House of Commons - Explanatory Note
State Pension Credit Bill [HL] - continued          House of Commons

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Schedules

Schedule 1: Administration

Schedule 1, paragraph 2

138.     Paragraph 2 amends section 1 of the Social Security Administration Act 1992 to the effect that a person must, in order to establish entitlement to Pension Credit, make a claim for Pension Credit in the manner and within the time specified in regulations made under the Act, and that the claimant (and any other person for whom they are claiming) must have a valid National Insurance number in order to establish a claim. (See also paragraph 3 and the commentary below.)

Schedule 1, paragraph 3

139.     Paragraph 3 amends section 5(2) of the Social Security Administration Act 1992 to include Pension Credit within the definition of the benefits to which section 5(1) of that Act applies. The effect is to confer the power to:

  • prescribe in regulations the manner in which a claim to Pension Credit is to be made;

  • time limits for claiming;

  • powers to disallow claims if they have not been made in the prescribed manner and within prescribed time limits;

  • enabling one person to act for another in relation to a claim;

  • requiring evidence and information in relation to a claim;

  • specifying the date on which entitlement is to begin and the length of the award; and,

  • when the requirements for entitlement are satisfied, for the revision or supersession of an award if the requirements are no longer satisfied.

140.     The effect of the amendment made to section 5 of the Social Security Administration Act 1992 is that regulations may be made under paragraph (h) or (hh) of subsection (1) of that section requiring a person to provide information enabling a decision to be made on the length of the assessed income period.

Schedule 1, paragraphs 4 to 12

141.     The rules about how entitlement to social security benefits is to be decided, including the way appeals are to be resolved, are in the Social Security Act 1998 and related regulations. These paragraphs include Pension Credit in the relevant provisions of the Social Security Act 1998. The effect of this is that the established decision-making and appeal provisions of the Social Security and Child Support (Decisions and Appeals) Regulations 1999 will apply to Pension Credit.

Schedule 1, paragraph 13

142.     The intention in paragraph 13 is to secure that Pension Credit is normally paid at a weekly rate and also, where necessary, to provide the flexibility to make the adjustments necessary to align payment of Pension Credit with other benefits paid to the claimant.

Schedule 2: Minor and consequential amendments

Schedule 2, paragraph 2

143.     The amendments of section 124 of the Social Security Contributions and Benefits Act 1992 remove entitlement to Income Support for those claimants who have attained the minimum qualifying age for Pension Credit and for those claimants whose partners are entitled to Pension Credit.

Schedule 2, paragraph 3

144.     New section 136A of the Social Security Contributions and Benefits Act 1992 makes provision for the treatment of income and capital for Housing Benefit and Council Tax Benefit where the claimant has attained the qualifying age for Pension Credit.

145.     Subsection (1) applies subsections (2) and (3) to Housing Benefit and Council Tax Benefit in the case of any person who has attained the qualifying age for Pension Credit.

146.     Subsection (2) allows the Secretary of State to make provision in regulations to disapply for Housing Benefit and Council Tax Benefit the provisions of sections 134(1) (exclusion where capital exceeds the prescribed limit), or any provision of section 136 (treatment of income and capital).

147.     Subsection (3) allows the Secretary of State to make regulations which provide for the income and capital of a claimant who has attained the qualifying age to be determined for Housing Benefit and Council Tax Benefit by applying, with such modifications as he thinks fit, Clauses 5 and 15 of this Bill.

148.     Subsection (4)(a) allows regulations under subsection (3) to authorise or require that any calculation or estimate of a claimant's income or capital made by the Secretary of State in Pension Credit be used in Housing Benefit and Council Tax Benefit.

149.     Subsection (4)(b)(i) allows regulations under subsection (3) to require that where there is an assessed income period in force in Pension Credit, the assessed amount of any retirement provision in Pension Credit shall be used in the determination of the Housing Benefit and Council Tax Benefit entitlement.

150.     Subsection (4)(b)(ii) allows regulations under subsection (3) to provide that elements of a claimant's retirement provision which are not taken into account in Pension Credit shall not be taken into account for Housing Benefit and Council Tax Benefit.

151.     Subsections (6) and (7) allow regulations made under section 136A to include provision for cases to which Clause 12 of the Bill applies. Such regulations may include provision such as may be made by section 133 of the Social Security Contributions and Benefits Act 1992.

