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Lord Whitty: My Lords, we committed ourselves in the Act fully to fund the additional duties that it imposes. We identified the appropriate allocation for local authorities at this point in the process as being between £12 million and £19 million. That is necessary if we are to achieve the rapid enactment of the process.
Baroness Gibson of Market Rasen: My Lords, does my noble friend agree that the Countryside Agency has done well in the way that it has produced its maps—in particular, by consulting widely? Wide consultation is under way at present. Does he agree that the consultation and the mapping process should produce something that will enable more people to gain great pleasure from our countryside?
Lord Whitty: My Lords, yes, and the passing of the Act provides that possibility. However, the process under which it is being implemented gives to those who want to use the right of access and to those who are land owners or managers the right to comment on the draft maps. At the end of that process, when a provisional map is introduced, landowners have a right of appeal against it.
I believe that safeguards have been built in for everyone and that the final result will be of great benefit to those who want to use our countryside.
Baroness Byford: My Lords, first, I want to press the Minister on the early introduction of land. Secondly, will he reconsider the definitions of mountain, moor, heath and down, which we were unable to establish? The lack of definition is leading to the inclusion on the maps of areas of land which were never intended for inclusion.
Furthermore, why, as I understand it, are farmers to be charged £15 and £5 respectively for obtaining the maps when previously Ordnance Survey maps were provided free of charge? I cannot overemphasise the disquiet that that situation is causing in the countryside.
Lord Whitty: My Lords, I do not believe that to be the case. People have recognised that the process is open and will give landowners in particular rights to object or to suggest modifications to the maps.
As we noted during the passage of the Bill, the Countryside Agency has a difficult job to identify precisely where the land concerned begins and ends. It may be, therefore, that modification will be necessary during the process. That is the nature of the process. It is difficult to give too tight a definition.
Access to the maps will be available. However, the provision of free maps is a different matter and one to which we did not commit ourselves during the passage of the Bill. That was never the case previously.
Faith Schools
3.1 p.m.
Lord Dormand of Easington asked Her Majesty's Government:
- What consultations are taking place on the proposal to increase the number of faith schools.
The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, the Green Paper, Schools: Building on Success, and the White Paper, Schools: Achieving Success, set out our policy on faith schools and were the subject of wide-scale consultation. Ministers continue to hold meetings with interested parties and listen to views on the implementation of the White Paper proposals and related matters. In addition, any proposed new maintained school, including any faith school, must be the subject of local consultation.
Lord Dormand of Easington: My Lords, is my noble friend aware of how little enthusiasm there is outside the Churches for the huge increase in the number of faith schools? Despite what the Government have repeatedly said, is it not evident that such schools can be divisive? We need go no further than Northern Ireland to see that.
My noble friend will be aware that the issue of higher standards in faith schools is often discussed. Does she agree with the findings of the recent independent Civitas report which states that there is an enormous and unacceptable variation in standards in both Church schools and local authority schools?
Baroness Ashton of Upholland: My Lords, it is important to be clear that, under school organisation committees, faith schools will be subject to the same rules as other schools. Therefore, they would come into being only where there was clear backing from local parents and the local community. That is a fundamental and important part of the policy.
I do not see hundreds of new schools coming into being, but it is important that we look clearly and sensitively at issues connected with the introduction of faith schools where parents and local communities want to see them.
As regards standards, there are differing views. The information which I have seen shows clear signs that some faith schools have been able to work effectively with pupils to their benefit. In education, we are recognising that schools should have a clear and distinct ethos and that schools which are able to find new and interesting ways of working with their pupils are successful.
Lord Quirk: My Lords, does the Minister agree that one aspect which is so admirable in faith-based schools is their culture of hard work and discipline? Therefore, would it not be more widely beneficial to the country at large if, instead of encouraging the setting up of more faith-based schools, there were the encouragement of the spread of that culture throughout the school system?
Baroness Ashton of Upholland: My Lords, many schools have a culture of hard work and discipline, in the best sense of that word, for their pupils. In terms of culture, the introduction of the citizenship agenda into the curriculum is very important.
Like good schools of all characters, good faith schools have long taught the value of inclusion, tolerance and the ability and need to work alongside people from all walks of life and to recognise the contribution which every individual pupil should and must make to our society. We believe that making citizenship a compulsory part of the curriculum in secondary schools from next September will be a valuable and important tool in that process.
The Lord Bishop of Gloucester: My Lords, is the Minister aware that the policy of the Church of England is that, while being clearly and distinctively Christian, our Church schools should be inclusive and serve the whole community in all its diversity? Is she further aware that a large number of diocesan boards of education, including my own in Gloucester, are in discussion with their partner local education authorities about increasing the number of Church secondary schools in particular?
Baroness Ashton of Upholland: My Lords, I am not aware of those specific discussions but I am aware of the role of the Synod and the Church of England in discussing the issues with my right honourable friend the Secretary of State for Education and Skills. It is important that Church schools consider very carefully their role within communities. In many cases, such schools have provided for a diverse range of pupils to the great satisfaction of all.
Baroness Walmsley: My Lords, does the Minister agree—
Baroness Carnegy of Lour: My Lords, may I—
Lord Williams of Mostyn: My Lords, the noble Baroness, Lady Walmsley, on the Liberal Democrat Benches rose first.
Baroness Walmsley: My Lords, does the Minister agree that every state school in receipt of state funding should serve the whole community in which it is located and not discriminate as regards access in respect of any faith or no faith at all? Furthermore, as regards this matter does the Minister agree with her right honourable friend the Prime Minister or her right honourable friend the Home Secretary, because they do not appear to agree with each other?
Baroness Ashton of Upholland: My Lords, I am receiving great advice on the question from my noble friend behind me. However, I agree with my right honourable friend the Secretary of State for Education and Skills, to whom I am responsible, that it is very important to ensure that schools recognise the contribution they make to a community. We have no plans to introduce admission quotas to schools but we want to encourage all schools to ensure that their intake reflects the local communities in all their diversities.
State Pension Credit Bill [HL]
3.10 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, I beg to move that this Bill be now read a second time.
I am delighted to have the opportunity to debate the principles on which the pension credit will be based. Peers who spoke on the uprating Statement welcomed the most important elements while, understandably at this stage, expressing caution as regards other aspects of the policy.
For many pensioners who need it, the pension credit will provide not only more money, but a fairer system which will treat pensioners with the decency they deserve. I was glad that the noble Earl, Lord Russell, was able to say that this would be the answer to his prayers—I am not sure whether that is exactly the right word, given the noble Earl's convictions—because it will abolish the upper capital limit that at present denies some pensioners any help. I look forward to debating the areas of concern over the coming weeks and convincing noble Lords that the pension credit is a soundly based and well constructed social policy.
The pension credit forms the major part of the Bill, but first perhaps I may touch briefly on Clause 18 dealing with the position of widowers. This forms the final instalment of the work we have undertaken to establish bereavement benefits that treat widowers and widows equally. As a result of an oversight in the drafting of the Welfare Reform and Pensions Act 1999, if a widower is receiving a pension from his late wife's contracted out pension scheme, there is no power to make a contracted-out deduction. That means that currently he receives a pension as though his late wife had not earned a contracted-out pension, when in fact she did. Clause 18 removes the double provision and restores the position that the House intended. I regret the oversight.
