| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Baroness Hollis of Heigham: My Lords, which limits is the noble Lord referring to? There are no capital limits. There is simply notional income from whatever capital a person has.
Lord Addington: My Lords, I thank the Minister. The uprating of the income is what we are worrying about.
The next point relates to a serious disagreement. The Government have gone down a means testing—they prefer the term "targeting"—route in an attempt to get resources to those who they believe need them. We on these Benches should prefer a more broad-brush approach. The basic argument between us is that money will have been saved on the bureaucratic nature of the system; therefore, we shall be able to give out a universal benefit, thus getting benefit to those who actually need it. Help the Aged concurs with our policy approach; namely, that an extra £10 per week for those over 75 would achieve much of the reduction in poverty.
I agree that, overall, the Government seem to have listened to the criticisms levelled at them about the complexity of the system and its implementation. However, the main problem is that the system will be difficult. It is not merely a question of the aged being confused by such complexity. Our education system has not produced a large number of people in the lower income brackets who are comfortable with complex literature. It is a historical problem for which governments of all colours must share the blame. But people have simply stopped educating themselves in this area.
I freely admit that I do not like the idea of lots of complicated forms. I am dyslexic and I have a bad short-term memory. There are many like me. There are many others who for other reasons have literacy problems. That is potentially a major flaw in the scheme. The Government have talked about the ways in which they will get round the problem—sending out forms to everyone, a telephone back-up service and various other elements of the system. This is the real challenge for the Government. Assuming that their targeting is correct—and we do not know that—they must make sure that they get to the people in question.
The on-going costs of the scheme will increase the costs of the pensions system. It is merely a matter of how that balancing act occurs and how many people are missed. It is not a case of whether people will be missed, but of how many will be missed. It always is. It may simply be that a person is terrified of forms, or is not on the telephone, or does not like approaching an authority. From the age of 60, or even earlier, many people are like that.
I hope the Government will bear that fact in mind and will realise that they do not have the perfect answer. There will be casualties. They will have to be prepared to pick those people up at some point. Ultimately, as always happens in our system, the health service and other services will find themselves picking up the failures of the system if they occur.
I turn to the major flaw in the system; namely, its approach to women aged 60 to 65. The Minister made a very good attempt to square the circle and gave a full answer. However, those on state pensions should be brought into the system. It is worth repeating that there is a significant anomaly here. If a person happens to be receiving a state pension, why is he or she not included in this system? We know that it will come to an end and that there is a series of finite problems. But surely that is a major flaw.
I could talk about this subject at considerable length. However, because other speakers have covered most of the points I had intended to make, I leave the House with just one thought. Unless we are prepared to be slightly flexible and admit that there are faults in this approach—which means going back and putting in place extra layers to correct them—we shall have greater problems. We have gone down a road in this Bill which will probably make matters more complicated in the future, not less so. I hope that all those who have a responsibility in this area, if they agree to this system, are prepared to pick up the tab to make sure that this targeting is at least done with a decent sight.
5.59 p.m.
Baroness Noakes: My Lords, as a neophyte on matters of pensions and benefits, I was delighted to find that I was in excellent company with the other neophytes, the noble Baronesses, Lady Andrews and Lady Barker. We were treated to an excellent introduction by the powerful and contrasting speeches of my noble friend Lord Fowler and the noble Baroness, Lady Castle, together with many of the other usual experts who regale us in these matters, led by my noble friend Lord Higgins and the Minister. Perhaps the Minister did gallop but I never found her indistinct.
I shall start by talking about complexity. I make no apology for venturing into this area, as predicted by the Minister, and referred to by many speakers. The new pension credit is mind-blowingly complicated. If anyone doubts that, I refer them to the definition of "savings credit" in Clause 3. I shall not read it out but I wager that even with her renowned fluency in benefit matters the noble Baroness, Lady Hollis, would have
difficulty making it instantly understandable to noble Lords. I am well aware that the parliamentary draftsman finds it difficult to draft financial concepts in legal language, but I hope to find a more direct way of expressing these rules in statute as we consider the Bill further.Complexity is an important issue if we believe that citizens should be able to access and understand the laws that govern them. Some, like my noble friend Lord Fowler, say that benefits legislation is usually complex and that it is important for the Department for Work and Pensions to translate it into practical procedures. Tax legislation has become ever more complex and difficult to understand, but we should not accept inherent complexity without question. We know that with complexity comes error. An example appears in Clause 18, which we are told is to remedy a mistake made in earlier legislation. That is an example of why complex legislation is harmful. I hope that as the Bill proceeds through its Committee stage we shall strive to make it simpler.
