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Lord Hodgson of Astley Abbotts: My Lords, I am again grateful to the Minister for her response. I think that she has given reassurance on quite a number of points. However, she turned away at the critical moment and did not say whether the cruise of a lifetime would be included.

Baroness Hollis of Heigham: My Lords, the cruise of a lifetime would not be regarded as a deliberate disinvestment of capital in order to increase one's eligibility for pension credit. As I said, however, we may return to that issue when we debate a later amendment. I could not resist trying to reassure the noble Baroness, Lady Greengross—who is such a doughty fighter for the absolute right of older people occasionally to be frivolous—on the issue.

Lord Hodgson of Astley Abbotts: My Lords, I am sure that we are all grateful to the noble Baroness for that further reassurance. She also made a fair point about the need to avoid distortion in relation to different types of saving. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 23 not moved.]

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Baroness Greengross moved Amendment No. 24:

    Page 9, line 23, after "capital" insert "over the prescribed threshold"

The noble Baroness said: My Lords, in moving Amendment No. 24, I wish to speak also to Amendment No. 25 with which it is grouped. These two amendments in my name relate to the level of capital or savings that will be ignored. They have the support of Age Concern. I am grateful for Age Concern's information on the matter.

Under the Government's proposals the first £6,000 of capital will not be taken into account. These amendments would increase that level to a minimum of £11,500 and require that figure to be uprated annually in line with prices or earnings. My aim in tabling these amendments is to make the system both fair and simple and to bring about greater alignment with other assessments.

All of us who have had any dealings with older people on low incomes know that the assessment of savings for income-related benefits has long been a major concern. I very much welcome the Government's positive approach to reforming the system. In Committee there was some debate on whether it was better to assess actual income rather than using an assumed income. I support the Government's approach for the reasons the Minister put forward such as providing a simpler, less intrusive system that particularly helps those with very small amounts of savings. I also welcome the fact that the Government listened to the views of organisations on this issue. However, I question whether £6,000 is the right level. Although I note that the department estimates that 85 per cent of pension credit recipients are likely to have less than £6,000, this is still a modest level for lifetime savings.

My proposed figure of £11,500 would provide a much better level of security and would also address concerns that some noble Lords have expressed about the notional 10 per cent rate for savings over the £6,000 threshold. Under the proposed system there is a danger that some people with modest savings, say, over about £12,000, could actually be worse off than under the original plan to assess actual income. By ignoring a higher level of savings that problem would be addressed while still providing most benefit to those with the least resources. It would also further simplify the system by ensuring that even more pensioners were taken out of the savings assessment altogether.

My other aim is to ensure alignment with local authority care assessments. Currently for people in care homes £10,000 savings is ignored for income support and £11,500 for the care assessment. Tariff income starts at different levels of saving. It is no wonder that people find charging systems confusing; I think that we all do. Perhaps the Minister does not find them so, but she must be the only person who does not. I understand that £11,500 will also be the amount that should be ignored when people are charged for care services at home under new guidance that will be implemented by the time the pension credit is introduced. So, a common threshold of £11,500 for both pension credit and local authority assessments

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would make the system easier both for older people and for staff, including the new employees of the Pension Service who must understand and take in a great deal of information quickly.

I know that the Government are aware of the need to co-ordinate assessments for different benefits within the DWP and across other departments. A good example was the Minister's statement in Committee that the pension credit assessed income rules will apply also for housing benefit and council tax. I very much welcome that. However, aligning capital limits would be another important way of joining up systems.

Finally, it is important that capital limits are regularly uprated so that they maintain their real value. With social security benefits that often does not happen. For example, the level of savings ignored for income-related benefits remained at £3,000 from 1988 to 2001 and is still £3,000 for people under 60. I have suggested a formula for annual uprating but there may be better ways to do that. I understand that the Department of Health is planning regularly to uprate its threshold and the important point would be to keep the levels aligned.

I accept that placing a level of savings on the face of the Bill may not be the best way to achieve my aims. However, I very much hope that the Government will be able to give careful consideration to the principles behind these amendments, which I believe would help achieve their aims of a fair and simple system targeting help on those with low and modest incomes. I beg to move.

6.15 p.m.

Baroness Noakes: My Lords, the noble Baroness, Lady Greengross, made a powerful case for the co-ordination of capital limits at one level. The multiplicity of limits is confusing for pensioners. The logic of amalgamating benefits seems to me to be difficult to resist. The requirement to uprate the capital threshold—whatever that threshold is—is an extremely important one even though inflation measured by the retail prices index is, according to the Government's target, 2.5 per cent. That is roughly where it is at and where it is forecast to be. Even that modest level of inflation over a relatively small number of years has a serious eroding effect on capital. It takes only eight years to lose value of well over 20 per cent. That aspect is extremely important.

