from the beginning of the new five-year assessed income period. Pensioners will be able to have their cases reassessed on request at any time during the five-year assessed income period and, if that results in higher entitlement to Pension Credit, Pension Credit will be paid at the new higher rate.
23. The income assessment for Pension Credit will abolish the current remunerative work (16-hour) rule that applies to MIG claimants. Pensioners will not find themselves disentitled to Pension Credit on the basis of the number of hours they, or their partners, work each week.
24. On 15 March 2000, the Government announced a new pensions organisation to deliver benefits and services to older people, bringing together policy and operational responsibility for pensions under a single organisation. On 2 April 2001, the Government announced that the new organisation would be called "The Pension Service". The Pension Service will operate from 1 April 2002 (as announced on 4 July 2001) and will administer Pension Credit from 2003.
The position of those claiming Housing Benefit and Council Tax Benefit
25. Regulations will provide that pensioners who receive the guarantee credit will automatically qualify for maximum Housing Benefit and Council Tax Benefit. Those who receive the savings credit only, or who are not entitled to Pension Credit, will claim Housing Benefit and Council Tax Benefit under new rules which will, in the main, reflect those in Pension Credit. However, the applicable amount in Housing Benefit and Council Tax Benefit for pensioners aged 65 and over will be increased by the maximum savings credit to ensure that they receive the full benefit of any savings credit entitlement. Pensioners with capital exceeding £16,000 who are entitled to the savings credit only or who have no entitlement to Pension Credit will be excluded from Housing Benefit and Council Tax Benefit, as they are under the present rules for MIG.
Pension Credit - legal framework
26. Pension Credit follows the pattern of benefits provided under the Social Security Contributions and Benefits Act 1992 and the Jobseekers Act 1995 and fits within the Social Security Administration Act 1992 and the Social Security Act 1998. In particular:
EQUAL TREATMENT FOR WIDOWS AND WIDOWERSBackground and Summary
27. This measure, which is consequential on the introduction of new bereavement benefits by sections 54 to 56 of the Welfare Reform and Pensions Act 1999, makes an amendment to the Pensions Schemes Act 1993 to provide equal treatment for widows and widowers. This amendment ensures that a widower who receives benefit based on the National Insurance contributions of his late wife, where she was a member of a contracted-out occupational or personal pension scheme, is treated in the same way as a widow in the same circumstances.
28. Someone who contracted out of the additional pension (SERPS) at any time between 6 April 1978 and 5 April 1997, built up a private pension in place of SERPS. At pensionable age the amount of their SERPS is reduced to take account of this pension from the private scheme. This is known as the contracted-out deduction and is based on the guaranteed minimum pension they receive or are treated as receiving from their private scheme.
29. The Pensions Act 1995 broke the link between SERPS and contracted-out private pension schemes with effect from 6 April 1997. So, from that date onwards, someone earns either SERPS or an occupational or a personal pension by being a member of a scheme which is contracted out of SERPS. There is no longer a guaranteed minimum pension and so there is no contracted-out deduction.
30. Contracted-out private pension schemes have been required to pay a pension to a member's widow since 6 April 1978 and to a member's widower since 6 April 1988. A widow could inherit SERPS from her late husband if she was entitled to widowed mother's allowance, widow's pension or a retirement pension based on her husband's contributions. Where her husband had been a member of a contracted-out pension scheme before 1997, legislation provided for the amount of benefit to be reduced by the contracted-out deduction so that there was no double provision (that is SERPS as well as a widow's pension from the contracted-out pension scheme).
31. However, until the new bereavement benefits were introduced from 9 April 2001, a widower could inherit SERPS from his wife only if they were both over pensionable age when the wife died. So legislation provided for a contracted-out deduction to be made in the case of a widower who was entitled to a widower's pension from his wife's contracted-out pension scheme only where both he and his wife were over pensionable age when she died.
32. With the introduction of bereavement benefits, a widower can inherit SERPS from his wife if he is entitled to widowed parent's allowance. In addition, a widower reaching pensionable age who has previously been entitled to widowed parent's allowance or bereavement allowance may inherit SERPS from his wife. However, where the wife had been a member of a contracted-out pension scheme and the widower is receiving a widower's pension from that scheme, there is no power to make a contracted-out deduction. As a result, there is currently double provision for certain widowers.
