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Lord Hodgson of Astley Abbotts: I find myself in some sympathy with the purposes that lie behind the amendment. As my noble friend said, the Bill's nomenclature is confusing in the extreme. The savings credit threshold as defined in the Bill is extraordinarily hard to understand—I have read it many times. We have not discussed estimated rates of return, which are imputed across savings at different levels.
Wherever possible, we must try to say what we mean. There will inevitably be complications in the detail but at least the scheme's name could be clearer. I should not favour calling the arrangement a "pension credit" because it is not a pension credit. Unless one has a full state pension, one does not get a credit on part of one's pension income; one qualifies for that only if one has a full state pension. We shall discuss that later. Moreover, the arrangement should not be
called a "state pension credit" because it is an incentive to save. I hope that we will find a way to use the phrase "savings incentive", because the arrangement is an attempt to encourage people, on top of their basic state pension, to have savings that will qualify for the proposal. I hope that we will consider wording that involves the phrase "savings incentive" rather than "credit", which has a different nomenclature and implication. That phrase would make the position clearer. "State pension" suggests that there is a basic idea of qualifying, "savings" suggests that there is something that one needs to do and "incentive" means that one gets some return from it.
Baroness Hollis of Heigham: Listening to this debate about the appropriate title is rather like listening to debates on reform of the House of Lords—everyone knows what they do not like but no one can agree on what they do like. We are somewhat in that position. Some suggestions do not involve titles that are easily recognisable titles to pensioners out there; they are accurate legal descriptions of the content that the scheme may involve. That is not necessary and it is not what we are dealing with.
Since the idea was first mooted, we have used the title "pension credit" from the beginning. Members of the Committee will recall that at Second Reading I explained that we had to use the prefix "state" for purely legal reasons and that we will continue to refer, in literature and so on, to "pension credit". The name has been in the public arena for sufficiently long already to have achieved a degree of acceptance and understanding. To further change it would suggest to many people out there that we have yet another different scheme and it would add to the complexity.
I accept the thrust that lies behind the proposal of the noble Baroness, Lady Greengross, which was to ensure that everything possible should be done to reduce stigma and to promote the take-up of pension credit. We do not want the name to stand in the way of that objective. She was absolutely right in that regard. I hope that she will accept my assurance that we will undertake a substantial programme of targeted publicity to achieve the dual aims of reducing stigma and promoting take-up, which we share with her. I hope to draw on her expertise and experience as we develop the matter.
It is appropriate to mention the pension service, which will come into being in April and which will focus exclusively on pensioners and those approaching pension age. It will deliver tailored services, which will mean less intrusion, less hassle and services that meet pensioners' needs in a more helpful and positive way. It is also our intention to present pension entitlements in a more holistic way. We want people to see pension credit as part of their overall pension entitlement. Current pensioners do not need to know about how one arrived at arrangements such as the five-year proposal, integrated sums of money and automaticity, although future pensioners do. The noble Lord, Lord Hodgson, was absolutely right to suggest that future pensioners need to know that such arrangements will
be available to them—that is an incentive to save. Existing pensioners are where they are, as it were, and the important point is to have simplicity and transparency for them. Our literature will ensure that that is the case.We firmly believe that such practical linking of processes—the retirement pension with the two elements, as it were; that is, the guarantee element and the savings element—into one pension payment will help pensioners to claim it. We currently do that with SERPS, the graduated pension and pension increments.
I welcome this opportunity to say that what lies behind the arrangement is what matters, not what its title is. The title "pension credit" is reasonably well established. It is not the most elegant formulation but no one can come up with a better title that keeps simplicity, as opposed to being, in effect, the Long Title of a Bill. With those assurances, I hope that the noble Baroness will withdraw her amendment.
Baroness Greengross: I thank the Minister for her explanation and sensitive approach. The matter obviously needs a little more thought to ensure that we have got it absolutely right. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Turner of Camden moved Amendment No. 2:
- Page 1, line 5, after "credit" insert "calculated in accordance with section 2"
The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 4, 5, 6, 13, 14, 15, 21 and Clause 3 stand part.
First, I explain to the Committee that I shall be speaking to all the amendments today that stand in my name and that of my noble friend Lady Castle. Unfortunately, my noble friend has had a fall. She has been badly shaken but she is making good progress. She is not, however, well enough to come here today. I am sure that we all wish her a speedy recovery.
Secondly, I was not myself able to come to the Second Reading debate on this Bill. My noble friend the Minister will not be surprised to learn that I am not terribly happy about the general thrust of the Bill. It is true that extra money is being made available for pensioners, and that is surely to be welcomed. But it is dependent on a system of means testing and it will be extended, ultimately, to a large section of pensioners. According to the Government's own long-term projections, by the middle of this century as many as 65 per cent of pensioners could be eligible for the pension credit, with all that that implies.
One of the problems about means testing is that it is not only expensive to administer but it is often very complex. Account has to be taken of income from various sources, capital and so on. We shall debate some of those matters later. Provision has to be made for a taper, and that can be complicated as well.
When I first read the Bill, I found parts of it very confusing. If we are to have this system, could we at least make it as easy as possible to understand? It is true that there are very useful notes on clauses, but I still find parts of the Bill difficult to comprehend. I therefore sought some assistance from a specialist adviser who knows a great deal about pension provision and social security in general. As a result, the amendment that is before the Committee and those that are grouped with it were framed. It will be noted that we want to do away with Clause 3 altogether and substitute a formula that we believe secures the same objective but which is much simpler. Instead of treating the savings credit as a separate benefit, the proposed formula in this group of amendments treats it as one element in the calculation of the guaranteed credit.