Earl Russell: My Lords, I should like to say a brief word in support of Amendment No. 25. We are aware of constant pressure to husband parliamentary time. The Minister and I know very well that the issue of uprating can take a great deal of parliamentary time. I mean no denigration of the efforts of the Minister, which I very much appreciate, when I say that a clause of this kind might save us both a very great deal of time in future.

Baroness Hollis of Heigham: My Lords, the noble Baroness, Lady Greengross, proposes in Amendments Nos. 24 and 25 to insert the value of the capital disregard, and the requirement to uprate it annually,

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on the face of the Bill. She proposes that we align our capital disregard with the local authority capital disregard for support with residential care, nursing homes and home care, but also that we should go further and uprate the disregard every year by either earnings or price inflation, whichever is the greater.

I am sorry to keep coming back to my next point. However, I am intrigued by the support of the noble Baroness, Lady Noakes, for the amendment. Any increase to the level of the capital disregard inevitably carries a cost. I wonder whether the noble Baroness, Lady Noakes, has any idea of what the sum might be in terms of the amendment's provisions.

Baroness Noakes: My Lords, I am sure that the Minister is going to tell me.

Baroness Hollis of Heigham: My Lords, I am indeed. Just for the fun of it I might go over today's proceedings to see what sums those on the Benches opposite envisage spending. Leaving aside the £17.5 billion, which I agree was a little offside as it were, my current figure is something like £3 billion. However, the clock is ticking and we are doing quite well. It will be fun to revisit some of the expenditure proposals.

Lord Higgins: My Lords, when we vote in favour of such expenditure I shall let the noble Baroness know.

Baroness Hollis of Heigham: My Lords, is the noble Lord now merely talking about words and no action—surely not? The cost of such an amendment, if we were to accept it as it is, would be £500 million a year—half a billion pounds. Alternatively, of course, we could seek to make it cost neutral by recovering that sum by increasing the notional rate of return on capital above £11,500. I wondered whether the noble Baroness, Lady Noakes, would propose that. I considered the sum involved. I am happy to tell the House that to make the provision cost neutral we would have to go for a rate of return on capital over £11,500 of 20 per cent, and probably nearer 25 per cent. I am not sure that that would entirely commend itself to the Benches opposite.

Costs in the longer term could also increase because of the incentive to switch away from pensions as a form of saving for retirement. That is the more serious point that I have tried to emphasise throughout. The level at which we set capital disregard—the whole of what we have been talking about—is an important factor in maintaining the level playing field between pensions and non-pension investment vehicles. That is the serious point that I hope your Lordships take on board. The more attractive it is to use other savings vehicles—whether the PEPs and ISAs that we did not explore on the previous amendment, equity release, or any other form of savings vehicle because they are disregarded in some sense—the less attractive pensions, which are taken fully into account, become. As a result, we send out perverse signals. "Save

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anywhere you like so long as it is not in pensions" seems to be message from some of the amendments that we have considered. That cannot be sensible.

The Government's policy means that 85 per cent of pensioners who are entitled to pension credit will see any income that they receive from their savings ignored entirely. Furthermore, ignoring the first £6,000 of savings means that only pensioners with capital above £12,000 will face effective assumed rates of return that are greater than 5 per cent. The FSA and Age Concern asked us to go for the £6,000 limit but with a notional rate of return above that in order to maintain the level playing field from the FSA's point of view. We should heed its advice carefully.

The noble Baroness mentioned the analogy with local authority homes, and the point was picked up by the noble Baroness, Lady Noakes. The reason why local authorities have a higher savings level is precisely because the private home is taken into account in terms of value, which is not done in relation to pension credit. I am not sure that the noble Baronesses, Lady Greengross and Lady Noakes, wish to go down that route. That is why there are significant differences—because the situations are different. They are apples and oranges in that respect. Languages of alignment are therefore deceptive unless one aligns other conditions, which would be seriously damaging to pensioners and quite unreasonable.

Within our proposals, we have included the requirement for the Secretary of State to review the amounts used to calculate the guarantee pension credit and the savings credit. We are required to undertake that annually and it will be scrutinised by Parliament. As part of that process, the Secretary of State will also review the level of the capital disregard and uprate it where he deems necessary. We believe that that provides the necessary safeguards and reassurances.

The first part of the amendment to align the arrangement in terms of local authorities but without taking into account housing has a cost of either £500 million or is cost neutral, which has a notional return on savings of between 20 per cent and 25 per cent. That must be unacceptable to noble Lords. Secondly, on assurances about the annual review being part of the uprating statements, I suspect that I will be able to clarify the situation.

I hope that the noble Baroness will withdraw the amendment, but I am sure that she will be sorry that we are not spending yet another half a billion pounds on pension credit.

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