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Baroness Barker: I listened carefully to the Minister's extremely helpful explanation. In her response to Amendment No. 57, she referred to those pensioners who know that their pension funds are not automatically uprated by RPI. If at the time a person retires he knows that his occupational pension will not necessarily be uprated by RPI, will there be the facility in the new system for him to flag that and thereby trigger an annual reassessment of his income?
Baroness Hollis of Heigham: I had hoped that I had made that clear. Absolutely: that is the whole point. If, for example, he does not, although assumptions are being made about his state retirement pension, we shall have to ensure that similar assumptions are not transferred over to his private occupational pension. Therefore, each year the adjustments will be made accordingly.
4 p.m.
Baroness Noakes: The basic assumption of pensions being RPI'd is reasonable for public sector pensions, but I cannot believe that that applies to most pensions. It is not a universal practice by any means that private sector pensions are RPI'd. It seems to me to be a potential difficulty as it requires pensioners to reapply for a determination each year just because they have an ordinary private sector pension. In that regard, can the Minister say how many pensioners are likely to be affected? I do not know and I would not know how to decide that problem. If it is a large number I may wish to press the Minister further although perhaps not today.
Baroness Hollis of Heigham: The latest information I can give the noble Baroness comes from the Government Actuary statistics for 1995. I shall check to see if anything later than that is available. The information I have is that public sector defined benefit pension schemes are required by scheme rules to increase pensions annually in line with the RPI and in April. The major defined benefit schemes tend to be those of the Civil Service, local government, the teaching and health professions and the like. The 1995 survey showed that 82 per cent of those holding private sector defined benefit pensions had increases of 2 per cent to 4 per cent, which are close to the RPI of that year which was 3.5 per cent. Fourteen per cent had increases greater than 4 per cent, while only 4 per cent had increases of less than 2 per cent. We do not have information about timing.
Therefore, in terms of defined benefit schemes, I believe that we are dealing with relatively small numbers. Defined contribution schemes are obviously a different output and the noble Baroness will understand that. As I said, the pensioner will receive from his or her occupational scheme a notification of what they are to receive each year. The pensioner will be able to compare that to the notification received from us saying what we are assuming to be correct. If there is a difference they
refer the matter again to us. I do not see that there is a problem given that we are well aware of it. I believe that we have robust systems in place on this matter.
Baroness Noakes: Can the Minister say how many pensioners are in defined contribution schemes? I understand it is 10 per cent. As regards the figure that the Minister quoted for defined benefit schemes, it is quite often the case that such schemes have an RPI of 4 per cent or 5 per cent. The point to which the statistics refer might appear to be giving RPI-type increases, but perhaps they are base level increases which just happen to coincide. It is my experience that when inflation reached high levels, this protection was included so that large increases were not paid out. We might be dealing with quite a number of pensioners. I wonder whether it is right automatically to apply RPI to all of them.
Baroness Hollis of Heigham: Perhaps I may make it clear again. When a pensioner first comes into the system at the age of 65, we shall go over their income with them. We shall take into account what they know about their second pensions and how they are being increased. If they say that it is 2 per cent or 4 per cent or RPI'd, we shall build that into our annual uprating for that pensioner. It is only if the pensioner cannot give us the information at that point that we shall assume an RPI increase. If we do that, and a year or so later the pensioner says that there is a disjunction between what they are told by their occupational pension scheme provider and what we assume to be the situation, the person will return to us. If the pensioner does not know and he or she authorises us to find out, we shall go to the pension provider and seek that information.
Baroness Noakes: I am grateful for that information and I shall consider it further. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Turner of Camden moved Amendment No. 58:
- Page 5, line 18, at end insert "and the Secretary of State shall inform the claimant of any changes in the assessed amount and of the effect of that change on his entitlement to state pension credit".
The noble Baroness said: To some extent we have dealt with this area already. The amendment is to subsection (4) of the clause which speaks about the assessed amount being deemed to increase or, in the case of income from capital, to increase or decrease,
- "on such date or dates and by such amounts as may be prescribed".