Returning to the pension credit, I was grateful for the comments of the noble Baroness, Lady Greengross, after the uprating Statement. In a few sentences she encapsulated the main considerations that were in our minds. First, it is necessary to concentrate on helping the poorest pensioners. Secondly, we must see that those who have saved modest amounts for their retirement are rewarded for their thrift and effort, not penalised. Thirdly, we must tackle the obstacles that put people off taking their pension entitlement.
There is a high degree of consensus in the House about the importance of tackling pensioner poverty. There is also agreement that we must ensure that future pensioners receive a decent income in retirement. Perhaps there is less consensus on how to achieve that, but I am sure that over the coming weeks we shall debate the issue.
The yellow booklet that we published at the time of the First Reading of the Bill—The Pension Credit—the Government's Proposals—sets out the Government's pension strategy and, in particular, the reasons why we
are introducing the pension credit. Since that provides the essential background and helps to explain why we are spending £2 billion in this way, I shall summarise the Government's pensions strategy and cover the important role of the pension credit in achieving our objectives.The 1998 Green Paper, Partnership in Pensions, set out a new framework for reforming both state and private pensions. The aim was to ensure that everyone could enjoy a decent income in retirement. Encouraging saving lies at the heart of this strategy. At the time we said that the pension system, both state and private, was failing to provide enough support for today's pensioners as well as failing to provide security in retirement for tomorrow's pensioners.
In particular, too many of those who could afford to save were not doing so or were not saving enough. Roughly 40 per cent of all employees and workers were not making any voluntary provision for their retirement. Thus they were heading for poverty in retirement.
The gap between better off and poor pensioners was growing. On average, pensioner incomes have been increasing faster than the incomes of those in work, but too many were left behind. Some 2 million over 60 year-olds were living at or below inadequate income support rates. The incomes of the richest fifth had risen by 80 per cent, while the incomes of the poorest rose by only 30 per cent.
For those who could not afford to save, the state provision through SERPS was inadequate because the previous administration halved its value. SERPS did not provide enough support for people on low earnings or for people with broken work records due to caring for children or through disability. Of course, SERPS was always fatally flawed in that it gave the least help to those who needed that help the most.
People also lacked confidence in the pension system following the Maxwell affair and the scandal of pensions mis-selling. The foundation of our reforms was and remains the principle that those who can afford to save have a responsibility to do so. In return, the Government should support those who cannot afford to save.
The House will know what steps we have taken to improve the situation through the minimum income guarantee (MIG), winter fuel payments and other measures. As a result, around 2 million of the least worst off pensioners are better off, while the poorest pensioners are £800 per year better off.
For those who can afford to save, we have improved the options available with the launch of stakeholder pensions in April. For those who cannot afford to save, we shall implement the state second pension from April of next year. As that scheme matures it will provide dramatically better provision for 18 million people on low earnings or who are unable to work because they undertake caring roles or are themselves disabled.
Where does the pension credit fit in with our proposals for a state second pension and for stakeholders? The pension credit is essential to the
overall coherence of the pension system. It will form the third piece of legislation and finally complete the jigsaw. It will provide the mechanism for ensuring that we can tackle poverty among today's pensioners without undermining the incentive for future pensioners to save for their own retirement. The principle is that those who can afford to save should do so, but also that the Government should support those who cannot afford it.But that principle presents us with a difficult structural puzzle. The yellow booklet highlighted the inevitable tension between the present arrangements for lifting today's pensioners out of poverty while also ensuring that today's workers have a clear incentive to save. We must lift the poorest pensioners out of poverty by increasing their income, but at the same time we must restore the incentive for people to lift themselves. How those two apparently conflicting pressures are balanced is the question which the pension credit seeks to address.
The minimum income guarantee is not ungenerous and thus forms an element of the structural difficulty. That is because by 2003 it will lift pensioners from the retirement pension level of around £77 per week to a basic income of £100 per week. However, having ensured that all pensioners receive a decent basic income, we then have to deal with the problem that it is therefore not worth saving for a pension that would not lift the pensioner clear of MIG. To achieve that, a pension of at least £100 per month is needed.
The situation that we inherited means that at the moment it is not worth it for people to save towards a modest occupational pension of perhaps £100 per month, or if they have a bigger pension, for their spouse to inherit it because they would be no better off than if they were in receipt of MIG. We believe that the pension credit will provide an elegant solution that targets substantial sums on helping the least well off and tapers that help for pensioners further up the scale of income distribution. So we shall tackle pensioner poverty in a precise way but we shall also ease the stark disincentive to save that has been inherent in any relatively generous safety net arrangement that has been put in place until now.
The pension credit will resolve the structural puzzle by ensuring that those who save even modest amounts—by saving in a second pension or by putting money aside in a building society account or an ISA—will gain from having done so. At the moment, too many people do not gain.
The pension credit will build on the other long-term reforms that we have already made by ensuring that we reward the thrift of those who have worked hard all their lives, but who feel let down because they are often no better off than people who have saved nothing.
If not today, then at a later date, I am sure that I will be told that this will increase means testing. Certainly, many more pensioners—single pensioners living on incomes of up to around £7,000 per year and couples with incomes of up to around £10,000 per year will receive extra pension income. However, to say that the pension credit will be means tested implies that we will
treat pensioners as though they were under the dreaded family means test of the 1930s, or that we will perpetuate the post-war discretionary scheme under which the National Assistance Board intruded into every element of a pensioner's financial affairs—looking week by week at every penny they had and monitoring every change, for example, by examining the lustre vase on the mantelpiece. That simply will not be the case. As will become clear, we intend to make a marked cultural shift in the way in which pensioners are treated. I suggest to the House with all due respect that we shall do a disservice to pensioners and their willingness to take up their entitlement if we continue to use the language that serves to stigmatise that which is their right.For example, from age 65 we will set awards for long periods, normally five years at a time, as opposed to the weekly assessment that lies behind the principle of income support. That will further reduce the intrusion that pensioners rightly complain of and which is an important contributor to the stigma they feel. We shall ask them to report only major changes in their lives such as, for example, the death of a spouse. They will of course be able to ask for their pension credit to be increased at any time should their other sources of income reduce.
There is another element to the Government's strategy which is also relevant, although it is not a part of the Bill. We must do more to ensure that the service we give to pensioners and to people below pension age who are providing for their retirement focuses on what they want and need from the Government. Research—plenty has been undertaken—has helped to tell us what pensioners dislike about the ways in which traditionally they have been treated by the old Department for Social Security. In many cases that reaction has gone beyond "dislike" and has resulted in pensioners not taking up their entitlement. When that happens, they risk and endure poverty.