Schedule 2, paragraphs 5 to 7

152.     These paragraphs amend sections 148 to 150 of the Social Security Contributions and Benefits Act to make Pension Credit a qualifying benefit for the Christmas Bonus.

Schedule 2, paragraph 9

153.     Paragraph 9 amends section 15A of the Social Security Administration Act 1992 to give the Secretary of State power to make, in prescribed circumstances, direct payments of a prescribed part of any Pension Credit to a mortgage lender in respect of mortgage interest.

Schedule 2, paragraph 10

154.     Paragraph 10 amends section 71 of the Social Security Administration Act 1992 so that the Secretary of State is entitled to recover overpayments of Pension Credit where the overpayment was the result of the claimant's misrepresentation or failure to disclose a material fact.

Schedule 2, paragraph 11

155.     Paragraph 11 amends section 74 of the Social Security Administration Act 1992 so that the Secretary of State is entitled to recover overpayments of Pension Credit where the overpayment resulted from a prescribed payment (usually of social security benefit).

Schedule 2, paragraph 12

156.     Paragraph 12 applies the provisions in Part 6 of the Social Security Administration Act 1992 (enforcement) to Pension Credit. This causes the provisions on inspection and offences and legal proceedings to apply to Pension Credit.

Schedule 2, paragraph 13

157.     Paragraph 13 amends section 124 of the Social Security Administration Act 1992 to add Pension Credit to the list of social security benefits for which copies of birth, marriage and death certificates are to be provided.

Schedule 2, paragraph 14

158.     Paragraph 14 amends section 125 of the Social Security Administration Act 1992 to include Pension Credit in the list of social security benefits for which keepers of registers of births, marriages and deaths are required to provide notification of deaths.

Schedule 2, paragraph 15

159.     Paragraph 15 amends section 126 of the Social Security Administration Act 1992 to include Pension Credit in the list of social security benefits which give rise to a duty on personal representatives to give information about the estate of a deceased person.

Schedule 2, paragraph 16

160.     Paragraph 16 amends section 150 of the Social Security Administration Act 1992 to include Pension Credit in the items to be reviewed by the Secretary of State in the annual uprating of benefits.

Schedule 2, paragraph 17

161.     Paragraph 17 inserts a new section 159B into the Social Security Administration Act 1992. The new section provides for the Secretary of State to make a routine adjustment of a person's Pension Credit in consequence of benefit uprating.

162.     Subsections (2) and (3) allow Pension Credit to be paid after the adjustment without the need for the Secretary of State to make a further decision on the award.

163.     Subsections (4) and (5) allow an award of Pension Credit made in the period after the uprated amounts have been announced, but before they have been commenced, to take account of the new rates.

Schedule 2, paragraph 23

164.     Paragraph 23 amends section 187 of the Social Security Administration Act 1992 so as to add Pension Credit to the list of social security benefits which cannot be assigned to a third party, nor passed to creditors in the event of the bankruptcy of the claimant.

Schedule 2, paragraph 25

165.     Paragraph 25 amends Schedule 6 to the Magistrates' Courts Act 1980 to include guarantee state pension credit in the list of social security benefits, receipt of which exempts persons from payment of magistrates' courts fees.

Schedule 2, paragraph 26

166.     Paragraph 26 amends the Transport Act 1982 to allow the Secretary of State for Transport, Local Government and the Regions to make payments, in respect of securing a medical exemption from the requirement to wear a seat belt, where the person seeking the exemption is in receipt of guarantee State Pension Credit.

Schedule 2, paragraph 27

167.     Paragraph 27 amends the Abolition of Domestic Rates Etc. (Scotland) Act 1987 to enable Scottish local authorities to request that deductions be made from Pension Credit for outstanding Community Charge.

Schedule 2, paragraph 28

168.     Paragraph 28 amends the Income and Corporation Taxes Act 1988 to include Pension Credit in the list of social security benefits which shall not be treated as income for any purpose of the Income Tax Acts.

Schedule 2, paragraph 30

169.     Paragraph 30 amends the Children Act 1989 to include guarantee State Pension Credit in the list of social security benefits, receipt of which exempts persons from payments in respect of the cost of certain day care and other services provided by local authorities.

Schedule 2, paragraph 31

170.     This amendment of section 24 of the Criminal Justice Act 1991 enables magistrates' courts to request the Secretary of State to make deductions from Pension Credit in order to pay fines or compensation orders imposed by the court.