- "and the Secretary of State shall inform the claimant of any changes in the assessed amount and of the effect of that change on his entitlement to state pension credit".
I believe I heard the noble Baroness say, in the course of her response to previous amendments, that arrangements would be made for pensioners to be notified. I am glad to hear that, but if so, what is wrong with putting it on the face of the Bill in the way I have suggested? I beg to move.
Baroness Noakes: I wish to underline some of the points which we were discussing when dealing with the last couple of amendments. These are complex matters. I believe that pensioners may well be very confused about what is happening to the pension credit that they have. It is an excellent amendment in that there is a positive duty to inform the pensioner of a change in the pension credit and at least provide an aide memoire or a reminder to pensioners that they should check that their details are correct. I hope that the notification will also inform the pensioner very clearly what he or she must do if they are concerned about any of the details. I support this amendment.
Baroness Barker: I support the noble Baroness, Lady Turner. I do so because the amendment affords an opportunity to take issue with something the Minister said at the first day of Committee stage. She indicated that it would be a source of relief to many pensioners that these complex calculations will be done by the department. I am sure that it will be given some of the examples which the Minister gave us on an earlier occasion.
However, I am not sure about that in practice. I believe that there is a danger of likening pensioners to other claimant groups and I am not sure that that is always correct. A number of pensioners worry immensely about benefits and what they receive. That worry is aggravated by the fact that most of them know that they will always be on a low income. Therefore, they worry a great deal that an over-calculation has been made and they will not have extra income to put that right. Therefore, I believe that there is an additional reason besides those already cited by the noble Baronesses for reassuring pensioners that they are receiving what they are entitled to. For that reason I support the noble Baroness, Lady Turner.
Baroness Hollis of Heigham: The amendment of the noble Baroness, Lady Turner, has received support from both Opposition Benches. I approve of it too because that is exactly what we are going to do and what we are already empowered to do under the decision-making Act. The only question is whether we put redundant words on the face of the Bill. There may be an argument for doing that, but it will not change anything. The parliamentary draftsman does not like adding redundant words.
Amendment No. 58 seeks to ensure that where a change in a pensioner's income from a second pension, annuity contract or capital affects their entitlement to pension credit, the Pension Service will inform the pensioner of that change and its effect.
I agree that the Pension Service must keep pensioners fully informed of their pension credit entitlement and the effect that any changes in circumstances have on that entitlement. As I said, for the vast majority of pensioners we shall set assessed income periods, usually for five
years, during which only limited significant changes—for example, the death of a partner—would need to be reported.As I said, as part of our drive and in order to reduce intrusion we will automatically take into account predictable changes such as benefit changes and the annual increase in second pensions such as we have just been discussing. Details of these will be gathered in the five-year period.
Where there is a change in the level of pension credit entitlement, the Pension Service will send a letter to the pensioner with an explanation of their entitlement prior to and following the change. This will provide—this may help the noble Baroness, Lady Barker—a detailed breakdown of the change and its effect. This should ensure that pensioners understand the change when their payment is altered. That is consistent with the arrangements for handling changes to pensioner's entitlement at present.
Obviously, we have to ensure that pensioners continue to receive their full pension credit entitlement and that if it is reduced, they can ask for it to be recalculated. That is the substance of the redundant words. Pension credit decisions will fall within the existing legislation on notifying decisions. Section 12(6) of the Social Security Act 1998, which I am sure that Members of the Committee will instantly recall, and the regulations made under it—the Social Security and Child Support (Decisions and Appeals) Regulations 1999—already provide that a person must be given a written notice of decisions which are appealable. That existing statutory obligation will be applied to pension credit by Clause 11 and Schedule 1 to the Bill. So the Pension Service is already obliged to provide what is sought through the amendment under the established legal and operational arrangements that I have outlined. For that reason, I hope that my noble friend and the Committee will agree that this entirely well-intentioned amendment is unnecessary.
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