| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Baroness Hollis of Heigham: The noble Baroness is suggesting that the reason for her proposal is not to change the five-year period but not to take into account any changes in pension levels and any changes in capital. On the first point, that is not reasonable because we automatically update retirement pension. Therefore it follows that we automatically update housing benefit. I do not think that one can automatically update all of that but freeze any assumptions about the income flow coming in from, for example, RPI occupational pensions. They have to be done together. My response to the noble Baroness on that issue is that I do not think that proposal is sensible; we already do it; and there is no reason on God's earth why we should not continue to do that. It is fairly simple.
On the second point, on capital, we are not looking at actual income, in which case she may have a point; we are looking at notional income drawing from capital. Capital is much more stable. Most pensioners—certainly if my parents are anything to go by—know exactly how much they have in their building society books and so on. That is the level for the most part that we are talking about. They will not know what the actual income is. The point made by the noble Baroness would be much fairer and more viable if we were trying to go for an actual income. There she might well be right. They would not know whether to come down from 4.1 to 3.7 and following calculations. But, given that it is capital, and given, as I say on the first point that retirement pensions are automatically upgraded by the computer and this follows, I hope that the noble Baroness would feel able to withdraw the amendment.
If there are other particular points about this matter, because it is a very interesting issue, I should be very happy to correspond with the noble Baroness.
Baroness Noakes: I thank the Minister for that reply. I can see how she will want to make later payments of pension credit vary with other benefits. That is quite clear. The difference comes down to savers' income. I heard what the Minister said about that matter. We shall be returning to that issue several more times during Committee. I await those discussions. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Noakes moved Amendment No. 56:
- Page 5, line 10, leave out subsection (3).
The noble Baroness said: The previous amendment, Amendment No. 55, sought radically to simplify the assessed income period provisions. As anticipated, that did not find favour with the Minister. I anticipate a similar rejection in moving Amendment No. 56, while speaking also to Amendments Nos. 57 and 59. The amendments seek more limited simplifications of part of the Bill.
Amendments Nos. 56 and 57 delete subsections (3) and (4) of Clause 7. The subsections allow the Department for Work and Pensions to deem a pensioner's income to increase or decrease. The points we discussed a moment ago probably resolve down to the treatment of savings income.
I shall return to the theme. The treatment of savings income takes a pensioner's income into a fantasy world. Pensioners will be unable to refer easily to that in due course. Claimants can ask for new determinations if their income is less; but I find it difficult to envisage how a pensioner would know when he is dealing with deemed income. What volume of pensioner inquiries seeking redeterminations could the department cope with? I understand that the five-year determination reduces significantly the administrative burden on the department. What level of potential redeterminations can the department cope with if pensioners do not understand whether the system is working to their benefit?
Amendment No. 59 is another deeming provision. It allows the department to make regulations treating income as some other type of income or to aggregate income sources. I am not clear why the department needs this power. It is not explained in the Explanatory Notes. It is another example of the potential creation of a fantasy world of people's income. I should be grateful for an explanation. I beg to move.
Baroness Hollis of Heigham: The amendments are grouped together because they all seek to amend Clause 7 of the Bill. Clause 7 is an integral part of our proposals for the assessed income period which we rehearsed a moment ago. I do not need to describe why we have the five-year period; we discussed that.
Amendment No. 56 would have the overall effect of removing the power to set a five-year assessed income period for pensioners aged 65 or more. Clause 7 contains the power to fix a pensioner's retirement provision for five years. It also contains the definition of "retirement provision" which is: retirement pension provision (other
than under the Contributions and Benefits Act); income from annuity contracts (other than retirement pension income); and income from capital.Subsection (3), which the amendment seeks to remove, contains the power to fix the retirement provision so that it remains the same for the duration of the assessed income period. Without subsection (3) there would be no point to the remaining clauses concerning the assessed income period because there would be no power to fix retirement provision. I know that the noble Baroness did not intend it as a wrecking amendment but it is the closest we have come to one! The very heart of the pension credit proposals will be removed because the effect would be that we would be unable to move away from the weekly means test which, as I have already explained, is a major barrier to pensioners claiming their entitlement. I hope that I have explained the purpose of subsection (3) and justified its inclusion in Clause 7.