Schedule 2, paragraphs 32 to 35

171.     The amendments to the Local Government Finance Act 1992 enable local authorities in England, Wales and Scotland to apply to the Secretary of State for sums outstanding under liability orders imposed by magistrates' courts to be deducted from Pension Credit. Liability orders are made where council tax is unpaid.

Schedule 2, paragraphs 37 and 38

172.     The amendments of the Jobseekers Act 1995 remove entitlement to income-based Jobseeker's Allowance for those claimants who are entitled to Pension Credit and those claimants whose partners are entitled to Pension Credit.

Schedule 2, paragraph 41

173.     Paragraph 41 amends subsection (3) of section 34 of the Social Security Act 1998 so that regulations may require local authorities to give priority to Housing Benefit and Council Tax Benefit claims received from people who have been receiving Pension Credit.

Schedule 2, paragraph 43

174.     Paragraph 43 amends the Local Government Act 2000 to add Pension Credit to the list of benefits' information on which may be provided to local authorities in connection with the local authorities' applications for grants for welfare services.

Schedule 2, paragraphs 44 to 49

175.     Paragraphs 44 to 49 amend the Social Security Fraud Act 2001 so that Pension Credit is a disqualifying and sanctionable benefit for the purposes of that Act. The Act provides for certain social security benefits to be reduced where a claimant has been convicted of certain offences relating to social security

176.     Paragraph 45(2) inserts new subsection (4A) into section 7 of the Act so that the Pension Credit entitlement of an offender can be reduced for any period comprised in the disqualification period by an amount prescribed in regulations.

177.     Paragraph 46(3) inserts new subsection (4A) into section 9 of the Act so that the Pension Credit entitlement of a member of the offender's family can be reduced for the whole or any part of the disqualification period by an amount prescribed in regulations.

FINANCIAL EFFECTS OF THE BILL

Pension Credit

178.     It is estimated that the measures relating to Pension Credit will increase benefit expenditure by around £1 billion in 2003/4 and around £2 billion in 2004/5. These estimates include the additional expenditure on Housing Benefit and Council Tax Benefit shown in the table below.

Additional Housing Benefit and Council Tax Benefit Expenditure

 

2003/04

2004/05

Housing Benefit

£120 million

£250 million

Council Tax Benefit

£100 million

£210 million

Total

£220 million

£460 million

Note: figures are rounded to the nearest £10 million

179.     On 16 January 2002 the Government published "The Pension Credit: long-term projections" (accessible on the internet at http://www.dwp.gov.uk).

Equal pension treatment for widows and widowers

180.     It is estimated that correction of the flaw in the legislation will reduce benefit expenditure by around £2 million per year.

Effects of the bill on public service manpower

Pension Credit

181.     The Department will be discussing the funding of the administrative costs of Pension Credit with HM Treasury as part of Spending Review 2002. The Department will also be working closely with local authorities to estimate the costs of making changes to the Housing Benefit and Council Tax Benefit schemes and to ensure a smooth transition to the new arrangements.

Equal pension treatment for widows and widowers

182.     The administrative costs will be around £0.25 to 0.3 million and will be met from existing resources.

SUMMARY OF THE REGULATORY APPRAISAL

183.     A Regulatory Impact Assessment has been carried out for this Bill. The proposals contained in the Bill are expected to have a minimal impact on business. The Pension Service will only contact financial institutions when customers cannot provide information required in support of their claim for Pension Credit i.e. as a last resort.

184.     There may be an increase in the volume of queries made to the financial services industry at the initial claim stage as the objective is to reach more customers than the numbers currently receiving the Minimum Income Guarantee delivered through Income Support. However, this will be counterbalanced by fewer queries in the medium and long term as a result of plans to introduce a less intrusive income assessment and indefinite awards with five-year reviews.

EUROPEAN CONVENTION ON HUMAN RIGHTS

185.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act).

The Secretary of State for Work and Pensions has made the following statement:

    In my view the provisions of the State Pension Credit Bill [HL] are compatible with the Convention rights.

COMMENCEMENT

186.     Except for Clauses 19, 20 and 22 (which relate to commencement and come into force at Royal Assent), the provisions of the Bill come into force by commencement orders.

 

Annex A

GLOSSARY OF PENSION PROVISION

1.     The social security system provides a number of sources of income for retirement in the form of contributory, non-contributory and income-related benefits.

