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Lord Higgins: I am not sure whether the Chancellor of the Exchequer has read the speech which the noble Baroness has just made. She said that if the amendment was accepted PEPs and ISAs would be given more favourable treatment than other forms of saving. That is the whole point about PEPs and ISAs: they are given more favourable treatment than other forms of saving. That is one of the reasons why we thought it appropriate to raise this point.
The noble Baroness said that in addition people will move their savings into PEPs and ISAs. If it is worth while to do so, they would have done so anyway. There would not be any change as far as this issue is concerned. Perhaps the noble Baroness can rebut that.
I understand the point she made as regards costs. We on this side of the House must take that into account. As regards the capital value of a PEP or ISA, I am not sure whether it is going to be the original amount put into the PEP or ISA or whether it is to be their value at this moment or whenever the Act comes into operation. If someone put £3,000 into an individual company PEP five years ago, and the value of that has decreased to, say, 50p, will he still be judged under the Bill to have capital of £3,000 when the actual value of his asset is 50p? That would be grossly unfair.
Baroness Hollis of Heigham: If I am wrong about this I shall obviously write to the noble Lord, but my understanding is that when income is assessed, the value of PEPs, ISAs and other forms of capital will be taken at that point to produce a notional income. If there were to be a bust equivalent to that of the technology funds and the capital value fell and as a result notional income became exaggerated,
pensioners would have the right to have the assumed or putative income for those purposes reconsidered. We debated that earlier. In other words, the five-year period will apply. At the end of that five-year period, we can consider what income is being deemed.
Lord Higgins: But we are starting at the beginning of the five-year period. Let me put my example simply. Five years ago, someone had invested £3,000 in a single company PEP. Let us say that the value of that PEP is now 50p. Which capital value is to be taken into account for the purposes of the Bill?
Baroness Hollis of Heigham: As I said, 50p. In other words, at the point at which the snapshot is taken, the income is taken into account. Then, five years later, it is revisited. If at any time pensioners feel that it is to their financial advantage to report circumstances and to have their pension recalculated, they can.
Lord Higgins: That is a helpful and clear answer. As to the broader issue, I am impressed by the argument about cost, which, on the other side of the coin, merely reflect the loss to the individuals concerned. In the light of that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins moved Amendment No. 74:
- Page 9, line 7, leave out paragraph (a).
The noble Lord said: This amendment is not as well focused—in the jargon—as it perhaps might be. It refers to Clause 15, which states:
- "In this Act, 'income' means income of any of the following descriptions".
Baroness Turner of Camden: I rise to speak to Amendment No. 95, which is grouped with Amendment No. 74. The amendment again concerns earnings, which we discussed in Committee last week. The amendment tabled in my name and that of my noble friend Lady Castle would insert the words:
- "£40 of a person's earnings in any week, or the whole of his earnings if less than £40, shall be disregarded".
Last week, my noble friend the Minister told us that the Government were considering earnings anyway, and that they accept that it is a good idea for people to work when they can for as long as they can—doing light work, part-time work, and so on. I think that most people—particularly in this House—would acknowledge that work keeps people healthier and more in touch with others. It prevents social exclusion, which we know is often a problem for pensioners who are left in a single state. Where they can, people should be encouraged to do some sort of work in retirement. Even if it does not bring in much money, it is good from a social point of view. I therefore hope that my noble friend will be prepared to look with favour on the proposition in the amendment when the whole issue of earnings is under consideration.
Lord Addington: It is very odd when one has to wait this long to make a first intervention on a Bill, having listened to so much of the debate, to discover that virtually everything that one wanted to say about an amendment has already been said. My name is attached to the amendment moved by the noble Lord, Lord Higgins, for the simple reason that those falling within the scope of the Bill will not be earning much money. Surely, they should benefit in that way. The point made by the noble Baroness, Lady Turner, about social interaction and not letting people think that they are totally switched off and left on the shelf is absolutely valid. Social interaction is an important part of everyone's life; we are a social animal and we need it. In our society, work is the basis of most forms of social interaction. That is a fact. I entirely endorse that point.
We are not talking about vast sums of money. We are probably talking about the national minimum wage across the board. We should include in the Bill—or at least at the first available opportunity—a provision to allow earnings. I cannot see how we would do anything other than benefit from that.
7 p.m.
Baroness Hollis of Heigham: I welcome—I think, although perhaps I should phrase that differently—the opportunity to debate Amendments Nos. 74 and 95, which concern the treatment of earnings in pension credit. The amendments would change Clause 15 of the Bill, which details the sources of income and capital that can be included in the income assessment.
The amendment tabled by the noble Lord, Lord Higgins, Amendment No. 74, would remove earnings from our interpretation of income. That means that earnings would not figure in the income assessment of any pension credit claimant aged 60 or over. Earnings of their partners—of any age—would also not figure. The noble Lord, Lord Addington, said that that would not cost much. I have news for him. It would cost nearly £2.5 billion—more than the cost of the current pension credit proposed in the Bill. We have designed pension credit to match the personal needs of pensioners. We can do that only if we take into account pensioners' own resources. In the Bill, we have made arrangements that some of those resources can, in part or in full, be set aside for several different reasons.
I shall go into the substance of the matter. Some 800,000 pensioners work beyond state pension age. I agree with the noble Lord, Lord Addington, and my noble friend Lady Turner of Camden that if people can do so, it is welcome and desirable. Many of those people, of course, would not qualify for pension credit, regardless of how we treated earnings in the income assessment, as they will have second pensions and capital to put them well out of the bounds of our ambitions. However, many others working part-time—the noble Lord, Lord Higgins, gave the example of someone working part-time in Tesco—will be entitled to pension credit.
We want to have a debate on earnings, but we did not have it in mind to ignore the earnings of 60 to 64 year- olds, which would be embraced by the noble Lord's amendment. Although many in that group—and older people too—work or aspire to work, the working tax credit is better suited to complementing their needs than the pension credit. As we say in our response to the consultation yellow booklet, there are a range of small earnings disregards in the Minimum Income Guarantee. If we brought those forward into the pension credit, we would have four possible disregards, ranging from £5 a week for a single pensioner to £25 a week, say, for a single pensioner responsible for a child.
We want to consider how best to treat earnings in the context of those disregards and how best to ensure that pension credit contributes to the active ageing agenda. That is why I welcome the opportunity to refer to the amendment tabled by my noble friend Lady Turner of Camden. The amendment would introduce a £40 disregard of earnings into pension credit. As my noble friend said, that is roughly equivalent to a day's work at the minimum wage. I can understand her aim. However, as the amendment stands, the disregard would apply to all people aged 60 and over and would cost nearly £200 million a year to implement.
I am sorry that I cannot produce a more explicit statement of our policy. It is an extremely complicated matter, and we are still working through the implications of the interlocking between the working tax credit and the pension credit. I assure my noble friend and noble Lords on the Opposition Benches that we are considering how the pension credit and earnings disregards will link in with the new working tax credit for younger pensioners. We are considering
what arrangements are best suited to rewarding and promoting our ambitions for active ageing for older pensioners who do work.
Given the costs involved—they could be exceedingly large if we took the amendment at face value—and the extent to which older workers would be drawn into a scheme designed for pensioners, I ask the noble Lord to withdraw the amendment.
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