Research report 100, Overcoming barriers, older people and income support, published in 1999, gives some clear evidence. Attitudes are important. In the past, too many pensioners felt that there was a stigma attached to claiming the old income support. The processes of making a claim, reporting changes in income and so forth put people off. The research showed that the processes people have to go through must be made more dignified. It also showed that the pension service must reinforce the message that pensioners are entitled to this help. We need others in society to make it clear that they believe that this entitlement is legitimate. We must make the information freely available, simplify forms, integrate the process, and back it up with a quality pension service.
The service that we offer makes a huge difference to pensioners' decisions about applying for MIG. We have already improved access to pensioners' entitlements with the telephone service and the claim form, which has been reduced in length from 40 pages to 10. There is much more to do before we can say that the service is excellent, or even yet good enough. But that is our ambition—one which I am sure is shared by the whole House.
Over time, we shall integrate our processes so that, at the point of retirement when people are invited to claim their basic state pension, we shall be able to use that opportunity to establish their entitlement to pension credit. They will then enjoy that for five years. As noble Lords will know, the entitlement even to state retirement pension is not automatically a simple one, particularly if people have less than complete pension records. We shall be able to do, so to speak, a waterfront of their income at the time at which they claim retirement pension and then give them a secure income for the next five years.
We are also developing the capacity to write to all 11 million pensioners periodically to ensure that they are kept up to date with changes to pensions and to provide them with information about their entitlement. That is important, because the income of many pensioners declines as they get older. Even those who start above the pension ceiling may find that at some stage they become entitled to a savings credit, particularly if one goes up related to earnings whereas their own pension is related only to prices. We want to make sure that they receive the income as soon as they are entitled to it.
During this debate, not only shall I be told that pension credit is a form of means testing—although I have done my best to address that issue; I shall also be told, with perhaps a little more justification, that pension credit is complicated. Many noble Lords who will contribute to the debate will understand the detail that must go into a pension scheme. But, at its core, pension credit is structurally simple.
First, there is a floor below which a pensioner's income should not fall. That is the guarantee level. A single pensioner will be able to rely on having at least £100 a week to live on, using illustrative rates, and a couple £154 a week. It is simple arithmetic. The pension service will top up their retirement pension, whether it is complete or incomplete, to £100 a week as their basic guarantee.
Secondly, through pension credit we shall reward those over 65 who have made some provision for their retirement above the level of the basic state pension. This is the savings credit. So the guarantee element of the credit takes the level up to £100—the MIG figure—and the savings element is the wrap-around of the modest occupational pension. We shall give them 60 pence in the pound up to a maximum of about £13.80 for a single pensioner or about £18.60 for a couple—again, using illustrative rates. That savings credit will take the thrifty above the floor.
Let us take the example of a pensioner with a modest occupational pension of £100 a month. It might be an elderly widow who is perhaps 80 and who is receiving only half of her husband's pension. At this moment in time, that elderly widow with an occupational pension of £100 a month might just as well not have the extra amount at all. She gains nothing from it; it does not take her above what she would receive if her husband had never invested in an occupational pension. It takes her up to under the MIG level. But with pension credit
that same elderly women will receive an additional £60 per month (60p in the pound) on top. That is the reward element. For such people, the point of saving for a pension, however, modest it may be, will become clear for the first time. This is fairly simple arithmetic and I hope that the concept of the pension credit is clear. Of course, the pensioner does not have to do the calculation. The skill is in helping pensioners to know that there is an entitlement for them to apply for.I suspect that I shall be accused on a third count: I shall be told that the pension credit discriminates against women. Again, I challenge that statement. It does not. Women are the main gainers from the introduction of pension credit. More than half of the recipients will be single women. By comparison, only one-sixth will be single men. In many ways, women will do very well from the pension credit, particularly because they live longer than men and, over time, inflation may erode the value of any second pension or savings that they may have. Pension credit will also be valuable for widows who inherit only half of their late husband's second pension. It is a valuable way of narrowing the inequality that persists, and will persist, until women's pensions catch up with those of men.
However, there is a problem that we have had to tackle, and it is right to share it with the House. The pension system does not yet treat men and women equally. In this instance women are the beneficiaries of discrimination but that does not make it legally acceptable.
State pension age will be equalised at 65. However, that could not be done at a stroke: it was necessary to move to this over time, so that people could build it into their financial expectations. Pension credit must cope with that transitional inequality, while itself treating men and women equally. I ask your Lordships to think about how we were to cope with transitional inequality, knowing that the goal was the equal treatment of men and women at the end of the process, and treating them equally at every point towards that end, while dealing with inequality as it currently stands in terms of retirement age.
Noble Lords will have noted that, at the start, the guarantee element—which takes income up to £100 a week—will be paid to both men and women from age 60. So for the poorest pensioners we are equalising for both men and women at 60. But this will move to age 65 between 2010 and 2020 in step with the basic state pension.
In the mean time, men and women aged 60 and over will all benefit from the fairer capital rules, which have been welcomed, from the streamlined pension service, and from the simplification of the rules, which I am sure we shall debate thoroughly in Committee.
However, the unequal treatment men and women receive in relation to the basic state pension persists in the mean time. This means that there is no way of giving the savings credit—the sums over £100 a week—to men and women under 65 on equal terms, short of reducing men's state pension age to 60, in advance of raising it again in a few years' time for everyone to 65. We cannot do it; we are stuck.
Therefore, what we are doing is equalising the guarantee element at 60 for men and women alike and equalising the reward element for men and women alike at 65. That is why we are doing it in this way. That said, I repeat that women are by far the largest beneficiaries of pension credit, but above all it is the older and poorer women who will benefit, who are most in need.Noble Lords will have noted the commitment to increase the guarantee credit in line with average earnings for the rest of this Parliament. This and rising take-up will increase the cost of pension credit. The cost of the savings credit will rise too. We have projected forward as far as 2050. This shows that expenditure on state pensions will remain largely unchanged as a proportion of GDP. Therefore, we have concluded that pension credit is and will remain affordable and sustainable.
I am sure that I shall also be told in this debate—and I expect nothing less from my noble friend Lady Castle—that it would be better to increase the basic state pension in line with average earnings. I disagree profoundly. That would not lift the poorest out of poverty; all that would happen would be that an amount would be deducted from their minimum income guarantee sums; and it would go to many in this House—possibly in due course myself—which would be unreasonable. It would do nothing to help in terms of poverty. It would do nothing to tackle inequality—because the differentials among pensioners would remain the same if all received the same. Furthermore, it would not be financially sustainable. By 2030 the cost of earnings linking the state retirement pension would be £29 billion, more than twice the cost of the changes that we are introducing with pension credit; and most of the money would not go to those who most need it.
Pension credit is a radical departure. It builds on all that we have done to tackle pensioner poverty by raising the level of income pensioners can expect as a minimum. From next year, the Government will be spending £6 billion a year extra on pensioners above the 1997 level, and, of this, £2.5 billion will go to the poorest third. In weekly terms the youngest poorer pensioners on the MIG will, by April, be £23 a week better off. Couples will be £33 a week better off. Pension credit builds on this by adding a further £2 billion to reform the old capital rules, to give pensioners the reward for saving and to protect these gains in housing benefit. So even those pensioners who do not gain from pension credit but receive housing benefit will see the same increase in applicable rates. So they will gain too. Pensioners who qualify will, on average, gain £400 a year.