Another aspect of complexity is the heavy reliance on regulations, already mentioned by many noble Lords. The Bill lays out the bare bones of the framework for the new pension credit, but to find out how it works we have to refer to regulations. The first three clauses, which deal with entitlement, guarantee credit and savings credit refer to five sets of regulations and seven prescribed amounts or percentages. There is more of that in the rest of the Bill.
The Bill proposes a scheme that has not been worked out in fine detail, or even in much detail at all. Even the simple concept of how income will be taken into account in calculating the savings credit will require reference to regulations made under Clauses 3 and 15. My noble friend Lord Hodgson asked important questions about how dividends or ESOPs will be treated and about equity in a person's own home. There are other questions to be asked. How will PEPs and ISAs be treated? What about pension funds that are not drawn down as annuities and index-linked savings? How will they be treated?
I hope that as we consider the Bill in detail the Minister will tell us what the regulations will contain. My noble friend Lord Higgins asked when the Minister expects to have draft regulations available. I hope that they will be available at Committee stage.
I turn to the question of the direct cost of the new pension credit, about which my noble friend Lady Fookes spoke so clearly. The Explanatory Notes say that the Bill will cost about £1 billion in 2003-04 rising to more than £2 billion in 2004-05. I understand that the difference between the two early years is because the new savings credit will not exist until October 2003—in nearly two years' time. The Government have raised expectations that pensioners will benefit from the new credit scheme, especially those with savings. Why do they have to wait so long? Is it because the department cannot process the claims quickly enough? I hope that the Minister can shed some light on that.
What assumptions are being made about overall take-up? The noble Baroness, Lady Castle, spoke about that issue, and the noble Baroness, Lady Greengross, referred to the difficulties involved in getting pensioners to take up means-tested benefits. Is it assumed that all entitled pensioners will have claimed what they are due by 2005, or will further costs emerge as time goes on and further claims are made? We know that about 20 per cent of potential MIG claimants fail to take up their entitlement. What assumptions are being made about the take up of pension credit of £2 billion in the estimates for 2004-05? Can the Minister say what will be the total cost if there were to be 100 per cent take-up, if, as I assume, the assumptions are made on less than 100 per cent take-up?
What are the department's estimates of the long-term cost? I understand that about £2.25 billion is in respect of minimum income guarantee, which will in effect be subsumed into the new pension credit and that the £2 billion is on top, so that when the new scheme is fully operational we are talking about a starting point of around £4.3 billion. Many noble Lords have pointed out that the estimates of much higher costs made by a number of commentators, including the Institute of Public Policy Research, which could not be described by any stretch of the imagination as a Right-wing think tank, are not sustainable. Based on calculations of up to £10 billion of long-term cost, it has calculated that the Government's proposal is not sustainable in the longer term. Does the Minister agree? If not, will she say how it will be funded in the longer term?
I turn to the incentives to save. Most noble Lords will agree that preserving savings incentives is an important aim if we are to avoid a culture of dependency on the state. The Bill takes an artificial approach to capital and income, using a deemed interest rate which the Explanatory Notes say will be 10 per cent on capital that exceeds £6,000. The noble Lord, Lord Addington, asked a question on uprating. He was possibly referring to the uprating of the £6,000 starting point that is included in the calculations. My question is slightly different. Does it mean that for all purposes the first £6,000 is to be disregarded, or does the 10 per cent rate apply to all capital if it is over £6,000? If a pensioner has £7,000 of capital, is his deemed income 10 per cent of £1,000—the excess over £6,000—or £7,000? By nodding, the Minister has answered my question. It is based on £1,000, which is the excess over £6,000. I thank the Minister for that.
