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Baroness Hollis of Heigham: My Lords, I accept that point. This is not meant to be disparaging to either side, but the issue is not so very different from the role of, say, therapeutic earnings for somebody on a disability benefit. The issues are not the same, but they can be read across. It is desirable for people who wish to contribute in that way to do so.

Any total disregard of earnings would have a very high cost. The £250 million that I mentioned earlier is not small change. It is a serious opportunity cost. If that became government policy, other things would not happen as a result, either for other benefits or in other areas. That is big money. However, by definition the money would almost always go to relatively low earners, because higher earners are likely to be disqualified on the grounds of capital, savings and the like. One could imagine perceptions of somebody having very high earnings and virtually no capital, but that is unlikely. In practice, a full earnings disregard would still probably target those whose capital or savings did not take them over the threshold. Nobody should treat that figure of £250 million lightly. It is seriously big money. Given that and the complexity of

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some of the issues that I have raised relating to those aged 60 to 65 and the question of younger partners, we are still arguing out the best way to take what we all regard as a desirable policy push. It may be too difficult, but we are giving it a try and discussions are continuing.

I ask noble Lords to accept that undertaking on my part and to revisit the issue, if they should choose, at Third Reading.

Earl Russell: My Lords, before the Minister finally sits down, she has given us a figure for the cost of accepting the amendments, but, assuming that the lack of a disregard has a disincentive effect, can she give us the cost of not accepting the amendments?

Baroness Hollis of Heigham: No, my Lords. It would involve some opportunity costs forgone. The assumptions behind pension credit relate to take-up numbers, capital, what is counted and other issues. I am not sure that it would be possible to do what the noble Earl has asked. I shall mull it over and if I have any useful information on that point I shall be happy to write to him, but I suspect that it will be difficult to prove. The noble Earl will understand where I am coming from on that.

Baroness Noakes: My Lords, I thank the noble Baroness for that detailed response and for the detailed costings. We understand that she is grappling with the issues within the corridors of government. She will also understand that we and the Liberal Democrats are very concerned about how earnings will be treated. That is a major uncertainty that was not dealt with in any of the earlier documentation, including the Explanatory Notes, so some of us cannot see how the pension credit will work for some key groups. For that reason, I am sure that the Minister will not be surprised to find that we shall return to the issue at Third Reading. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 20 and 21 not moved.]

6 p.m.

Lord Hodgson of Astley Abbotts moved Amendment No. 22:

    Page 9, line 22, at end insert—

"( ) For the purposes of this Act, a person's income shall not include any income arising from rent or the release of equity in a person's principal place of residence."

The noble Lord said: My Lords, I return briefly to an issue that we discussed in Committee. Although I was very grateful to the Minister then for her assurance that a person's home would not be included at any point in the calculation of savings—whether true or deemed—I am still not convinced that the Bill as currently drafted gives pensioners who own their own home as favourable treatment as non-pensioners who also own their own home.

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For a good many years all political parties have agreed that people should be encouraged to own their home. There is obviously a range of reasons for that policy which is too broad to concern us in this debate. However, the state has recognised the desirability of such a policy in a number of ways—within the tax system, but most notably by making one's home capital gains tax-free on disposal. By allowing pensioners who own their own home to withdraw capital without completely swamping the savings credit, Amendment No. 22 aims to achieve a degree of equality.

Without rehearsing the arguments made in Committee, I believe that, without the amendment, people at the margin—I accept that we are dealing with the margin—will be discouraged from buying their own home. More importantly, pensioners will be encouraged to continue to hold a relatively huge asset in their general portfolio in a non-income producing form. Their house is bound to be a very large proportion of their assets, and they will hold it in a form that does not enable them to draw benefit from it. That clearly does not benefit them; it does not benefit their families; and it does not benefit the communities in which they live. I hope that the Minister will find it in her heart to think again on the issue. I beg to move.

Baroness Greengross: My Lords, I am sympathetic to the amendment, particularly in relation to equity release. When I was at Age Concern, we became involved with "safe home income plans"—Age Concern is still involved in them and publishes an annual guide to them—as such schemes are a very good way for income-poor but asset-rich older people to realise some of their capital to increase their income. The tax treatment of such schemes has changed quite a lot over the years, often for the worse. I should be very worried if they were made less attractive by any of the Bill's provisions.