We have also, as the noble Earl, Lord Russell, was kind enough to notice, tackled the long-standing criticism about the way in which income from capital is taken into account. It is important to emphasise that the proposition in the Bill was a product of consultation. It was heavily influenced by organisations such as Age Concern, the FSA and others. The reward for savings, or "savings credit", as it is described in the Bill, is for those with a modest occupational pension that otherwise would not lift
them clear by very far of MIG. Pensioners have been asking us for this for decades. It will ensure that those who put something aside for their retirement will be better off for having done so. It is fair and it promotes saving.Pension credit represents a huge cultural change. We want to put behind us everything that led pensioners to associate income support with charity, poverty and means testing. The decision to set the income assessment for five years at a time is part of that, but we shall debate many other measures in Committee. I welcome your Lordships' suggestions as to how we can further strip the residual stigma out of targeting to ensure that pensioners enjoy that which is their right. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Baroness Hollis of Heigham.)
3.31 p.m.
Lord Higgins: My Lords, I am sure that the House is grateful to the noble Baroness for her usual expert explanation of the Bill and for the various points that she has made. I thank her, too, for the briefing that she has arranged for those who wished to study the detail ahead of the debate.
I begin by declaring an interest as chairman of an occupational pension scheme. The noble Baroness has anticipated some of the arguments that she expects me to advance. I am grateful for that by way of commercial. She even included one that I had not even thought of, or at least not yet.
It is a slightly strange title for the Bill—State Pension Credit Bill. One half of it is not a credit at all, but MIG under another name; and the other half has nothing to do with the state because it allows people to keep a little more of their hard-earned savings. No doubt we can discuss that issue later, or when we go into Committee on the Motion that the Title be postponed.
One of my arguments which the noble Baroness was right to anticipate was that of complexity and the related problem of take-up. The House will know that Help the Aged has estimated that only 1.7 million pensioners take up MIG, although 2.5 million are entitled to it. That is a serious matter about which all of us should be concerned. Part of the complexity arises because of the constant changes in terminology. We seem to be moving from the now well-known minimum income guarantee to something that in many respects is a part of the pensions credit under a different title.
The issue of complexity needs to be seen in the context of the Government's overall system of social benefits. I suggested when we debated the uprating Statement that we were reaching the stage whereby probably no one in the country understood the system, except perhaps the noble Baroness. I pointed out that since 1999 there had been five new tax credits for families, three of which were then scrapped and two more added. When I raised the issue last time, I thought that if the noble Baroness could enumerate
them, that might be a sign that someone in the country understood the system. She did not respond then—perhaps she will on another occasion.At all events, the points about take up and complexity are extremely important. We discussed earlier the minimum income guarantee form. I hope that the noble Baroness can make the form available to the House, perhaps before Committee stage, so that we can see it with regard to the pension credit provisions. I realise that the Government want to deal with the problem by introducing the pension service in place of existing institutions. None the less the complexity of such forms is a matter of concern. It is argued that under this system, people will do most of the form filling by telephoning the pension service, which will complete the form and send it back to the applicant for approval. That is likely to be an expensive process. My 33 years' experience of Friday evenings spent interviewing pensioners suggests that it will be a difficult system to operate. We shall have to see how it works, but it would be helpful to see the form.
Another matter that causes concern is the fact that much of the Bill will be implemented by statutory instrument. It is sensible in pensions legislation to implement by statutory instrument those parts of the Bill that will be varied in the future. But it seems that many of the proposals that will be dealt with by statutory instrument are permanent, so I believe that they should be in the Bill itself. Again it would be helpful if the noble Baroness could let us have drafts of the various statutory instruments that will no doubt be immensely complicated.
Some other aspects of the Bill are causing concern. Surprisingly paragraph 2 of Schedule 1 refers to "national insurance numbers", which the noble Baroness seems to have overlooked. We know the deficiency of those. Perhaps that is one of the detailed issues that we shall be considering.
Having said that, of course, we welcome the increase in money for pensioners. It would be foolish not to do so, but we have considerable doubts about some of the other aspects of the Bill. The change in capital limits is welcome, as is the abolition of the weekly means test, and so on. We are not saying that the Bill is entirely bad. Extra money for pensioners is obviously a good thing and there are other aspects that we welcome.
However, its scope is comparatively limited. The people who will be helped by the pension credit provisions fall within a narrow range. An article in the Sunday Times of 2nd December reported a number of cases of people on modest incomes who would not gain from the proposals. We are concerned that as people go up the income scale the marginal rate of tax, or withdrawal of benefit, will be as high as 40 per cent. When we discussed that matter previously I said that I was concerned that there would be even higher rates of withdrawal for people on housing and council tax benefits. I understand from the Minister that that will not be the case. It is clear that many people will suffer
withdrawal rates of 40 per cent, which is the top rate of income tax, but will the Minister confirm that no one will suffer withdrawal rates of more than 40 per cent?Some of the people involved in this measure will be those who are compelled to draw their annuities at age 75. If they are on low rates of annuity, which many are as a result of the fall in annuity rates, they will benefit from the pension credit element in the Bill. The issue of drawing annuities at 75 is important. There has been a great deal of publicity, and recently commercial firms have made proposals that would appear to overcome the difficulty involved in having to draw an annuity at 75. I do not know whether the noble Baroness can say anything about that at this stage, but I understand that discussions have taken place between the Treasury and her department.
The noble Baroness is right to say that the question of means testing, which she prefers to call targeting, is important. The basis of the Government's programme on pensions has been to increase means testing time and again. Will she say what percentage of pensioners will now be subject to means testing; what percentage of the total population are subject to means testing; and give us the same figures in terms of absolute numbers? It seems that we have a system in which, to misquote Beveridge, we are being means tested from the cradle to the grave. That is certainly not what he envisaged. That is a problem. I realise that the noble Baroness is rightly seeking to remove the stigma involved. We are in favour of that, but the reality is that we are increasingly building an effectively means tested pensions community that is growing ever more into a dependency culture.
Savings is another important issue. Will the Bill encourage people to save? The Government's system has created a series of different classes. Those who are below the minimum income guarantee level will get nothing if they have any savings. Those on low incomes will not get very much. People affected by the pension credit will certainly gain and those above that level will be taxed.
The Institute for Fiscal Studies takes the view that the growth of MIG in line with earnings will unambiguously discourage savings and believes that the conclusion is ambiguous on the pension credit aspect of the payment. The IFS does not believe that the two parts of the Bill, taken together, will increase savings.
I have a specific question for the Minister relating to the income that is taken into account in the course of the complicated savings calculation. I am not clear about the position of a pensioner in the system with a very low income. They might be entitled to the pension credit if they have savings, but if they do not have any savings and do a little part-time work—helping in a supermarket or something of that kind—will that income in any way attract a credit? I am also not at all clear about the position of savings income from PEPs and ISAs. It is totally outside the tax system, but will it also be excluded from the calculations when assessing whether someone is entitled to a pension credit?