Whichever way the figure is calculated it is clear that income deeming provisions will operate against those whose return is less than 10 per cent. That will apply to most pensioners because they will be deemed to have income that they do not have. A pensioner with capital of £25,000 who was lucky enough to receive a 5 per cent return would have an income of about £24 a week. But, under these provisions, he will be deemed to have £36 or £37 a week, which is how the credits will be calculated. He will end up not having the full amount of the deemed income and will be only a few pounds better off than if he had not saved at all.
I am far from sure that the new credit scheme will prove an incentive to saving. As my noble friend Lord Higgins pointed out, as the guaranteed credit rises with earnings over the next few years, that discouragement to save will become even greater. I am sure that we all want to avoid that.
The Bill refers to concepts of family. Pensioners who are married will do less well than two single pensioners, but so will an unmarried couple of pensioners living together as man and wife. I am sure that noble Lords are aware that old people are often lonely and, for all kinds of reasons, will wish to share their homes and their lives. Will the Minister explain why, when a male pensioner lives with a brother or sister or with another male, they will both have a single person's entitlement to pension credit, but if he lives with another female he may be deemed to be part of an unmarried couple, with the consequence that they receive less in total? How is living together as husband and wife to be interpreted in the rules? Are sexual relations to be a prerequisite? If so, how is the department to ascertain the information? Is this to be another intrusion into the lives of pensioners? Will the Minister also explain why homosexual relationships are to be favoured by allowing both parties to the relationship to receive a single person's entitlement?
Lastly, perhaps the Minister will say exactly what is intended in respect of polygamous marriages? Is it intended that the regulations that could be introduced under Clause 12 will allow higher pension credits to be paid to men or women who have more than one spouse?
My final topic is administrative costs. My noble friend Lady Fookes touched on the subject and the noble Baroness, Lady Castle, remarked on the lack of information about it in the Explanatory Notes, which say that the administrative costs will be discussed with the Treasury in the next spending review. Well so will everything. Are the Government saying that they do not yet know what the administrative costs will be? As many noble Lords have said, the aims of the new pension service seem admirable, but they do not sound particularly cheap, especially in the short term. When will we be told the administrative costs of the new arrangements?
I am sure that there will be many more detailed issues to discuss in Committee. I thank the Minister for the explanations that she has given today and at the very helpful briefing that many of us were able to attend last week. I look forward to hearing her response today and to our detailed consideration in Committee.
6.13 p.m.
Baroness Hollis of Heigham: My Lords, I am pleased that the Bill has had a broad, if cautious, welcome around the House. As the noble Baroness, Lady Noakes, said, this has been an extremely well informed debate, as one would expect with contributions from two former Secretaries of State on the subject and a junior Minister, as well as others with practical experience on pensions or with Age Concern. I would
expect nothing less. I am even delighted that my noble friend Lady Castle welcomed the principle of rewarding thrift. I think that she was claiming credit for the concept for herself and our noble friend Lady Turner, whose absence we have missed today. She has helped me very much over the years on pension matters. I hope as a result that the Bill will enjoy their warm support. That view was challenged by the noble Lord, Lord Fowler, who also wanted to introduce such a Bill, having said at one point in his speech that on no occasion did he ever agree with the noble Baroness, Lady Castle.I am not sure what it means when so many people claim credit for the Bill when on other occasions they never agree. It shows that the Bill is perceived as a serious attempt to address a real problem that everyone has identified. At its simplest, that problem is how to ensure the provision of a basic, decent minimum income for people, in such a way that it does not deter them from seeking to make such provision for themselves.
If that is called squaring the circle, so be it. If it is called galloping horses, in the metaphor chosen—whether elegantly or not I am not sure—by the noble Baroness, Lady Fookes, I plead guilty. It is an insuperable problem in social security. Our suggestion is to adopt a targeted and tapered response, because the alternative of universality not only misses the target, but does so at enormous cost.
I shall address the major issues that have been raised by several speakers. I started counting the questions that were asked, but I stopped at 80 or 90. Noble Lords will understand if I do not reply to all their questions tonight, but I shall write to them. I would love to have an hour to reply to all the questions, but I cannot do so unless I speak even faster than I did to start with.
The big strategic issues are complexity, means testing, capital rules and the pension service. If time permits, I shall also seek to come back on some of the more detailed questions, which are also of interest to the House, including the situation of part pensioners, housing benefit, hospital downrating, residential care, the future of occupational pensions, cost, reassessment rights and the like. I shall see where I have got to by the time that your Lordships are looking distinctly glazed, and/or bored, and/or asleep.
