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Baroness Turner of Camden: Clause 5 provides that where the claimant is a member of a married or unmarried couple, the income and capital of the other member of the couple shall, except in prescribed circumstances, be treated as income and capital of the claimant. I have some difficulty with this clause, which is why I have put down my name to oppose it. It must be remembered that this legislation extends means testing to a much wider population than hitherto; that is, if we take seriously, as I do, the Government's own predictions of the numbers likely to be eligible for pension credit—as much as 65 per cent of the future pensioner population.
Many couples regard themselves as couples within the financial sense having joint accounts and sharing incomes and savings completely, but that is not always the case. Some people guard their financial independence jealously. That is now true of many women. In such circumstances the partner may not know of the income, capital and savings of the other partner and may never have known of them completely. How will the income of such a partner be ascertained? Will there be wholesale snooping? Will people be encouraged, or feel they are being encouraged, to be dishonest, concealing income and savings? Perhaps instead of bank notes there will be piles of euros concealed under floorboards.
I know that it will be said that there are types of benefit for which this already applies. Income support is a case in point. But again I repeat that we are talking here about an extension of means testing to a far wider population. We are talking of people who hitherto had not ever thought that it would apply to them, perhaps people who now regard themselves as rather middle class and who have acquired a personal pension that over the years has not provided the pension that they thought it would eventually provide, so they are forced to look at pension credit as a way of getting enough to live on.
I cannot think of a suitable way in which to amend the clause but I am still not happy about it. I am sure that the Government must have given some thought to how this is to be applied and enforced, and how to avoid deliberate dishonesty on the part of claimants and partners. Therefore, I would welcome the views of the Government on the points I have made.
Baroness Noakes: Perhaps I may add to the comments of the noble Baroness, Lady Turner, by returning to the topic of unmarried couples, which we debated on the first day of the Committee stage. Unmarried couples have few, if any, financial obligations to each other. They certainly do not have obligations to disclose their financial circumstances to each other. If they are treated as one unit for pension credit purposes, that would mean that the details of each part of a deemed unmarried couple would have to be disclosed to the other. It could not be guaranteed that privacy would remain for one because in aggregating two, it would be a relatively simple calculation for one to discover what the other had, even if the Pension Service was able to deal with them as two individuals and add up their incomes separately.
I am not an expert on human rights but I wonder what consideration the Minister gave, when she signed the customary declaration on the Bill, to the possibility that
parties to the unmarried couples were being deprived of their rights to privacy. I should be interested in her comments.
Baroness Hollis of Heigham: My noble friend Lady Turner has long experience in social security matters. She will know, and there is a simple two-line summary, that all income-related benefits are household based. If somebody wants to enjoy an entitlement to a household benefit, we in turn must have the information on that household income. We cannot apply disaggregated or segregated tax rules to a household assessment. My noble friend knows perfectly well that if we were to follow her point, that would mean the disaggregation of social security in the concept of households into a series of individuals. Therefore, a non-working spouse of a wealthy husband, for example, would be entitled, with a very modest income, to a full pension credit. It is precisely to avoid that situation that Clause 5 makes clear that we are dealing with a household. The household is entitled to claim the benefit, subject to the discussion we have just had about who should make the claim, and so forth.
It will not come as a surprise to Members of the Committee that all income-related benefits—JSA, income support, housing benefit and council tax benefit—will all have been based on household income. It may be the case that an unmarried pensioner couple have come together as pensioners and this may be new to them. However, that would pre-suppose that neither of them has ever been in a relationship before in which they have enjoyed a household benefit. They have to make that choice. If they want to enjoy a household-based addition to their income, which is their entitlement, they have to give us the information on which to base it. That is the point of Clause 5. To receive pension credit, both members of the couple need to agree to the claim being made. Therefore, it is not unreasonable that both members of the couple should disclose the financial circumstances to each other. That is the basis of social security law.
Clause 6 [Duty to specify assessed income period]:
[Amendments Nos. 53 and 54 not moved.]