I am also concerned about the position of the part pensioner—someone who does not get a full national insurance pension because their contribution record is deficient or for whatever other reason. The issue has been raised by groups as diverse as the National Federation of Post Office and BT Pensioners and the Association of British Insurers. The ABI puts the case clearly. It says:
- "Under current proposals, less than full entitlement to the BSP"—
- "will mean that the first part of a pensioner's personal savings will be used to bring them up to the level of the BSP and will not attract the additional saving credit. For example, if a pensioner has an incomplete contribution history and receives a BSP of only £67, but has £10 from a personal pension, they will receive the guaranteed income ... but no credit for their savings".
That is unfair. When I made my maiden speech in the House of Commons, a very long time ago, I was concerned with the people who were left out of the national insurance scheme when it was introduced. I eventually persuaded the then incoming Government, as the first action that they took, to pay to non-pensioners that part of the pension that was not covered by contributions. Alas, those affected are all long since dead. A similar situation arises in this case. It is not right to have the situation that I have just described if the part pensioner is not getting that part of the national insurance contribution that is not covered by contributions. I hope that I have got that the right way round. I hope that we can give some consideration to that point in Committee.
A number of outside bodies have estimated the cost of the Bill. The Chancellor has said that the pension credit will cost £970 million in 2003-04, rising to just over £2 billion in 2004-05. However, we have to look at the cost of the proposals over the long term, when people come to retire in 10, 20 or 30 years. Other estimates suggest that the cost over such a period could be very large—around £10 billion a year in current prices. Given the experience of SERPS, we have to consider whether the overall costs of the Bill are financially sustainable in the long run.
My final point relates to the overall policy on pensions as far as the private sector is concerned. The Government have rightly paid tribute to the role of occupational pensions in our system of private provision, but there are real problems with the run-down of surpluses because of the state of the stock market, the Chancellor's actions on advance corporation tax, a change in the basis of valuation by the actuarial profession and a change in accounting standards under FRS 17 by the accountancy profession. We are much better placed than any other country in Europe, but all those issues are seriously affecting the bedrock of our system. Some of the people in the occupational system with small pensions will gain from the Bill. That is welcome. However, it is time that the Government paid attention to some of the problems affecting the basis of the pension of many people in the occupational side. They are likely to be adversely affected if there is an increasing move away from final salary schemes towards defined contribution schemes.
Overall, the Bill should be welcomed. Its aim is to address a serious problem. However, there are a number of aspects, particularly on means testing—despite what the noble Baroness says—that require careful scrutiny. When scrutinising previous legislation, such as the Social Security Fraud Act 2001, we made great progress, with the co-operation of the noble Baroness. I hope that we can improve the Bill before it goes to the Commons.
3.48 p.m.
Baroness Barker: My Lords, I begin, as always, by declaring an interest. I am an employee of Age Concern England. In doing so, I must make it clear that, while the work of my colleagues in Age Concern will inform my comments, as it informs other Members of your Lordships' House, it will not determine the views that I express on behalf of my party.
I am something of a neophyte in pensions debates in your Lordships' House. I was most grateful to the Minister when, a couple of weeks ago, she sought to reassure me by saying that I should not worry because this is really just a technical Bill. Having spent the past two weeks reading copious material on the subject, I am beginning to understand the full horror of her statement. I now know that when the Department for Work and Pensions describes something as "just technical", it is a bit like a character in a Harry Potter book describing quidditch as "just a game".
As we begin our scrutiny of the many proposals in this short Bill, it may be useful to remember the Government's stated aims for their programme of reform of tax-benefit integration and to assess the proposals on that basis. The Government's stated principles for its programme, set out in the consultation document, are tackling poverty, promoting incentives to work and save, maximising take-up, targeting support on those who need it most, improving customer services and increasing efficiency. Those factors should form the basis of any analysis of the Bill—as should the question of the extent to which the proposals fit with the reality of older people's lives.
In short, there are elements within the Bill, such as the abolition of the hated capital limits and the end to weekly assessment which will be very welcome. Other elements, such as the extension of means testing—despite the Minister's comment, there will still be means testing—and the end of the age-related addition will not be welcome, especially when three quarters of the recipients of minimum income guarantee (MIG) are over age 75. So it is our task, as the noble Lord, Lord Higgins, has just said, to make the overall package more worthwhile and workable.
It should also be borne in mind that 15 years ago, the value of the basic state pension and of what was then called supplementary benefit was roughly the same. Anyone who had savings on top of the basic state pension was generally better off. However, as it became apparent that the standard of living "guaranteed" by supplementary benefit was very poor, successive governments put money into means-tested support. As a result, a huge gap has opened up
between the basic state pension and the guaranteed level of the means test. While that has been good to a certain extent in overcoming poverty, it has been bad news for savings incentives. It is that perverse incentive which this "savings credit" seeks to rectify. I imagine that that part of the pensions credit will be welcomed by many pensioners, when they understand the proposals. However, any joy will be tempered with the realisation that for those on less than the full basic state pension there will be no such reward under the level of £77.50.As the Minister hinted, it is already apparent that pension credit is fiendishly complex. It seeks to combine three separate objectives—a minimum income for the poorest pensioners; a reward for those who have saved and a future reward for tomorrow's pensioners to encourage saving; and to wrap those up together in one unhelpful title of pension credit. Complexity is a barrier to each of the Government's five objectives. Both the name and the combination of so many different elements seems unlikely to assist potential pension credit beneficiaries to know whether they are likely to be eligible—which does not bode well for take-up.
Many briefings from different organisations have focused on the fact that the word "credit" is itself off-putting. That word implies loans and debts, which many pensioners avoid like the plague. Moreover, there is another element of potential confusion. The term "pension credit" was used in the Welfare Reform and Pensions Act 1999, to refer to a woman's entitlement to her spouse's pension were they to divorce. What research has been undertaken among older people in respect of that term and what evidence is there that it will either help or hinder take-up? If there has been no research, what plans are there to pilot the scheme and measure take-up? There is great merit in choosing titles that are descriptive. Have the Government therefore considered entitling these proposals, for example "pensions savings reward" which is a good description of their function?
The extension of means testing, as the noble Baroness flagged-up, is likely to act as a disincentive to claim. Five million pensioners are likely to be brought within the scope of means testing. While for new claimants the retirement check will ensure that entitlement is established, identifying existing pensioners who are eligible may be very difficult. It is also questionable whether people will want to divulge their full circumstances when most will be eligible for much less than £13.80 extra per week.
