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Lord Higgins: In our exchanges on earlier amendments, the Minister remarked that sometimes it is not immediately clear whether the debate that takes place relates to the amendments. I have to confess that I did not challenge the grouping of the amendments but my Amendment No. 40, which appears further down the groupings list, probably should have appeared in the group that we are currently considering. The amendments that appear in the name of the noble Baroness, Lady Turner, are on a somewhat separate point.
I take the important point made by my noble friend Lord Hodgson of Astley Abbotts about those who do not have the full national insurance pension because they have a deficient contribution record. As he rightly said, in some cases that may be virtually their own decision. In other cases, it happens for inadvertent reasons or, for example, because in an earlier period a person acted as a carer.
I have a long history on the subject of deficient contributions. It was the matter on which I made my maiden speech in another place in 1964. A subsequent filibuster by Mr Richard Crossman and others on a Friday prevented my Private Member's Bill on the subject from being heard. However, that was what we did when we came to office in 1970. My history on this matter goes back rather a long way.
The people with whom I was concerned had no option. They were not allowed to contribute when the national insurance scheme started and were thereby deprived of the national insurance pension. None the less, people now have deficient contributions. An answer to my honourable friend in another place, Mr Willetts, suggested that getting on for 3 million people are in that position. Several outside bodies have expressed concern about the way in which such people will fail to benefit from the Bill.
As the Bill is currently drafted, those people will not get the savings reward that the pensions credit will provide. Under current proposals, less than a full entitlement to a basic state pension will mean that the first part of a pensioner's personal savings will be used to bring it up to that level. As I understand it, it will not then attract the additional savings credit. Age Concern, I believe—perhaps it was another body—gave an example. If a pensioner has an incomplete contribution history and receives a basic state pension of only £67 but has £10 from a personal pension, he will receive the guaranteed income—perhaps the minimum income guarantee element of £100—but no credit for his savings. Failure to award the pensions credit to those with less than a full basic state pension but who have some private savings for retirement could act as a disincentive to save.
It seems to me that, subject to being persuaded otherwise, those people are being unfairly treated. As a result of not having paid a full contribution, they do not get the full basic state pension and may be
penalised in a number of other respects with regard to passported benefits and so on. I am not clear why they should be penalised on top of that—or underneath it, depending on one's point of view—because of their lack of a contribution record if they have some small savings. I should have thought that there is an argument for saying that if they have some small savings, they should get the benefit of the savings element of the state pension credit system.That issue is of considerable interest. The noble Baroness, Lady Greengross, referred to some outside interests that have made representations. It would be helpful if the Minister commented on the matter. I will not comment on the amendments that appear in the name of the noble Baroness, Lady Turner, which appear to involve a separate point.
Baroness Barker: We are at the heart of the most complex part of the Bill. I echo the comments of the noble Lord, Lord Higgins, about not knowing exactly what debates on amendments will be about.
From these Benches, I add my support to the proposals that would alleviate the position of people with partial contribution records and who therefore will not receive the full state pension. Will the Minister confirm that about 80 per cent of pensioners do not receive the full amount? I look forward with interest to the Minister's comments. Will she deal with the extent to which capital limits will cover some of the people to whom the noble Lord, Lord Higgins, referred?
Baroness Hollis of Heigham: Fortunately, this is Committee stage. Many questions have been raised, and Members of the Committee will be able to come back to me on those that I do not answer. I shall go into some of the straightforward questions. I do not need to talk about the purpose of the savings credit and so on.
The noble Lord, Lord Hodgson, made, I believe, three points: first, the return on capital; secondly, what happens to people with broken work records; and, thirdly, in particular, what happens to women in that situation. That gender point was also picked up by the noble Baroness, Lady Greengross, and my noble friend Lady Turner. With regard to the return on capital, I am not surprised that I looked mystified. Alas, I shall ask my officials to recheck the calculations. I am sure that the noble Lord's building society makes the calculations very accurately, but I am not sure that he did so this evening.
I believe that the noble Lord said that, if it came out of a savings flow, the maximum pension credit of £13.80 multiplied by 52 would generate an income of £717. The capital required to generate that, including the £6,000 disregard, would be £19,800. That assumes that no second pension is available. In fact, capital of up to approximately £60,000 can be held and still give a small entitlement to tax credit.