Clause 7 [Fixing of claimant's retirement provision for assessed income period]:
Baroness Noakes moved Amendment No. 55:
- Page 5, line 6, leave out subsections (2) to (8) and insert—
The noble Baroness said: In moving Amendment No. 55, we return to one of our themes on the Bill; that is, complexity. We have already discussed in Committee the different concepts of income that are used for the guarantee credit and the savings credit. We now come to the way that income is treated for the purposes of fixing pension credits for up to five years at a time.
Clause 7 is, indeed, complex. It has a new concept of retirement provision, which appears to cover some but not all of the income sources listed in Clause 15, to which we shall come in due course. There is a power in subsection (4) to deem that income will increase or, in some cases, decrease, over the five-year period. There are powers in subsection (7) to treat as income something which is not.
I wonder what pensioners would make of all that. At best they would be bemused and uncomprehending. At worst, I suspect they would be confused and possibly even frightened. Amendment No. 55 is designed to cut through that by basing pension credit decisions on pensioners' actual income immediately before the decision on pension credit or on the income for the next 12 months if there is a change in circumstances. A change of circumstances is defined as including the position where the income for the following year might vary by more than 10 per cent either way.
Taking that simple concept of income, there would be no need for special provisions for calculating income or different concepts of income. There would be no deemed increases or decreases, just a single figure. I should say that we are not entirely convinced that a five-year settlement of pension credit is an equitable approach. It means that a pensioner who won the lottery or had a major inheritance would be entitled to continue claiming the pension credit until the end of the five-year period. We shall debate the period a little later.
The point of the amendment is that if the Government believe that a five-year interval for settling pension credit is desirable and want to go down that route—I suspect in practical terms it may be the only way that is feasible administratively—they should do so in as simple a way as possible. I beg to move.
The Chairman of Committees: I must inform the Committee that if Amendment No. 55 is agreed to, I cannot call Amendments Nos. 56 to 59A.
Baroness Hollis of Heigham: For the first time today, we are getting to the substance of the five-year period. Therefore, perhaps I may say a few words about the detail of the amendment, which is interesting and far reaching. However, again it pursues the issue of alignment with the tax system. As I understand it, it proposes to borrow from
The five-year assessed income period and the processes that support it are a key feature of pension credit which will, I hope, reassure pensioners that this is a world away from the weekly means test they are currently experiencing. We would strongly resist all attempts to fetter the purpose of a five-year assessed period, so that pensioners know where they stand.
In the future a pensioner approaching pensionable age will receive his or her invitation to claim state retirement benefits. Many pensioners will then make their claim, most by telephone—some 70 per cent tell us that is what they prefer—but others will do so in more traditional ways as they please. We will ask the pensioner about the income he or she expects in retirement. When it is clear—as in most cases it will be—that the income is settled, an award of pension credit will be made.
Perhaps crucially because—and this has been raised in your Lordships' discussion—all the research indicates that pensioners do not want the intrusion of dealing with the state when it comes to their financial affairs, or in order to reduce it to a minimum, we intend that there will be no review of these affairs for five years. We shall have safeguards. We shall automatically increase income from second pensions when these occur as part of the regular annual increases in these pensions. To do otherwise would drive up the costs of pension credits significantly. Of course, if a pensioner's income decreases during the five-year period, then we will interrupt the award to take that into account. In other words, it is "win win" for the pensioner. The pensioner can always come to us for an uplift if his or her income falls. They do not have to come to us until we review their income, apart from certain major life changes, which will be on a five-year basis. We will also take into account the normal changes in circumstances, such as death of a partner, which already exist within retirement pension.
This is a real break with the past. It has been widely welcomed by all the relevant organisations. We are seeking to achieve a break with the old means-test attitude. Perhaps I can suggest to Members of the Committee what the amendment does to that concept. First, as I understand the amendment of the noble Baroness, there would be an obligation to base the pension credit income assessment on a past year's income. Understandably, given the irrelevance of past income for new pensioners, the amendment also allows claims to be assessed on estimated income for the next 12 months. The amendment then proposes that the life changes, such as death of a partner, should also be notifiable when they occur. We have no difficulties with that. We share the same approach.