Another potential problem arises from the proposed five-year assessment. While most pensioners' circumstances remain fairly constant for long periods, that is not so for all. The Bill assumes that the Government will know what will happen to a person's pension in the interim—but will they? The Government will probably assume that any income from a private or occupational pension will rise with inflation. However, many people will have worked for several employers and will have retired with a number of small pensions. Each pension scheme may have a
different provision. Some will rise with inflation; some will have limited price indexation; some may not rise at all if the fund's trustees so decide. How will the Government identify changes to income? Will there be any restriction on how often an individual or a couple can ask for a reassessment? If at the time of reassessment it is evident that a pensioner has been underpaid, will there be any facility for backdating entitlement?A major test of these proposals will be the extent to which they encourage people to save for their retirement. As the Bill currently stands, it is difficult to say whether it will have the desired effect or not, as so many different elements are unclear now and are subject to change by the current and future governments. The Institute of Actuaries has observed that the pension credit is really a benefit taper of 40p in the pound and will result in a smaller penalty being applied to some savings than is currently the case. For the group of people at whom the Bill is aimed, would it be preferable to put money into a pension or saving, knowing that it will, in effect, be taxed at 40 per cent, rather than simply spend it? It is difficult to see how people will be sufficiently well informed to be able to make such changes. For example, how will it be possible to predict if and when the £6,000 disregard level will be reviewed or uprated?
The Minister said that the Bill is a building block in a range of Government proposals, and in that respect it is very necessary. In my professional life, I advise the boards of trustees of small organisations about their employment duties. Over the past two years, I have been trying to explain to people that it is ethically correct to provide a pension, even when for them to do so is difficult because they have limited funds. Boards are concerned that they may do their staff a disservice on retirement. That is a huge problem and one that many employers are only just beginning to recognise.
The Bill does not make clear what, for the purposes of pension credit, will be deemed earnings. The abolition of the 16-hour rule will be welcome, as the noble Lord, Lord Higgins, has indicated. However, without a determination of earnings, it will be extraordinarily difficult for individuals to plan retirement income with any coherence. Similarly, the Pension Provision Group, in its commentary on the pension credit proposals in March 2001, pointed out the need to ensure that the measures do not provide an incentive to retire early. My party shares the Government's aim of enabling people to be economically active as long as possible. Does the scheme acknowledge the need not to penalise people who defer taking a state pension and therefore receive an increment when they finally do so?
A significant flaw in the scheme is the restriction of the savings credit to women over 65. Women between 60 and 65 will not be eligible to receive the savings credit. It seems strange that while entitlements such as the winter fuel allowance and concessionary travel are being equalised at 60, savings credit will be withheld. The Minister may say that the scheme is based around the state pension for men, for which those age 60 to 64 do not qualify. However, men of that age can still
claim MIG. If a fundamental principle of the Bill is to encourage savings, why penalise younger older women for doing just that?Another significant issue is the way that pension credit will relate to other benefits and charges—specifically housing benefit, as mentioned by the noble Lord, Lord Higgins. Can the Minister confirm that payment of pension credit will not lead to loss of income from either housing benefit or council tax benefit? The current taper for an individual receiving both benefits is 85%. For every extra £1 a week income, recipients only gain 15p. Pension credit will remove the 100 per cent income withdrawal rate that currently applies to MIG. Will the Minister confirm that persons who receive partial housing and council tax benefit could still face a withdrawal rate of 85 per cent or more?
Another area of considerable concern is people who are either in residential care or who receive services in their own home for which they are charged. Any change in the general level of pensioner income may well have an effect on charging policies. I realise that, in an era of joined-up government, any such change would have to be the result of discussion between the Department for Work and Pensions and the Department of Health. Nevertheless, as they are issues of significant concern to many pensioners, I would be grateful to the Minister if she will consider the following questions.
Are any changes planned to the charging systems used by the Department of Health in both domiciliary charges and care home charges to reflect the changes proposed for the pension credit and the Government's policy of rewarding those who have saved?
If there are to be no capital limits for pension credit, how will those who are in care homes, or those who are charged the full rate for home care by their local authority—who often find that their capital is quickly run down—be informed when they should claim pension credit?
How will those who are in care homes, or those who pay the full rate for their home care and are on pension credit, be informed when the pension credit should be increased due to their rapidly reducing capital?
Similarly, it should perhaps be pointed out that the introduction of the pension credit will make the current system of hospital down-rating even more iniquitous. When the Government themselves acknowledge that pensioners' circumstances do not vary greatly over time and that most hospital stays are for less than six weeks, and given the disruption to other benefits such as housing benefit and council tax benefit, it seems unduly harsh and administratively expensive to withdraw elements of the pension credit when someone is in hospital, as currently happens with MIG. Does the Minister agree that, with major changes to the pension system in progress, it now makes sense to remove hospital down-rating?
As I said, as this is a short Bill, many of the factors that will determine the scheme's efficacy are as yet unknown. Most detail of the administration will be known only when regulations are laid before the
House. It seems from the Bill's current provisions that the Government have based much of the administration on their experience of the working families' tax credit. One of the difficulties in attempting to administer such a complex system is the diversity of the older population. Any system that applies to half the pensioner population—from those who are English speaking and fully computer literate to those who are not literate in any language or have dementia—will have to be backed up by world-class administration.The Institute for Public Policy Research has described an "advice vacuum" for pensioners and the need to use a range of media in order to reach people. Will the Minister therefore say what opportunities, in addition to a free telephone number, older people will have for face-to-face advice? What messages will be deployed by the Government as they seek to explain this complex system?
Noble Lords will no doubt be aware that the MIG campaign was fronted by the wonderful Dame Thora Hird. In the past few days, I have found myself wondering how the Government will advertise the pension credit, and I think that the Minister may have given me the answer when she talked about simple arithmetic. I suspect that, given its audience profile, the law of this land is that every English-speaking pensioner must watch "Countdown", and that they must videotape it if they go out. They are also required to play against the contestants and mark themselves. The advertising campaign for pension credit could therefore feature Carol Vorderman doing the numbers bit, and contestants could say, "I'll have one from the basic state pension, one from my occupational pension, one from housing benefit, one from council tax benefit, one from invalid care allowance and any two small numbers from the top, please." Pity those for whom the pension credit is an insoluble conundrum.
This is a complex scheme that will be difficult and expensive to administer effectively. Although some of its elements are welcome, it contains significant drawbacks. It does nothing, for example, to safeguard the basic state pension, which is and should remain the cornerstone of any scheme for retirement income that meets the Government's five criteria. However, I give the Bill a guarded welcome from these Benches. I hope that, in our deliberations, it will be possible to improve its many provisions for the benefit of older people.
4.4 p.m.
Baroness Andrews: My Lords, this is for me another maiden voyage: it is the first time that I have had the courage to speak on social security. I think that it is also the last time that I shall want to follow a "neophyte" speaker. This may be a technical Bill, but I hope that I will be excused if I stick to the principles and to some of the impacts—as there will be—on elderly people themselves. I must say that, in previous debates, I have been put off by the sheer brilliance of Front-Benchers, which has been counter-balanced by the lustre of Back-Benchers. I can see that the debates on this Bill will be no different.
I have been moved to speak because I believe that the Bill tackles one of the persistent failures in social security: the why-save syndrome. We used to hear a lot in the 1970s and 1980s about the why-work syndrome, and that was a very powerful concept, but I do not think that as much attention has been paid over the years to the why-save syndrome. The Bill will make a significant difference to a group of people who have been persistently neglected—those who have saved a little but have lost out for many years for the very reason of their thrift.
