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Lord Higgins: My Lords, why is it necessary to link the rule on downrating to the pension credit Bill? Why cannot that be done in some other way? Of course, that Bill is now going to another place, so it can be amended if need be. On the Minister's point about uprating, surely the amount deducted to avoid double counting ought to bear some relationship to the amount of money that the person is alleged to have saved as a result of going into hospital. Some estimate must be made of that.

Baroness Hollis of Heigham: Yes, my Lords, there was an initial calculation that has been sustained. I am puzzled by that point because most government upratings, whether of capital limits or whatever, are not calculated on a family budget unit assessment; they never have been. They are a determination by a government as to what they believe to be appropriate, given the information that they have and extrapolation from past patterns. This instance is no different. As far as I am aware, the percentage reduction has remained broadly in line for many years. A future government may consider that a different percentage should be deducted, but this is not an item that is attached to a bundle of goods. As far as I am aware, it never has been.

Earl Russell: My Lords, I wonder whether the Minister realises what a big gate she has opened by saying that the doctrine of double provision is not attached to actual cost. Has she made it as abstract as the Trinitarian doctrine of the double procession, which finally divided the Greek and Latin churches?

Baroness Hollis of Heigham: No, my Lords, I must say that that comparison had not occurred to me. My point is that the doctrine of double provision means that if, for example, someone has been caring for an

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invalid son, is married and in receipt of invalid care allowance and then becomes a widow, she does not receive double provision—both the widow's benefit and the ICA—even though her pattern of expenditure, given her son's disability, may be very different indeed, on a bundle of goods assessment, from that of someone else in a similar position. No one in receipt of carer's allowance is assessed for how much carer's allowance they should receive according to housing costs, heating costs and so on. They receive a determinate sum.

The noble Earl may call it arbitrary, but that has been the policy of all governments. They determine the amount that they think appropriate and that is what they pay. Occasionally, it may be revisited—in terms of capital limits, every five years or so. Basic income levels may be linked to RPI but that is the determination. That is no different in this case from any other area of government policy. I am surprised that the noble Earl is pressing me on that. The RPI goes up, the proportion taken for hospital downrating remains the same, therefore the relationship between the two figures continues. I am puzzled that the noble Earl should think that it should be based on anything else. If it were to be based on individual cost assessment, every pensioner would have to be individually means-tested to assess what were their expenditure patterns. I cannot believe that the noble Earl wants to go that way, especially given his remarks on means testing.

The noble Lord, Lord Higgins then spoke about stakeholder pensions. He regards them as having failed to make an impact. About 700,000 have now been sold and about 85 per cent of all employers—the key test is whether it is meeting the employment gap rather than, as the noble Lord rightly said, being recycled to help others, although that is not necessarily a bad thing—are now complying by making available stakeholder pensions. It will take time to build. Some stakeholder pensions are being bought for non-working people, including children and non-working spouses, but that is not a bad thing either, given the resources that people will need to build up a secure retirement.

Baroness Barker: My Lords, the Minister did not respond to the point made by the noble Lord, Lord Higgins, about the relationship of hospital downrating payment to pension credit. I would like to follow that up.

The Minister talked about the introduction of computer systems and the fact that it would take 18 months to change the computer system for pension credit. I am sure that that is right, but there must be existing computer systems for calculation of hospital downrating. Why can they not take on board a simple change?

Baroness Hollis of Heigham: My Lords, I repeat: the Government will not introduce the downrating ahead of the proposed time. The fact that the noble Baroness may wish to see it is not on the Government's agenda. It was not part of the original statement last

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November; it has come about as a result of representations and the development of the Government's thinking.

As the noble Lord, Lord Higgins, said, the Bill must still go through Parliament, and I would have thought that most people would recognise that, with such major changes, there is normally at least 12 months' play before the changes are introduced. It is no different, in that sense, from the usual advance notice of what we propose to do. That is a reasonable policy, and it is intrinsically connected with the developments in pension credit, particularly because the savings element of pension credit is protected. It seems sensible to brigade the changes that will result in that process. At the moment, the hospital downrating administration costs are something like £4 million to £5 million a year. That software will have to be rewritten and reworked. It is reasonable that it should be associated with the development of the pension service and the introduction of pension credit.