33. The Bill amends the Pension Schemes Act 1993 in order to provide for a contracted-out deduction in cases where a widower would otherwise be entitled to inherit SERPS from his late wife as well as a widower's pension from her contracted-out pension scheme. This will ensure that widows and widowers are treated equally in this respect.
COMMENTARY ON CLAUSESClauses 1 to 4: Entitlement and amount
Clause 1: Entitlement
34. Clause 1 provides for a new social security benefit called Pension Credit to be payable in accordance with the Bill (subsection (1)).
35. Pension Credit consists of two elements, known as "guarantee credit" and "savings credit". A claimant may be entitled to either or both of those elements (subsection (3)).
36. The purpose of the guarantee credit is to ensure that the claimant has income equal to at least the amount of the "standard minimum guarantee" which, in 2003, is expected to be around £100 for a person who is not a member of a couple (a "single person") and £154 for a married or unmarried couple (a "couple").
37. The purpose of the savings credit is to provide claimants with a reward for having made some modest provision for retirement above the basic state pension.
38. The guarantee credit and the savings credit each have conditions of entitlement, but two of the conditions are common to both.
39. The first of the common conditions is that the claimant must be in Great Britain (subsection (2)(a)). That condition is the subject of two regulation-making powers set out in subsection (5).
40. Subsection (5)(a) confers power to make provision by regulations as to the circumstances in which a person is to be treated as being in Great Britain. The intention is to exercise the power so that the claimant has to be habitually resident in Great Britain if he is to qualify, which is currently the position with Income Support and income-based Jobseeker's Allowance.
41. Subsection (5)(b) confers power to make provision by regulations for continuing a person's entitlement to Pension Credit during periods of temporary absence from Great Britain. The intention is to continue the current Income Support rules which allow for entitlement to continue for four, and exceptionally eight, week periods abroad.
42. The second of the common conditions is that the claimant must have attained the "qualifying age" for Pension Credit (subsection (2)(b)).
43. The "qualifying age" is defined in subsection (6) (as read with the definition of "pensionable age" in Clause 17(1)) so that it means, for both men and women, the age which is pensionable age for a woman. That age is currently 60, but between 2010 and 2020 will steadily rise until it reaches 65, the same as pensionable age for a man. The legislation effecting the equalisation of the pensionable ages for men and women is in Part 1 of Schedule 4 to the Pensions Act 1995.
44. In addition to the two common conditions, the claimant must satisfy the further conditions set out in Clause 2(1) for the guarantee credit or Clause 3(1) and (2) for the savings credit.
45. Subsection (3) provides for the amount to which the successful claimant is entitled to be found in accordance with Clause 2 for the guarantee credit (paragraph (a)) and Clause 3 for the savings credit (paragraph (b)).
Clause 2: Guarantee credit46. The claimant is entitled to the guarantee credit if (in addition to satisfying the two common conditions described above in connection with Clause 1) he also satisfies the condition in subsection (1), which requires the claimant's "income" not to be above an amount referred to as "the appropriate minimum guarantee".
47. Subsection (2) provides that the amount of the guarantee credit is the amount of the appropriate minimum guarantee less any relevant income.
48. The meaning of "income" for the purposes of the Bill is defined by Clauses 15 and 16, while Clause 5 provides that where the claimant is a member of a couple, the income of the other member is to be treated as income of the claimant for the purposes of the Bill (and so in effect provides for the aggregation of their income).
49. The "appropriate minimum guarantee" consists of two parts (subsection (3)):
(a) the standard minimum guarantee; and,
(b) various prescribed amounts whose applicability in the case of each claimant is determined by reference to the particular circumstances of the claimant.
50. Subsection (4) provides that the amount of the standard minimum guarantee will be prescribed by regulations and subsection (5) requires there to be one uniform standard minimum guarantee for a single person (expected to be around £100 in 2003) and one for a couple (expected to be around £154 in 2003).
51. Subsection (6) enables the Secretary of State to make regulations substituting a reference to a prescribed amount for the reference to the standard minimum guarantee in subsection (3)(a) in prescribed cases.
52. Where the power is exercised, the prescribed amount does not for any purpose become the standard minimum guarantee, but simply replaces the reference to it in subsection (3)(a), so that that provision effectively reads, for example, "£10" instead of "the standard minimum guarantee".
53. Accordingly, such a substitution does not affect the amount of the claimant's standard minimum guarantee for other purposes of the Bill (such as determining the "maximum savings credit" under Clause 3(7)), but the standard minimum guarantee will not be brought into account for the purpose of determining the claimant's appropriate minimum guarantee (the substituted prescribed amount being brought into account instead).