Many years ago, in the 1970s, when I began my career as a social policy researcher, we were all very concerned by the failure of the Beveridge report to anticipate the interaction of work and benefits. That failure created so many gaps and inequalities in the system. The crucial problem of the 1970s was to increase pensioners' overall income in relation to general incomes. We were also concerned particularly with women. The link with earnings and the introduction of SERPS were designed to bring a new concept of collectivity and equality into pensions provision. Those moves were welcomed by consensus.
The 1980s saw a reversal of that concept, with the language of the apocalypse, the projection of unaffordable and unfunded pensions, the dismantling of SERPS, and the break between pensions and earnings. The priority was to be personal risk and individual action. That created some very good and some bad outcomes, which your Lordships have had to deal with over the years.
One feature that has remained constant over the past two decades is the growing gap between rich and poor pensioners and the persistent failure to address the issue of pensioners with small savings. Those increasing inequalities have been thrown into sharp relief by the continued failure to reward and support those same pensioners. In recent years, that failure has been exacerbated by the very low returns on investments and savings which have made many pensioners despair entirely about the purpose of saving.
I therefore believe that the Bill is not only overdue but is extremely timely. For those who are just above benefit level—the almost and nearly poor—small lifetime savings have been a positive barrier, not a boost to income. Pensioners with small savings—an additional £20 a week pension earned after years of working in a shop, an office or the public services—have been outlawed from receiving MIG because of their savings, without the consolation of being able to fall back on larger savings. Moreover, as MIG is linked to earnings, the gap between the basic state pension and MIG will grow larger. Pensioners who find it hard to manage are precisely those who find it so hard to save for anything extra either for themselves or for their grandchildren.
I know that my mother will not mind if I pray her in aid in an attempt to illustrate an example; indeed, the pension credit system could have been modelled on her circumstances. The system will make a big difference
to her. Indeed, given her savings, it will assure her of an additional income of £6.40 weekly. That sum will pay her newspaper bill and her milk bill, which are not insignificant. Therefore, in the great scheme of things, £2 billion boils down to £6.40 and the payment of bills. If my mother had sufficient savings to receive the maximum credit of £13.40, it could pay her winter gas bill or home insurance bill. As the Minister said, two-thirds of those who will benefit most from the credit are women, and half of those will be among the very poorest.Therefore, and following the noble Baroness, Lady Barker, my first question to the Minister is on the position of elderly people in care homes. May I be assured that my mother would be at no greater disadvantage should her circumstances change and she went into a care home? Will the assessment remain the same? If it does not, will there be adequate, accessible and understandable ways of explaining the change?
I believe that the Bill will resolve some longstanding issues of principle, not least the concept of a guaranteed income for the poorest pensioners. One of the crucial elements for pensioners is that they know what they are likely to receive in retirement; predictability as well as reliability are so important. The other day, a pensioner was quoted in The Times as saying:
- "You feel much more secure when you know you are not going to get less than £100 a week. I am very pleased that the Pension Credit will help people like me who are not on income support but who have a little money coming in from pension schemes that they paid for during their working lives."
I also believe that the Bill resolves some longstanding issues of process. I am delighted with the abolition of the capital limits. Those have led over the years to increasing distress as people find themselves on the wrong end of that sharp cliff of disadvantage with incomprehensible tapers that presume an income which very few have been able to realise, or have known that they have realised. I also welcome the disregard of £6,000, especially in the light of the fact that 85 per cent of those who will receive the pension credit have savings below £6,000.
Critics will obviously judge the Bill on the extension of means testing. Language is a problem. But the reality is that both Age Concern and Help the Aged have welcomed the reward for savings. They have criticisms but they have welcomed the fact that the Bill will,
- "clearly address some areas of pensioner poverty today".
I am also pleased that the Government have shown evidence of having listened to so many people in the consultative process. The evidence of that is in the Bill before us. However, as every speaker in the debate so far has pointed out, there are serious questions about complexity and incomprehensibility. The jobs and money editor of the Guardian recently described tax credits as
- "a thing of pure mystery".
Some fears have been dealt with by the abolition of the weekly assessment. The fact that the pension credit will be calculated once every five years pending any major change of circumstance is clearly a huge improvement. My second question for the Minister is the following. Can she clarify the full extent of what is meant by major changes, particularly those which are bound to turn up in regulations?
Clearly, a great deal will depend on the quality of the new pension service. The simplification of the MIG form is an excellent start but we should not have to make the case for clearer and simpler language, especially for elderly and confused people for whom every form that comes through the letterbox is a threat. If they are like my mother, they put forms straight behind the clock. They do not read them and the next thing they know another, different coloured form arrives which is even more terrifying. We must address this matter at a personal level.
I make the plea that this is an opportunity to make the new pension service a personal service. This may be a counsel of perfection but I believe that every elderly person ought to have his or her own welfare rights case worker in attendance on any benefits negotiation in which they are involved. Too often they realise that their circumstances are deemed to have changed only when they receive a form, a demand or, in the worst case, a summons for repayment of benefit overpayment, or a visit from someone they do not know who speaks a language they do not understand. My third question for the Minister has been mentioned on all sides of the House this afternoon. What steps will the Government take to make sure that the pension credit does not fall prey to all the difficulties we have experienced with other pension arrangements to date?
Noble Lords will be aware that Sue Ward is a considerable expert on pensions. She argued in a recent paper for the Industrial Society that the least we should be able to expect is that pension arrangements will be fair, clear, secure and efficient. In terms of clarity, it would be even more welcome if the Minister were to announce to the House one day that we were to have a system like that of the Danes. Their pension system is as complicated as ours, but they have a single Internet site on which any individual can obtain figures for his or her entire pension entitlement, state benefits and all others without infringing rights to privacy. How very different that is from protracted negotiations with the benefits centre. I speak with a note of weariness having just embarked on such toil.
I say in conclusion that many questions will be asked at later stages of the Bill. There will be questions about designated limits, detailed processes, exclusions, the variable impact and on certain aspects of principles. But those working with and for pensioners have welcomed the Bill for what it intends to do—which is to provide greater security and greater fairness for pensioners. I too welcome it on those grounds.
4.14 p.m.
Baroness Greengross: My Lords, I start by congratulating the Minister and the Opposition Front Bench on their speeches, which have demonstrated a notable clarity and expertise. I particularly congratulate my former colleague, the noble Baroness, Lady Barker, on her address today. We worked together on these issues over many years.
Some of the issues addressed in the Bill are ones which I remember working on over the years and discussing with the noble Lord, Lord Fowler, on many occasions and with the noble Lord, Lord Higgins. They are longstanding issues which have been of great concern. I refer to the whole issue of income in later life. One of the most frequent grievances I heard from older people was that they were not rewarded for thrift and felt no better off, and sometimes very much worse off, if they had saved than if they had not.