In other words, we want to ensure that a person's entitlement to the state pension credit is not entirely wiped out if she takes out an equity release scheme to provide additional income to live on, to do repairs on her home, or even to do something frivolous—which can be the case, and should be quite understandable. Although it is of course a question of balance, I hope that the Minister will err on the side of generosity in this regard.

Baroness Noakes: My Lords, I too should like to explain briefly why I support Amendment No. 22. As I understand the position, if a pensioner holds on to his own home, it will not be part of his capital and there will be no deemed income from it, whereas if he decides to enter into one of the equity release plans, either an income stream or a capital sum will come into the pension credit calculations. I am struggling to see how it is logical to say that holding on to one's own home has no pension credit consequence, but that yielding the home's value during one's lifetime does have pension credit consequences.

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In Committee, the Minister talked about level playing fields in the retirement investments market. If I correctly understand what she has been saying, the proposed treatment will kill such investments stone dead and probably encourage pensioners simply to hang on to their own properties. What kind of level playing field is that?

Baroness Hollis of Heigham: My Lords, I am obviously grateful for the opportunity to return to an amendment that we considered in Committee. However, I am not sure that my arguments have advanced from those I offered in Committee.

In Committee, I gave information about what would happen if a pensioner drew a lump sum against the value of his property or a home income plan. I promised to write if the information that I gave then, quite quickly, was incorrect. I confirm that what I said was correct. Therefore, if a person draws a lump sum for no specific purpose the amount would be treated as capital and a notional income of 10 per cent above £6,000 would be assumed. In turn, the amount of the notional income would be added to the qualifying income on which the savings credit would be calculated.

On the other hand, a lump sum drawn for a specific purpose such as home repairs would be ignored as capital. We may return to the issue when we discuss capital and income. However, I assure the noble Baroness, Lady Greengross, that expenditure such as buying a car or taking the cruise of a lifetime would not be regarded as deliberately depriving oneself of capital to make oneself eligible for pension credit. Some of her concerns may be dealt with more fully in a later debate.

Any income—for example, in the form of annuity payments—from a home income plan would be treated as weekly income to be taken into account in the pension credit calculation and rewarded in the same way as other annuity income.

Our policy on equity release schemes seeks to strike a balance between reforming the capital rules, so that they are fair and simple, and avoiding destabilising the personal finance market by incentivising one form of providing for one's retirement above others. If we were to treat income from equity release schemes more favourably than other forms of capital—by disregarding such income, for example—the result would be to increase the incentives to save in this way with the aim of taking out equity release schemes.

On this and many other such issues, we have consulted extensively with the various relevant financial industries. They are all concerned that we maintain a level playing field between different forms of income so that we do not distort the arrangements that people have entered into over time. I am certainly advised that, regardless of other equity issues, the arrangement proposed in Amendment No. 22 would have such a distorting effect

To give your Lordships a little reassurance, I should add that income from equity release will be treated more favourably in pension credit than it is under

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current MIG arrangements. As income, it would be eligible for a savings reward, and as capital it would be eligible for the savings reward on any notional income over the £6,000 disregard. The income will therefore come into play for the savings element but will not be disregarded.

I come now to the issue of income arising from rent. In our previous debate I explained that the number of pensioners likely to be affected by the provision would be small. About 5,000 pensioners currently claiming MIG are receiving income from rent, usually from boarders or lodgers. Currently, there are various disregards depending on the terms of letting or sub-letting. A disregard of £4 or £13.55 per week is applied for lettings without board, and a weekly disregard of £20 is applied for lettings with board.

This is a complex issue which—like PLRs or royalties—we have not yet finally settled. However, we intend to cover the detail of the level of future disregards in regulations. We are seeking to simplify the rules as they stand. We think that about 10,000 pensioner households—of 11 million or so pensioners—entitled to pension credit will have income from boarders or lodgers. I assure the noble Lord, Lord Hodgson, that the new rules we introduce for that income stream will be at least as generous, in all cases, as those currently in place in MIG. Indeed, the rules are already relatively generous.

Pensioners can derive income from their principal residence by renting out rooms or by taking out an equity release scheme. We shall no doubt revisit those issues when we come to debate some of the regulations. I hope that, in the light of that explanation, the noble Lord, Lord Hodgson, will feel able to withdraw his amendment.

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