54. It is intended that the power conferred by subsection (6) will be exercised, for example, in cases where the claimant or, if the claimant is a member of a couple, the other member remains in hospital for longer than six weeks
55. It is also intended that the power, as read with the power conferred by subsection (9) to prescribe nil as an amount, will be exercised to substitute "nil" for the reference to the standard minimum guarantee in subsection (3)(a) in cases corresponding to those in paragraphs 7 and 8 of Schedule 7 to the Income Support (General) Regulations 1987 where a nil amount is prescribed. That Schedule prevents prisoners, and members of religious orders who are fully maintained by their orders, from receiving Income Support.
56. The power to prescribe "additional amounts" under subsection (3)(b) enables the Secretary of State to make provision for the appropriate minimum guarantee to be greater than the standard minimum guarantee.
57. Where, for example, the claimant is an owner-occupier with housing costs, it is intended that additional amounts will be prescribed in respect of those costs, such as mortgage interest, ground rent or service charges.
58. It is also intended that this power will be used to prescribe an amount additional to the standard guaranteed minimum where, immediately before qualifying for Pension Credit, the recipient was receiving Income Support or Jobseeker's Allowance which included an element of transitional protection. The increase will be included if, without it, the guarantee credit would not maintain, or improve, their previous level of income. The power will also allow for other additions to be made in future without the need for further primary legislation.
59. It is not intended that additional amounts should be prescribed in respect of children, as benefits for children are to become part of the new Child Tax Credit under the Tax Credits Bill.
60. The Clause requires the power to prescribe additional amounts under subsection (3)(b) to be exercised in two particular cases.
61. The first of these cases, addressed by subsection (7), is where the claimant is severely disabled. The circumstances in which a person is to be regarded as being or not being "severely disabled" will be the subject of regulations under Clause 17(2)(b).
62. In such cases the intention is that there will be a prescribed additional amount corresponding to the severe disability premium in Income Support. It is expected that in 2003 this will be around £43.45 for a single person and £86.90 for a couple.
63. The intention is that the rules will be the same as those for the receipt of the severe disability premium in Income Support.
64. In the case of a claimant who is a single person, those rules are that:
65. In the case of a claimant who is a member of a couple, the higher rate mentioned above can be paid if:
66. The second case where an additional amount must be prescribed under subsection (3)(b) is addressed by subsection (8) and is the case where the claimant is entitled, or is a member of a couple the other member of which is entitled, to an allowance under section 70 of the Social Security Contributions and Benefits Act 1992 (allowances for caring for another person). The allowance in question is currently Invalid Care Allowance but simultaneously with this Bill a Regulatory Reform Order is under consideration by Parliament which, amongst other things, renames the benefit as "Carer's Allowance".
67. The intention is that the additional amount in such a case will correspond to the carer premium in Income Support. It is expected that in 2003 the amount will be around £25.35.
68. Subsection (9) confers power to prescribe nil as an amount. This power cannot be used to prescribe nil as the standard minimum guarantee, but in combination with the power conferred by subsection (6), it can be used to prescribe nil as the amount that replaces the reference to the standard minimum guarantee in subsection (3)(a).
Clause 3: Savings credit69. Clause 3 specifies the conditions that must be satisfied (in addition to the two "common conditions" described in connection with Clause 1) if the claimant is to be entitled to savings credit (subsections (1) and (2)). It then goes on to explain the calculation for determining the amount of savings credit to which a claimant is entitled (subsections (3) and (4)).
70. The condition of entitlement in subsection (1) is that the claimant has attained the age of 65 or is a member of a couple the other member of which has attained the age of 65.
71. The condition in subsection (2) has two parts, each concerned with aspects of the claimant's income.
72. The first part (paragraph (a)) requires that the claimant has what is referred to as "qualifying income" of an amount that exceeds a figure referred to as "the savings credit threshold".
73. "Qualifying income" is addressed by subsection (6), which confers power to make provision by regulations as to income which will be "qualifying income". The intention is that the claimant's "qualifying income" will, broadly, be those parts of the claimant's income which arise from:
74. The "savings credit threshold" is a prescribed amount (see the definition in subsection (7)). The amount prescribed is expected to be around £77 in 2003 for a single person and £123 in the case of a couple.