If the amendments were agreed to, the terms "guaranteed credit" and "savings credit" would be redundant; there would be one benefit—the state pension credit—in the calculation of which 60 per cent of certain types of income would be disregarded. That is our aim. In place of Clause 3 there would be the much simplified wording that we have framed in Amendment No. 21.
I hope that the Minister will agree that, irrespective of her view of the actual wording, which no doubt could be improved, there is a case for simplifying the formulation. I am not alone, it appears, in regarding Clause 3 as incomprehensible. The noble Lord, Lord Higgins, has drafted what amounts to a rewrite, which we shall no doubt debate later this afternoon.
This is by no means a wrecking amendment. Despite my view, which I have already expressed, as to the philosophy that lies behind the Bill, I accept that the Bill is before us and that it is up to Members of the Committee to do what we can to make it viable and accessible. I therefore hope that the Minister will look with some favour on what I have said. I repeat that we are not out to wreck the Bill; we simply want it simplified in order to make it accessible to the people who it is intended to benefit. I beg to move.
4.30 p.m.
Lord Higgins: I am sure that the whole House will be sad to hear of the fall sustained by the noble Baroness, Lady Castle, and that we all wish her a very rapid recovery. She is certainly missed at these debates—she is one of the usual suspects who is usually involved in them. When we previously debated this Bill, the absence of the noble Baroness, Lady Turner, was noted and we wished her well. Therefore, we are particularly pleased to see that she is now back with us.
As the noble Baroness rightly pointed out, these are very complicated matters, and she has sought to put forward an alternative proposal. Of course, it is well known that both she and the noble Baroness, Lady Castle, would much prefer—as, indeed, would many outside bodies—to see the money which the Government's proposals in the Bill would cost spent on uprating the basic state pension. I could not agree more with the concerns expressed by the noble
Baroness in moving the amendment with regard to the extension of means-testing. There is no doubt that the proposals in the Bill will lead to a substantial increase in means-testing.In the context in which she proposes her amendments and in the context of the Government's own proposals, I considered it extremely helpful to have the document published by the Department for Work and Pensions on pension credit for long- term projections. That document compares the Government's proposal for pension credit reforms with the proposal for increasing the basic state pension in line with earnings. The latter would normally be advocated by the noble Baroness who moved the amendment.
The figures given in the document are quite surprising. Those which relate to the cost of pension credit reform under the Government's proposals are based on three separate scenarios. I am not clear why there are three scenarios because different assumptions are made about the pension credit on the one hand and the savings credit on the other, uprated with prices, earnings or whatever. I should have thought that by now the Government would be fairly clear about what they intend to do with regard to uprating both the savings credit and the standard credit. Perhaps the noble Baroness can enlighten us on that matter.
If that is the position, then I am not sure why the document published by the department appears to assume that various possibilities arise. I believe that at least we should be clear about the Government's intentions with regard to uprating both the credits involved. We should then be in a better position to appraise the amendments before us. However, certainly if one takes the easiest of the assumptions, then, under the Government's proposals, the cost of the new measures in the Bill would apparently be: by the year 2030, £14 billion; by 2040, £20 billion; and by 2050, £26 billion. Those compare with corresponding figures of £29 billion, £46 billion and £62 billion so far as concerns uprating the standard pension in line with earnings. Therefore, clearly the proposals which, generally speaking, the noble Baroness supports would be a great deal more expensive in the longer term. They are fairly expensive even in terms of the Government's Bill, leaving aside the question of whether it is better to spend the money in one way or the other.
The Government's document appears to contain rather strange assumptions about take-up. It assumes 67 per cent in 2004 and then, as the pension credit gradually becomes established, 100 per cent thereafter. It seems to me to be extraordinarily optimistic to assume that after 2004 the take-up of the credit proposed in the Bill will be 100 per cent. We know only too well that generally the take-up of existing benefits is far less than that figure.
The other question which arises in the context of the figures that I have just given is whether the Government's proposal is sustainable. A number of outside bodies—the Pension Provision Group, the
Institute of Public Policy Research, and so on—have expressed serious doubts as to whether the Government's proposals—still less the proposals of the noble Baroness in these amendments—would be sustainable. Clearly, in one sense, anything is sustainable so long as one is prepared sufficiently to increase taxes and social security contributions. But one has to put the matter into the broad context.In relation to that matter, perhaps I may put a particular point to the Minister—this may be an appropriate moment to do so. If we are to incur these substantial costs, can we be told what the effect is likely to be on the Government's balance sheet? At present, one deficiency in our statistics is that the future liabilities of the Government with regard to pensions are excluded from the Government's balance sheet. We have a list of assets; it is a thick book. But perhaps the most major liability does not appear. I hope that in future we can include that figure.
Finally, with regard to this group of amendments, the important point is what the effect will be on savings. We must hope that the Government's proposals will produce an increase in the savings ratio. I believe we all agree that at present it is clear that insufficient savings have been made towards pensions in order to pay an adequate standard of living for people, let us say, in the year 2040.
Therefore, I was rather depressed by an analysis carried out by the Association of British Insurers. It suggests that, under the current arrangements—that is, without the pension credit—saving £50 a month, even over a long period of time—say, 20 years—is not worth while because of the way in which MIG is withdrawn if it is a means-tested benefit. Even under the pension credit arrangements outlined in the Bill, on the same assumption of approximately £50 a month, again, saving is apparently more worth while for a short period of time than it is now. The implied rate of return would be negative over a period of 10 years because the effective rate of tax as regards the pension credit is 40 per cent.
I should appreciate the Minister's comments on this point. But, if it is the case that one will receive a negative rate of return on savings of £50 a month for 10 years, and if the situation is even worse over a longer period, then we must query whether the proposal in the Bill is appropriate. More particularly, we must query whether an alternative of the kind proposed by the noble Baroness in these amendments might not be a better way of proceeding.
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