But then we have a radical departure from where we want to go. According to the amendment of the noble Baroness, at the end of 12 months if the pensioner's income has changed by 10 per cent up or down, over what it was 12 months previously, the pensioner must tell us about it. It is unclear whether that 10 per cent accumulates so that, say, at the end of the fourth year of
However, I am not quibbling with the detail of the amendment. The noble Baroness can clarify her views on that. I am arguing as strongly as possible that we must break the weekly reporting of information or even the yearly reporting of that kind of information that ties the ownership of the pensioner's circumstances to us.
Obviously, a 12-month means test, which is what the noble Baroness proposes, is better than a weekly means test in the eyes of most pensioners. We would argue that giving people an assured level of income for 60 months is better than 12 months. We estimate that at least two-thirds of pensioners are unlikely to see their financial circumstances change within the five-year period, particularly after the first year when people are settling down and maybe giving up modest part-time earnings.
The noble Baroness can argue that a 10 per cent tolerance up or down is reasonable. But, if I lost £9 of a weekly income of £100 I would not imagine that the state was on my side if it told me not to bother it until I had lost £10. At the moment, if a pensioner loses £1 or £9 he or she can come to us. It is only if it goes up that they do not have to come to us. As the amendment is worded, the noble Baroness would require them not to be able to report losses.
Equally, if my income rose by more than 10 per cent, I would be troubled that under the amendment I could keep this income for at most 12 months. I would much prefer to be told that I did not need to tell the state about it for five years, rather than 12 months.
I accept that what the noble Baroness proposes in the amendment in part advances on the present arrangements for pensioners. However, what we propose goes much further. It will free a great many pensioners to enjoy their income without constant inquiry from the state. The question before the Committee is whether a 12-month revisiting of a pensioner's income is more reasonable than a five-year revisiting of a pensioner's income, given that after the first year or so of being a pensioner incomes are fairly predictable. Further, given, that we are so anxious to break the old mentality of means test, intrusion and so on, I hope that the noble Baroness can join with us in what I believe is a generous but decent and proper concept, which is the five-year assessed period.
Baroness Noakes: I thank the noble Baroness for that reply. She reminded me how difficult a job drafting is. As soon as the Minister started commenting on my suggested re-draft of the amendment, I realised that I had not drafted what I had intended. I had intended that there would indeed be a five-year prospective settlement and that it would be based on the most recent year's income, unless, looking forward, one thought that that income might vary by more than 10 per cent, particularly when one becomes a pensioner. I linked the proposal to life-changing events. So I was suggesting that there would be a five-year settlement; it would be based on the most recent year's income unless that was unlikely to be
The Minister talked about this being "win win" for pensioners and of their being able to go back if their income turned out to be less than the assumed basis. When we come to look at how income from capital, in particular, is calculated later, we find notional calculations. I do not believe that pensioners will know how to go back and ask for a re-assessment or a re-determination of their pension credit. It will leave them confused and they may lose out. I have a number of points. First, I was not trying to turn this into an annual assessment. I was merely trying to say that when it is assessed, if the previous year's income does not look representative, use another year. I confused that in the drafting of the amendment. I apologise for confusing the Minister. Beyond that, I was trying to say, "Let us do it once and then forget it for five years". I am not accepting in this argument that five years is an appropriate period. But if that is what the Government want to do, it is the least interventionist for pensioners because it is over and done with and one does not do prospectively any fancy calculations.
"(2) The amount of the claimant's entitlement to state pension credit shall be calculated by reference to—
(a) the claimant's actual income for the year ending on the date of the relevant decision; or
(b) where the circumstances of the claimant have changed, by reference to the estimated income of the claimant for the 12 months following the relevant decision.
(3) Income shall be determined in accordance with section 15.
(4) The circumstances of the claimant shall be treated as having changed if—
(a) the claimant becomes a member of a married or unmarried couple;
(b) the claimant ceases to be a member of a married or unmarried couple;
(c) the claimant attains the age of 65;
(d) in a case where the claimant is a member of a married or unmarried couple, the other member of the couple attains the age of 65; or
(e) the income of the claimant for the 12 months after the date of the relevant decision is likely to be higher or lower than the income for the preceding 12 months by at least 10 per cent."
3.45 p.m.
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