75. Savings credit is, however, to be subject to a maximum entitlement, referred to as "the maximum savings credit" (defined in subsection (7)), which is a prescribed percentage (the intention is that it will be 60 per cent) of the difference between:
(a) the standard minimum guarantee (discussed in the Notes on Clause 2); and
(b) the savings credit threshold.
76. The maximum savings credit is therefore expected to be around:
77. If the claimant has income in excess of the appropriate minimum guarantee, the savings credit will be adjusted by deducting a prescribed percentage (the intention is that it will be 40 per cent) of the amount by which the claimant's income exceeds the appropriate minimum guarantee.
78. The effect, based on estimations for 2003, is that normally the savings credit is reduced to nil in the case of a single person if the claimant's income is £135 or more and in the case of a couple if the claimant's income is £201 or more.
79. The second part of the condition of entitlement in subsection (2) (paragraph (b)) reflects the provision for reducing the amount of savings credit in circumstances where the claimant has income in excess of the appropriate minimum guarantee. The Clause provides that there is no entitlement to savings credit where the claimant's income is such that the adjustment has the effect of reducing the savings credit to such an extent that none is payable. The same calculation therefore serves to determine both entitlement to, and the amount of, savings credit.
80. Subsections (2)(b) and (3) together produce the above results by providing that the amount of the savings credit to which a claimant is entitled is the amount by which "amount A" exceeds "amount B" (subsection (3)) and that there must be such an excess if the claimant is to be entitled to savings credit (subsection (2)(b)). The claimant is not entitled to savings credit unless amount A exceeds amount B.
81. Amount A and amount B are defined in subsection (4), but to find their amount involves some further calculation. The following amounts (all of which have been described either in the Notes on Clause 2 or in the preceding Notes on this Clause) must be found in the case of the claimant:
(1) the amount of the "income";
(2) the amount of that income which is "qualifying income";
(3) the "appropriate minimum guarantee";
(4) the "standard minimum guarantee";
(5) the "savings credit threshold"; and,
(6) the "maximum savings credit".
82. From those amounts two further amounts that need to be known can be calculated:
(7) a prescribed percentage (expected to be 60 per cent) of the amount by which:
(a) the qualifying income,
exceeds
(b) the savings credit threshold, and (8) a prescribed percentage (expected to be 40 per cent) of the amount (if any) by which:
(a) the claimant's income,
exceeds
(b) the appropriate minimum guarantee. 83. Subsection (4) defines "amount A" and "amount B".
84. Amount A will always be amount (7), unless that amount exceeds the maximum savings credit, in which case amount A will be the maximum savings credit.
85. Amount B will be amount (8) in any case where the claimant's income exceeds the appropriate minimum guarantee. In any other case, amount B will be nil (and the amount of savings credit to which the claimant is entitled will accordingly be amount A without any reduction).
86. Clause 2(6) makes provision for a prescribed amount to be substituted for the reference to the standard minimum guarantee in Clause 2(3)(a). Where that happens, the claimant's appropriate minimum guarantee will normally be less than if it included the standard minimum guarantee instead of the prescribed amount substituted for it.
87. That has consequences for the calculation of amount B. Where the appropriate minimum guarantee is replaced by virtue of Clause 2(6), a smaller amount of income will be sufficient to exceed the appropriate minimum guarantee and bring the adjusted amount B into operation.
88. It is not, however, intended that, simply because of the application of regulations under Clause 2(6), the claimant's savings credit should necessarily be subject to that extra degree of adjustment in all cases where those regulations apply, so subsection (5) confers power by regulations to substitute for the appropriate minimum guarantee a prescribed higher amount, but only for the purpose of finding the amount (8) described above.
89. The effect of such a substitution is that the amount (8) described above, and accordingly amount B, will be less than it would otherwise be, or will become nil, and so a smaller amount B falls to be set against amount A.
90. Subsection (8) confers the power to prescribe nil as an amount. This would be used as now in the case of members of religious orders who are fully maintained by their orders and for prisoners.
91. Subsection (8) will be exercised to substitute "nil" for the reference to the maximum savings credit in cases corresponding to those in paragraphs 7 and 8 in Schedule 7 to the Income Support (General) Regulations 1987 where a nil amount is prescribed. That Schedule prevents prisoners, and members of religious orders who are fully maintained by their orders, from receiving Income Support. See also paragraph 55 above.
92. Annex C to these Notes contains worked examples of the operation of the rules for determining the amount of a claimant's savings credit
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| © Parliamentary copyright 2001 | Prepared: 29 November 2001 |