As the noble Lord, Lord Higgins, conceded, I tried to address the issue of complexity when I started. The structure is simple, but social security and pensions are both complex, and if the two are brought together there is inevitably a geometric increase in complexity. We know that there will be two parts—a £100 basic income together with 60 per cent of the next £23 of income, which is the difference between the £77 retirement pension and the £100 MIG.
Working out the details is complex, but the complexity arises most obviously when people have an incomplete retirement pension record. Estimating that is complex even now. The structure is simple, as I have just said, and the information required is far simpler. I shall come back to that point. The capital rules have been greatly simplified and once the assessment is
made it remains in place for five years unless there are major changes. The noble Baroness, Lady Greengross, asked me to elaborate on such changes. They include the death of a partner, going abroad, going into hospital or changing house and having seriously different housing costs. Those are the major life events involved. However, it is a win-win situation for pensioners. They can seek to be reassessed, possibly because their income has dropped, at any time that they wish. They may only need to be reassessed every five years, unless a major event occurs. I shall also come back to the pension service, to which my noble friends have spoken so eloquently.I have a couple of points to make on draft regulations. This is a framework Bill. It is impossible to achieve the elegance of a modern novel in legislation that amends previous legislation—although, as one of my noble friends said, not all modern novels are as comprehensible as the Bill. I hope to have the draft regulations for your Lordships during Committee stage. They will deal with some of the issues—such as polygamous marriages and so on— which have clearly concerned some of your Lordships, including the noble Earl, Lord Russell, on uprating. I am not sure why polygamous marriages should suddenly be of such fascination to your Lordships. I can only think that it was either hope deferred or aspiration being pursued. The noble Baroness, Lady Fookes, also asked about draft claim forms. I hope to have them available in Committee. I have the current MIG forms.
The crucial part of what I was trying to say is that by going for targeting and tapering we are seeking to move away from vocabularies of means testing to vocabularies of entitlement, as my noble friend Lord Lea said.
I was asked whether extending means testing will discourage those who need help from claiming. It is no longer sensible to give everyone the same. The latest figures, for 1998-99, show that the average pensioner income was £272. The bottom one fifth of couples received half that sum. The top fifth received double. Where such disparities of income have grown over the past 20 years, it cannot be right to give the same to all.
My noble friend Lady Crawley pointed out that giving the same to all would not end means testing. My noble friend Lady Castle talks as though if everyone were uprated to MIG and earnings-related, there would be no need for means testing. She is misinformed. Even if there were earnings-related additions, two thirds of recipients on MIG would still be affected. If the earnings link had never been broken, nearly one half of all pensioners would still need an income-assessed, targeted benefit because either they have incomplete pension records or have extra cost disability benefits.
Whatever system is used, there must be targeted benefits. What matters is to remove the stigma, improve communication, and ensure entitlement and take-up. To achieve that, we are seeking to map income at retirement and every five years—so there will not be weekly intrusion. We are not asking pensioners to come into an office for a "Full Monty"
assessment. The matter can be dealt with in the privacy of their own home. Some 70 per cent of people already set up and handle their retirement pension by telephone. I am sure that proportion will grow.With income support, we currently need to know whether any child maintenance payments are being made—particularly in the case of a younger spouse with children from a much earlier relationship. In future, those payments will be ignored. At present, we need to know the number of hours worked. In future, they will be ignored. If a pensioner has returned to college or university for third-age learning, any educational support in the form of grants or loans will in future be ignored. Any personal injury payments, which are taken into account in various ways at present, will be ignored. Charitable and voluntary payments are to some degree taken into account at present. In future, they will be ignored. Rent from any land or second property will be ignored, as will capital sums in building societies, PEPs or ISAs—but the notional income will be taken into account.
I could treble that list but it gives your Lordships some indication that lines of assessment rightly seen as intrusive now will be stripped out of pension credit in order to get the core information needed. The assumption will be that pensioners' incomes stay steady except in the case of life-changing events. We can therefore take that interference and intrusion off pensioners' backs, so that they can enjoy a predictable income as of right.
Next Section
Back to Table of Contents
Lords Hansard Home Page