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Baroness Noakes: I thank the noble Baroness for her compliment but I am not surprised at her overall message. However, the amendment is a genuine attempt to illustrate the fact that the Bill is drafted in an extremely complex way. I fully take the point that pensioners will not study what will be the State Pension Credit Act 2002 in their local libraries, but their advisers could study it. It took me an extremely long time even to understand how the parts of the calculations hung together. I found eight concepts of two versions of income.
I am disappointed that the department has not made a greater effort to express these concepts more directly. Parliamentary draftsmen often have their own ways of expressing concepts, especially financial ones, as lawyers, typically, are not particularly good at expressing money concepts. I had hoped that the departmental staff would seek ways to express concepts simply. The Minister referred to Clause 18 in the context of correcting an earlier mistake. I submit that that mistake was made because no one
understood exactly what the draftsmen were doing. More direct drafting is a laudable aim but now is not the time to start a campaign for simpler drafting. I beg leave to withdraw the amendment.Amendment, by leave, withdrawn.
The Deputy Chairman of Committees: In calling Amendment No. 28, I inform the Committee that if it is agreed to I cannot call Amendment No. 29.
Lord Hodgson of Astley Abbotts moved Amendment No. 28:
- Page 3, line 4, leave out paragraph (a).
The noble Lord said: In moving Amendment No. 28, I wish to speak also to Amendments Nos. 30 and 41. I refer in these amendments to the important issue of the position as regards the state pension credit for those who are not entitled to a full basic state pension but who, for one reason or another, have income from another pension or, indeed, from savings. Before I discuss the detail, I wish to check a few matters with the Minister.
As I understand it, under the proposal savings are assessed at a 10 per cent rate over the £6,000 basic tax free capital sum. In that case, with a maximum payment per individual of £717.60 a year, a 10 per cent assessment means that the maximum capital that person can have is £7,176, plus the £6,000 tax free sum; that is, £13,176 in total. For a married couple the relevant sum is £15,672. If one has a 10 per cent assumed savings rate for any amount over £6,000, and the maximum one can be paid as a savings credit is £717.60, applying a multiplier of 10 to the £717 gives one £7,176 and a total of £13,000. Perhaps the Minister can tell me whether my assumptions and/or my arithmetic are faulty in a moment.
I turn to the specifics of the amendments. As I understand it, under the provisions before us, an individual must attain the level of the savings credit threshold to be eligible for the savings credit. The savings credit threshold is to be defined—although I think that it is not yet set—as the level of the basic state pension. But, if a person does not have a full basic state pension, he or she has first to use up any secondary income to get up to the basic state pension level before being eligible for the savings credit.
I accept that there is a strong argument—it is a powerful argument—that you should get what you paid for. If you have chosen to save in some other way, why should the state offer you an additional credit? However, the critical word is "chosen". Many people who do not get a full basic state pension do so because they have broken work records. In many cases that has not occurred through choice. For example, it may have occurred due to long periods of unemployment. There may be other cases of a more voluntary nature, for example, women who have chosen to take a career break to bring up children—indeed, that is something we probably should encourage and certainly should not discourage—or men who have worked abroad. As the noble Earl, Lord Russell, pointed out earlier, the latter case is increasingly likely to occur with the free
movement of labour through the European Union. Therefore, I submit that although the argument of "what you pay is what you get" is a powerful one, I do not find it all-powerful.I hope that the Committee will forgive me if I give two practical examples which I hope will illuminate the issue. First, I refer to the issue as it affects two women, one of whom is a single woman aged 65 who has never worked, has relied on state benefits all her life and has no savings. She will receive the guarantee credit of £100 a week. I refer to a widow also aged 65 who worked for a few years prior to getting married. She may be eligible for a part state pension of, say, £35 a week. In addition, she may be in receipt of income from her late husband's occupational pension, for which he saved, and other benefits at a level of £42 a week. The state pension at £35 a week and the other income combine to provide her with a total income of £77 a week. She will receive no credit for her late husband's saving, nor for her eligibility for a small state pension. Instead, she will merely receive the guarantee credit bringing her up to £100 a week—exactly the same position as the woman who has never worked and has relied on state benefits her entire life.
Secondly, I refer to an employed man in his fifties, perhaps with a chequered work history, who is coming up to retirement and is considering what his future pension entitlement should be. He realises, of course, that because he has a broken employment record, perhaps through no fault of his own, he is entitled to only a part state pension. He is potentially able to save a small amount in the few years before he retires in order to provide him with some further income. However, if the noble Baroness or I were his financial adviser, we would have to say, "You should not use your money to build up a pension because it will be removed from you and you will get no guarantee from it. You can aim instead for the minimum guarantee", and need make no savings. No benefit will accrue to him from any savings.
On Second Reading the Minister was robust about the matter and said that what you pay is what you get. However, I refer to married women in particular who have perhaps sacrificed their careers in part to bring up children and who will be disadvantaged by the proposals as they currently stand. The issue deserves further reflection because of women who have taken a career break, people who have been unemployed through no fault of their own and perhaps people who have chosen, or have been able or have been forced, to work abroad for a period of their working lives. I beg to move.
Baroness Turner of Camden: Two amendments in my name have been grouped with Amendment No. 29; that is, Amendments Nos. 42 and 43. My amendments are in effect an attempt to probe the Government's intentions regarding the uprating of the threshold which has already been alluded to. As the noble Baroness knows, initially the savings credit threshold will be the basic pension rate. If it remains tied to the basic pension and rises in line with prices while the minimum guarantee rises in line with earnings, the cost
of the savings credit is likely to rise steeply. The effect of our amendments is to try to ensure that the threshold remains at the level of the basic pension in future years. What are the Government's intentions in that regard? There could be difficulties in future.7 p.m.
Baroness Greengross: I rise to support Amendment No. 28, which was moved by the noble Lord, Lord Hodgson. I am particularly concerned about its effect on women. I accept that the amendment may not yet be fully or correctly drafted and that it may not benefit those with a partial state pension record. However, that is its intent, as the noble Lord explained. With regard to the state pension credit, I accept that it would not be right to put those with a partial state pension record on exactly the same footing as those with a full state pension record. That point was made by the Minister at Second Reading. She said:
- "it seems to me that someone who has made the full national insurance contribution all their working life should not be treated in the same way as someone who has not".—[Official Report, 18/12/01; col. 189.]
That no account is taken of such savings is a great disincentive to such people to save. That point was well put by the National Federation of Post Office and BT Pensioners, which said,
- "a considerable number of retired people do not receive a full state pension and will still be penalised for having an occupational pension".
- "failure to award the state pension credit to those with less than the full basic state pension but who have some private savings for retirement could act as a disincentive to save, particularly amongst women who are most likely to fall into this category of saver".
In my view, we should be aiming to reward people in that group for thrift just as much as those who are fortunate enough to have been able to end up with a full state pension and a small amount of private pension. Could the Minister ask her officials to come up with a formula that will allow those with a partial state pension to be eligible for the state pension credit at the same proportion as their state pension? For example, if I received two-thirds of the state pension, I would be entitled to two-thirds of the state pension
credit. I suspect that that might complicate a matter that is already very complicated, as we have discussed, but I believe that it would be right to do.
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