Although we are talking primarily about people just above the poverty line, that comprises millions of older people who believe that thrift is a good thing—that is a cornerstone of their belief—and are disillusioned by their experiences. We have waited a long time for action from all governments. However, if I may use a pun, it is to the credit of the Minister that, along with the Secretary of State and other Ministers, she has been open in wanting to tackle a difficult problem and aims to do so by means of the Bill. As she expected, I, too, believe that it is extremely complicated. I hope that we can simplify it during its passage through the House.
The limits have now changed. For many years the lower capital limit for extra help was only £3,000. In some cases that included the value of a home. In 1997 we even had the situation of one council ignoring the will of Parliament and forcing some older people to spend their assets down to £1,000—enough to pay for a funeral—which was rather depressing. A fine balance has to be drawn in deciding when retirement savings should be used, for example, to pay for long-term care. However, to be left with £3,000 after a lifetime seemed extremely harsh to me.
If sufficient help cannot be given to all pensioners equally through the state pension, primarily for reasons of cost, I agree—as I have said previously—that targeting available extra government resources on the poorest is sensible, first, by increasing markedly the income support levels, as has already happened, and now, secondly, by rewarding thrift. That is one of the reasons I welcomed separating income support for older people—which became the minimum income guarantee in 1998—from income support for others. However, I believe that the minimum income guarantee is rather badly named.
I welcome the principle of giving extra help to older people on top of their state pension entitlement, either to bring them up to a minimum income as of right, as MIG does, or to credit them with extra money to take account of the efforts they have made to save. However, that is the easy part. Turning all this into practice is more difficult. That is what we are now trying to do in considering the Bill.
I also welcome the principle of tax credits, which form part of another Bill which your Lordships will soon consider once it has left the other place. I should have liked the Bill we are discussing to be better incorporated with the changes being made to the Inland Revenue and Contributions Agency in combining tax and benefits. Through tax credits, even for non-taxpayers such as the vast majority of pensioners, the extra money could be seen as a form of "tax back". I understand that that is the intention eventually, but why not introduce it now?
In practice, I have some reservations about the way in which the state pension credit will be implemented. I hope that the Minister will clarify some points which have largely already been mentioned. I hope that we can tease them out in Committee and at later stages.
I agree with the noble Baroness, Lady Barker, that the word "credit" implies something for many people which needs to be considered carefully. It is already a little confusing to have the department's proposals called the pension credit and this Bill entitled the State Pension Credit Bill. That needs to be sorted out. If the word "state" is not incorporated then many people might believe that they are eligible regardless of their income and savings, which could create more confusion. So the word "state" is important.
I saw comment in the media criticising these proposals because they apply only to those with a private pension income of less than £3,000 and savings of less than £37,000. But I believe that the media are missing the point because the policy is targeted at those with modest savings and income in retirement. Yet the same media complain that it will cost too much and bring too many people into the means test. In my view that is trying to have it both ways. I do not believe that is fair.
However, I would welcome reassurance from the noble Baroness on the long-term costing. I do so with the thought in mind that if it costs more than projected, the money is at least going to older people. Under the terms of the Bill it will not go to the wealthiest, which is the good side of these proposals. It is not just government spending which is going to disappear into a black hole, it will provide additional income to older people who are just above the current benefit levels.
On the extension of means testing, we have to move away from the idea that it is a stigmatising process. It has been. That is because of the way in which the whole system has developed over the years. Will those eligible for the state pension credit claim it? If they do not, we may be creating a new group of older people who will fail to take up their rights. Only if the system is fully automated will it be successful. It is a pity that our experiments so far with fully automated systems, like the Danish one, have not worked so far in this country. But if they did it would do an enormous amount to solve the problem that the Government are aiming to tackle.
The old, bureaucratic form-filling processes are so difficult for old people, who are sometimes not very well educated. Even the most educated among us have difficulty with forms. If one is weary and not very well, then it is an extremely off-putting experience. Anything that we can do to make the system simple will help: the five-yearly re-assessment will be a great help. I welcome that. However, we in this House should tease out how the new system of assessing income and capital can be made simpler than the discredited system which is now going to be replaced.
The explanatory notes, on page 5, refer to the pension service which will be set up from April next year and which will administer this credit. Can the Minister update the House on the development of the new pension service? It is important. It is a long-term change and it could be seen as the silver lining to the cloud of last year's inherited SERPS scandal. The way in which the old departments dealt with older people was not very good. The system did not work very well. I should like to be reassured that the new service will be able to deliver, explain and administer the state pension credit well. I, like many others, am concerned at how complicated it is. I have tried to understand how it will operate. I congratulate the Minister on her explanations. It is very important that the staff at the Department for Work and Pensions are able to deal with the scheme so that everyone can understand.
There is still some confusion as regards the age at which the credit will apply. The Minister tried to enlighten us on that. She spoke of the transitional period and the difficulty of applying the scheme equally to men and women, and I appreciate that. It is a very important issue. The difficulty is the age of entitlement to income support and so forth rising to 65 years of age from 2010 for both men and women. It applied earlier to the Travel Concessions (Eligibility) Act. It also applies to this measure. That Act had written into it eligibility for half-price local bus fares rising from the new age of 60 to 65 from 2010. Will the eligibility age for other benefits for older people also rise to the age of 65 for benefits such as the free eye test and the winter fuel allowance in 2010 and onwards? How will the Government inform people, especially women aged under 52, of these changes? We need clarification on those points.
The Bill is also unclear on earnings disregard. Rising longevity is likely to change work patterns and certainly should do so. It should become the norm that older people can continue to do paid work beyond the now very young age of 60 or 65. Many of us in this House welcome those changes! I hope that that will not be at the expense of losing all the top-up state pension and benefits. I can foresee that many older people would be able to continue to work part-time if they also continued to receive their pension entitlement in full, perhaps with a higher threshold. We need much more flexibility. I very much welcome the undertaking by the Minister, Barbara Roche, to look at these issues. I hope that all these matters can be brought together.
Further clarification is needed on how the state pension credit will interact with other existing benefits such as housing and council tax benefits and so forth. I believe that the noble Baroness, Lady Barker, also mentioned other charges such as domiciliary care charges, carer's benefits and other state benefits. We shall need to look in depth at all these issues.
With those reservations, I welcome the Bill. It will benefit that large group of older people who have saved, but who have been unable to save enough to be comfortable in retirement. It will also go some way towards ceasing to regard people who defer their earnings and who expect to receive them in pension form, from being considered as quite different from the younger population who receive their income from their current employment. That is why I like the basic idea that underlines this Bill. It brings the whole population together regardless of age. I welcome it.
4.27 p.m.
Baroness Castle of Blackburn: Perhaps I should begin by conveying to the Minister the apologies of my colleague, Lady Turner, for her inability to be present in this debate today. We all know how passionately interested she is in all these questions and her participation in our debates has been remarkable. But at this moment she is undergoing a long overdue operation to her knee at the Royal Free Hospital. I am sure that the whole House will join me in sending her our best wishes for a speedy and complete recovery.
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