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Earl Russell: The Minister has given us a very persuasive account of what will be done under the "Humpty-Dumpty clause", as I thought she would. That is why I did not ask her to do so. However, I trust that the noble Baroness will accept that there are two equally valid questions here. First, under the present Government, what will be done under this clause? Secondly, under the powers that we are creating and leaving behind in statute, what could be done under this provision? I hope that the Minister will accept that both those questions deserve answers.
9.45 p.m.
Lord Hodgson of Astley Abbotts: I join the noble Earl in expressing that view. What may happen in the future must be a matter of concern for us all. The Minister gave a series of examples of what was good and what was bad. All that is perfectly understandable, but with the passage of time matters may be viewed differently. Reading Clause 15(6) is like reading Alice in Wonderland. Under its provisions, income can be capital, capital can be income, and people can be deemed as having capital that they do not possess. I understand the purpose behind the subsection, but someone reading it through simply could not understand it.
Baroness Hollis of Heigham: Come on! That is daft, if I may say so politely. These are well-established
principles in social security legislation by which one allows income to be treated as capital. Almost every social security Bill that I have been involved with over the past 10 or 15 years has included such provisions in regard to income-related benefits. The alternative for pensioners would be much worse. If they were financially unsophisticated and made a loan, for example, which was capital and which was then repaid in instalments as weekly income, they could lose their own income in return. We are protecting them from that contingency. What we are seeking is the intent behind it. If the intent is deprivation, then that will count for our purposes. If the intent is not deprivation, we shall obviously take that into account in terms of expenditure patterns. If the flow of money comes in as though it were income when it is actually a form of capital in stages, it is in the pensioner's interest to treat that as capital, and vice versa.There is a broader point about what governments may do 50 years from now. That is one of the reasons why we have a Parliament and why regulations are scrutinised by Parliament. If any subsequent administration, of whichever persuasion, seeks to use these provisions to abuse the purposes of this legislation and are less than benevolent in their intent to pensioners, it is for the Members of this House to be on their guard in terms of scrutiny. I cannot help it if, 20 years down the road, people fall asleep when the word "regulations" is mentioned. It is up to Parliament to stay awake.
Baroness Noakes: A few moments ago the Minister asked us to agree that these provisions are benevolent. I think I can say that neither I nor other Members of the Committee agree with her.
My noble friend Lord Hodgson referred to the provision as like something out of Alice in Wonderland. I agree. One of the points that troubled me was the Minister's reference to the repayment of loans being treated as income. That really is an Alice in Wonderland idea. Earlier, I talked a great deal about income tax. Under such concepts, never in a million years would a home loan be seen as income. But there are other branches of the law—for example, trust law—where there is no way in which the repayment of loan would be income. I am beginning to worry about what kind of wonderland the Department for Work and Pensions exists in. Like other noble Lords, I want to reflect further on the Minister's remarks. We may want to return to the matter on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 97 and 98 not moved.]
Clause 16 [Retirement pension income]:
[Amendments Nos. 99 and 100 not moved.]
Clause 17 [Other interpretation provisions]:
[Amendment No. 101 not moved.]
Clause 18 [Equal treatment for widows and widowers]:
On Question, Whether Clause 18 shall stand part of the Bill?
Baroness Noakes: I shall try to be brief. I rise to speak partly because the clause has nothing to do with pension credit, but the Government have used the opportunity of the Bill to change the law as it relates to widowers' pensions. The clause heading says that it is about equal treatment for widows and widowers, but on another analysis the clause takes away entitlements that already exist in law for widowers.
I know that the Minister will say that the clause is necessary because a mistake was made that has resulted in overpayments to some men by comparison with women in the same position, but when the clause is made law it will result in men being paid less than they are currently paid. Will the Minister explain how the error arose? Legislative errors are much more likely when legislation is complex. How long did it take the department to spot the error? What is the department doing to ensure that some errors cannot happen again?
I am sure that the department is not pursuing simplicity as a strategy to counter legislative error. The Bill is proof of that. I should be interested to know what other strategies the department is pursuing.