I cannot recall in my time in government and opposition any significant change of that sort that did not have a run-in period of 12 months or so. I am surprised that your Lordships think that it will be introduced in the next three weeks or so.

The noble Lord, Lord Higgins, talked about stakeholders and the state second pension. He thought that that might also be redundant. I think that the Financial Times may have understood; I am not sure whether the noble Lord quoted it inaccurately or whether the paper itself had misunderstood the nature of the S2P. As the noble Lord will know, the state second pension allows carers on incomes below £10,000 a year, as well as disabled people, to get a pension that, for a carer, would be worth about £40, after 40 years' caring. What is more—this is the misunderstanding about the connection with MIG—with pension credit, for someone who has been contributing to such a pension as a low earner, it will be wrapped around in the pension credit formula, so that they will be a gainer. That is perhaps what the Financial Times has misunderstood.

The noble Lord, Lord Higgins, pressed me on means testing, as he often does. I simply do not accept that vocabulary. With the pension credit people will receive a review every five years to map their income and give them a reliable means of financial support for the next five years, under which they can plan their lives. Incidentally, that mapping disregards all sorts of modest extraneous moneys such as voluntary and charitable contributions. That cannot be called means testing. It is far less a means testing system than any taxation system, and I do not think that it helps to encourage pensioners to think of it as an entitlement—the words that the noble Baroness, Lady Barker, rightly used—to keep labelling it as means testing. If there are ways of further reducing intrusion, I am sure that the pension service will do so. A five-year assessment of income, based on a telephone service, in which we help somebody to fill in the forms so that they will have a reliable income seems far removed from the 1930s concept of means testing, which is too easily bandied around in the House.

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I shall write to the noble Lord, Lord Higgins, about the future discounted liabilities of pension funds. I need to read his words carefully and make sure that I understand him. I have had four goes; perhaps I will get it right on the fifth.

I share the noble Lord's concern about FRS17. We should not impose a standard that could be tougher than international standards. As the noble Lord recognised, the Secretary of State has discussed the matter with the independent Accounting Standards Board—not a government body—and has made the same points as the noble Lord made tonight. The standard in the UK is different from the international accounting standard, and that allows for more of a smoothing effect.

Having said that, I think that it would be wrong to blame FRS17 for what has happened in the move from defined benefit to defined contribution schemes. I was shocked to realise that the amount of money that had not gone into pension schemes because during the 1990s employers could, perfectly legally, take pension holidays is £11.5 billion. From the report on the funding of defined benefit schemes, it would seem that employers seemed willing to sign up to defined benefit schemes when they did not have to pay for them. As soon as they were expected to deliver on their pensions promise, they opted out of defined benefit schemes and hastened into defined contribution schemes, whereupon they halved, on average, the employer's contribution. That is the problem.

I had some work done on the matter in case I had misunderstood the statistics, and it was clear that, if employers and employees on average salaries continued to contribute to defined contribution schemes in the same proportion as for defined benefit schemes, the outcome over a long enough period should be the same. For example, we estimated that, for someone with an income of £300 a week, 10 per cent contributions between employer and employee would produce a pension of £100 a week. If the contributions were 15 per cent, they would get a pension of £150 a week over a 35-year saving period.

The difference in value between a DB and a DC scheme hinges almost entirely on the willingness of employers to maintain the same level of contribution. I fear that they will not, because that has been the basic reason why they have left the schemes, but if they did, the outcome over a period of time should be broadly similar. The defined contribution can have other advantages, including portability and transferability. The answer is to try to ensure that employers observe their pension promise, even though the format of the pension will have changed.

The noble Earl, Lord Russell, asked why we were not uprating winter fuel payments. Given that in 1997 they were £20, they would be about £27 now had we uprated them. In fact, they are £200. It is a little churlish to accuse us of not having uprated them when we have increased them from £20 to £200.

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