At Second Reading I told your Lordships that a single person could have savings of over £35,000 and still receive pension credit. A couple could have savings of £45,000 and still receive pension credit. I said that savings were treated five times more
generously than MIG. If the noble Lord wishes me to do so, I shall be happy to ask my officials to write to him more fully about the basis of some of his calculations.I have sympathy for the other points that he raised concerning people with broken work records, and so on. The noble Lord gave, in particular, the example of women who are affected because they have had caring responsibilities or have been unable to work because of sickness or disability. Indeed, in some cases, the issue of broken work records may also apply to men who have unemployment records but none the less seek work.
Of course, the noble Lord will be aware that in such a situation a person is covered by national insurance credit, which can count as qualifying years for the purpose of the basic retirement pension. Therefore, provided that a person can claim that type of "good cause", he will be entitled to the credit. He can claim the equivalent of another benefit because of home responsibilities. He may have been caring, have suffered disability or been unable to work because of unemployment. Conventionally one is covered for that type of break from work by a credit to national insurance which builds into the retirement pension. A person who has a broken record tends to be a dependent wife who has not been in the labour market and does not have those caring responsibilities.
A widow will receive a pension based on her husband's contributions. Therefore, even if she were to have no such contributions in her own right, she would take over those of her husband. She would be protected.
I believe that that covers most of the groups about which the noble Lord is properly concerned. However, there is an additional point. Women are likely to have a reduced entitlement in their right. I apologise if there has been a delay in getting the information to the noble Baroness. My understanding is that 92 per cent of men and 83 per cent of women receive the full basic state pension. I could give the numbers behind that if the noble Baroness wished, but obviously those who do not receive the basic state pension have incomplete pension records.
That leads me to the substance of this matter. How do we allow for those who have proper—I do not want to sound moralistic about this—good and acceptable reasons for not being in the labour market for the reasons mentioned? The question is whether people who have been out of the labour market—perhaps they have been abroad—possibly during different tax regimes, should be treated in exactly the same way as people who have worked all their lives here, paying the national insurance credit, and so on.
The amendment of the noble Lord, Lord Hodgson, proposes that the savings credit will be payable at a flat rate of the maximum, which is currently around £13.80 for single pensioners and £18.60 for pensioner couples, until the total income exceeds the pensioner's appropriate minimum income guarantee. For pensioners whose total income exceeds the appropriate minimum income guarantee, the
maximum savings credit will be reduced by 40 per cent of that extra income over the appropriate guarantee until it tapers out.That would be equivalent—this is the push of the amendment—to increasing the minimum guarantee level for all pensioners over the age of 65 by the maximum savings credit as well as awarding the savings credit to pensioners with incomes above the guarantee level. This matter refers back to our earlier debates on the subject.
These proposals come at a considerable price. The cost of the amendments, together with the consequential housing benefit and council tax benefit changes, would be approximately £2 billion a year. The number of pensioners entitled would not increase, and the additional spending would go to those already projected to benefit from the pension credit proposals. Potentially, the effect would be to reward equally those who have saved nothing and those who have saved. In practice, that means that those who have saved but whose income is still below the level of the guarantee will lose their savings income pound for pound in the pension credit calculation. They will see no additional reward over their neighbour for their hard work and thrift and for the savings that they have built up over their working lives.
Pensioners consider that to be unfair; I also consider it to be unfair. The pensioner guarantee would treat in the same way those with incomplete retirement pension records and those with complete retirement pension records but with no additional income. They would be taken to a threshold of £100. I believe that that is right and proper.
However, when it comes to the savings credit, I believe that it is right that we reflect the effort that individuals have made to build up their savings. If they have built up their savings but their retirement pension record is incomplete, it seems to me entirely appropriate that, first, their savings should be set against their incomplete retirement pension in order to bring the level up to that of the retirement pension before eating into the £77 to £100 figure. I believe that that is right. It is a proper reflection of the difference in the situation of someone who has contributed fully to his retirement pension, allowing for groups which have caring responsibilities, and so on, and those who do not.
As a result, given that the pension credit savings element hinges on the full retirement element, I consider it to be right that we treat people differently when they do or do not have a complete retirement pension. We treat them differently not in relation to the guarantee element, which relates to their poverty—in that case we treat them the same—but in relation to their savings, which relates to their own activity. We treat them differently because they have acquired the right to be treated differently by virtue of their savings. That is the Government's position.
Perhaps I should sit down at this point. If noble Lords, including my noble friend, believe that I have not addressed any issues, I shall seek to answer them. However, it may be that I have answered all points in the course of the general discussion.
7.15 p.m.
Lord Higgins: First, perhaps I may take up a specific point made by the noble Baroness in relation to carers having their contributions record made up. I believe that that is the way that she expressed it. Would that be true of a person who spent years as a carer before the introduction of the invalid care allowance and home responsibilities protection in 1978?
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