How many individuals are affected by the clause and how much has been paid to them in aggregate because of the error? As the amounts involved could be significant to the individuals concerned, will the Minister tell us what the department will do to relieve hardship when the amounts paid are reduced if, for example, individuals have taken on financial commitments on the basis of a level of income that the department does not intend them to have in future?
Baroness Hollis of Heigham: The clause makes a technical amendment to the Pension Schemes Act 1993. It is necessary to ensure that men and women in the same circumstances who are entitled to bereavement benefits are treated equally. It is consequential to the introduction of bereavement benefits in the Welfare Reform and Pensions Act 1999. Those benefits came into effect from 9th April 2001. I regret that it was overlooked at the time.
The clause ensures that a widower who receives a widower's pension from his wife's contracted-out private pension scheme does not also receive a benefit from the state as if his wife had not been contracted out. That is the element of double provision. Someone who contracts out of SERPS builds up rights in an occupational or personal pension in place of the benefits that they would have received under SERPS. In return, either they pay a reduced rate of national insurance contributions or they receive a rebate of contributions paid.
Before April 1997, when the links between SERPS and private pensions were broken, those rights were known as the guaranteed minimum pension if they were in a contracted-out salary-related scheme, or
protected rights if they were in a money purchase scheme. When someone who had been contracted out between 1978 and 1997 reaches state pension age, the amount of their notional SERPS for that period is reduced to take account of that part of their private pension that has been funded by the rebate. That is known as the contracted-out deduction and is to prevent double provision.A similar reduction is made from the amount of SERPS that a widow inherits from her husband if he had been in a contracted-out pension scheme. That is to take account of the widow's pension that she receives from her husband's private pension scheme.
Before the introduction of bereavement benefits in April 2001, widowers could inherit SERPS from their wives only if they were both over state pension age when the wife died. Therefore, Section 47 of the Pension Schemes Act 1993 provided for a contracted-out deduction to be applied only in those cases.
With the introduction of bereavement benefits, widowers can now inherit SERPS from their wives if they are entitled to widowed parent's allowance or when they become entitled to retirement pension if they were previously entitled to widowed parent's allowance or bereavement allowance.
However—and this was the mistake—there is no power to apply a contracted-out deduction if the wife was in contracted-out employment. That is because no amendment was made to Section 47 of the Pension Schemes Act 1993 when bereavement benefits were introduced by the Welfare Reform and Pensions Act 1999.
Consequently, some widowers are currently receiving double provision—they are getting both SERPS and a widower's pension from their wife's contracted-out private pension scheme. That is clearly against the policy intention.
We estimate that, in the first year, from 9th April 2001, about 13,000 widowers will qualify for widowed parent's allowance. The figure includes men previously widowed who were receiving child benefit when the new bereavement benefits were introduced. We estimate that, of those, 3,000 to 4,000 men have received extra benefit because their wives were members of contracted-out pension schemes at some time between 6th April 1988 and 5th April 1997. The average amount of additional benefit that those widowers will receive is about £10 per week, although some amounts will be very small. The total annual cost would be about £2 million.
That double payment—which is what it is—was clearly against the policy intention. As the noble Baroness, Lady Noakes, absolutely rightly said, a mistake was made. As your Lordships will remember, when we introduced the new bereavement benefit, we sought to provide equal access to benefit following widowhood to both men and women. We certainly did not intend to privilege men over women in that respect, as they currently are.
As I said, we estimate that 3,000 to 4,000 widowers a year are affected. We have identified them and are writing to them when their claim to widowed parent's
allowance or retirement pension is processed. We are explaining that, due to this mistake in the legislation, they will be temporarily receiving a higher amount of benefit than was intended. We are telling them how much the extra is, that we intend—subject to parliamentary consent—to change the legislation for the future, and assuring them that they will not have to repay any extra benefit they receive in the meantime.The clause returns to the original policy intention and ensures that men and women entitled to bereavement benefits are treated equally. I hope that your Lordships agree that Clause 18 should stand part.
Clause 19 [Regulation and orders]:
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