Amendment No. 57 would remove the power to deem known regular changes in a pensioner's income during the assessed income period. Again let me clarify why subsection (4) should remain part of Clause 7. This subsection allows for exceptions to income being fixed within the assessed income period. These exceptions are in line with two principles: safeguarding public expenditure and safeguarding pensioners' overall incomes.
In terms of protecting public expenditure, we want to ensure that foreseeable and regular changes in retirement provision are taken into account during the course of an assessed income period. We know that in most cases second pensions and annuities are liable to be increased annually. Therefore, we propose taking a power to deem the amount of the increase, thus preventing the need for the pensioner to report those changes every year.
This power will be within regulations. The intention is that the regulations will provide for the amount of income from a pension or annuity to be deemed to increase from time to time in line with the terms of a pensioner's pension or annuity arrangements. If the noble Baroness wishes to press me on how we shall know in certain circumstances, I am happy to discuss it.
Accepting Amendment No. 57 would mean, for example, ignoring increases to non-state second pensions. The cost of ignoring such increases alone during the assessed income period would amount to around £1 billion at the end of the five-year period.
I know that there will be concerns about how we propose to take account of increases in claimants' retirement provision, or indeed changes in other state benefits, during the assessed income period. It may be helpful to the Committee if I spell this out. It is a key point. Our intention is automatically to uprate the pension credit award each year taking into account changes in the state and non-state pensions the pensioner normally has during the five-year assessed income period. The calculation of the retirement provision will be based on information provided by the pensioner at the start of the claim. We know that most private pensions keep pace with inflation. Ninety per cent of them are defined benefit. They are almost all retail prices indexed (RPI'd) because they are largely public sector ones. So, if the pensioner is
unable to provide information about the rate at which his or her second pension will be increased, we intend to assume that it is uprated at least in line with prices.Let me assure Members of the Committee that if doing that means that a pensioner will lose out—because we are assuming a rate of increase that is too high; in other words it is not being RPI'd— pensioners will be able to ask for their pension credit to be reassessed at any time during the assessed income period. In other words, we will notify pensioners every time there is a change in pension credit annually. Pensioners will be able to compare their actual pension with the amount on their notification. If they wish, we can make inquiries with the pension company on their behalf. We have no reason to think that this will not be an entirely simple, straightforward and easy way of ensuring that, although we shall make RPI assumptions, where that is not the case we shall have the information to make appropriate and speedy adjustments.
Subsection (4) protects the public purse to the tune of £1 billion and supports our intention to minimise the questions we need to ask pensioners. We need to explore it further only when the pensioner is able to tell us or we know that that pensioner is not being RPI'd in ways we expect.
Amendment No. 59 seeks to remove the powers to provide continuity in treatment of income streams within the calculation of pension credit. This would mean that the flexibility of administrators to group income streams or to ignore changes of source of payment would be removed from the assessed income period within the pension credit calculation.
Paragraph (a) of subsection (7) of Clause 7 will allow regulations to provide for income of one description to be treated as income of another description. It sounds technical. The noble Baroness thought that it was fantasy land. It will apply infrequently to only a small number of pensioners. Let me give some examples where we would have needed the power.
Noble Lords will recall the mess—I do because I was handling a Bill from the Benches opposite—of the Maxwell affair. Pension rights which could not be met from Mirror Group Pensions were paid, at least in part, by a fund made up of donations and charitable payments. We all hope that that situation will not recur. But under the savings credit we would want to be able to treat such payments as retirement provision for the duration of the current assessed income period and reward them through the savings credit. This power would allow us to do just that.
The most common use of this power would be for pensioners who have a second pension paid by one employer or pensions provider who then merges with another or is taken over by another. In that situation, the pension in payment would, in effect, be the same. However, the liability may well be transferred to, and be discharged by, the new company or a third party. This provision would allow us again to continue to fix this income for the duration of the existing assessed income period and reward it as retirement provision through the savings credit.
I am sure the noble Baroness will understand this point. I do not need to labour it further. In the light of that explanation, perhaps I can ask the noble Baroness whether she would care to withdraw the amendment.
Next Section
Back to Table of Contents
Lords Hansard Home Page