The contributory benefits are:

  • Category A and B retirement pensions which comprise a basic component (the state basic pension) and additional pension (SERPS or State Second Pension) either of which may be payable. The relevant primary legislation is contained in sections 43 to 55 of the Social Security Contributions and Benefits Act 1992;

  • graduated retirement benefit (based on graduated National Insurance contributions paid when the Graduated Retirement Benefit scheme existed, between 1961 and 1975) payable under sections 36 and 37 of the National Insurance Act 1965.

2.     These are payable at state pension age - currently 65 for men and 60 for women - who satisfy the contribution conditions. State pension age will be equalised at 65 from 6 April 2020.

The non-contributory benefits are:

  • Category C retirement pension paid to persons (or their spouses) who had reached pensionable age before the start of the National Insurance scheme in 1948 and who satisfied the residence conditions;

  • Category D retirement pension paid to persons aged 80 and over who satisfy the residence conditions and either do not satisfy the contribution conditions or do not qualify for a full contributory retirement pension because of a deficient National Insurance record; it is payable under section 78 of the Social Security Contributions and Benefits Act 1992;

  • an age addition is normally paid to persons aged 80 and over in receipt of any category of retirement pension, payable under section 79 of the Social Security Contributions and Benefits Act 1992. It is not always paid to pensioners abroad.

3.     The income-related benefit is Income Support payable under section 124 of the Social Security Contributions and Benefits Act 1992. Income Support paid to persons aged 60 and over is known as the Minimum Income Guarantee. In order to qualify for Income Support a person must:

  • have income below a set level; and,

  • not have savings or capital assets in excess of a prescribed limit, currently £12,000 in the case of persons aged 60 and over.

Basic state pension

4.     The National Insurance Scheme operates on a pay-as-you-go basis. The state pensions of today's pensioners are paid for by today's contributors. The basic state pension provides the foundation of retirement income - a third of all pensioner income. It is the largest single source of support. It is paid, to all who meet the qualifying conditions, at a flat rate of £72.50 a week from April 2001 for single pensioners and £115.90 a week for couples

5.     Firstly, they must have paid 50 qualifying contributions before 6 April 1975 or enough contributions in any one tax year after April 1975 for that year to be a qualifying year. Secondly, enough contributions must be paid or credited to give qualifying years for about 90 per cent of the working life. In order to receive a full pension, men must have 44 qualifying years and women 39 qualifying years, over their working lives.

6.     A reduced rate pension will be payable if the number of qualifying years is less than this but to receive any pension at all a person must have enough qualifying years to receive a pension of at least 25 per cent of the standard rate.

7.     By 2020 both men and women will need the same number of qualifying years once the state pension age is equalised at 65. Currently, 3.4 million men and 3.3 million women receive a full basic state pension.

Additional Pension (SERPS and the State Second Pension)

8.     The additional pension element of Category A and B retirement pensions (commonly called the State Earnings Related Pension Scheme or SERPS until 2002) is payable to people, or in certain circumstances their widows or widowers, who have paid, or are treated as having paid, Class 1 National Insurance contributions. The legislation is sections 43 to 55 of the Social Security Contributions and Benefits Act 1992.

9.     The additional pension is based on an average of earnings between the National Insurance lower and upper earnings limits over a person's whole working life, increased in line with earnings inflation up to state pension age, and by price inflation once it is in payment.

10.     From 6 April 2002, the State Second Pension reforms additional pension to provide a higher pension for low and moderate earners. In addition, for the first time, certain carers looking after young children, or a sick or disabled person and long-term disabled people with broken work records will also be able to build up an additional pension.

11.     People earning between the National Insurance lower earnings limit and a new low earnings threshold will be treated for additional pension purposes as if they had earned at the low earnings threshold. Qualifying carers or disabled people who earn less than the lower earnings limit (or nothing at all) will also be treated for additional pension purposes as if they had earned at the low earnings threshold in any qualifying year. A new accrual rate twice the current rate will apply to earnings (actual or treated) up to the low earnings threshold.

12.     In total, some 18 million people stand to gain from the State Second Pension reforms - 14 million low and moderate earners, over 2 million carers and 2 million disabled people.

13.     People can be contracted out of the additional pension into an occupational pension scheme or appropriate personal pension (including stakeholder pensions). Those contracting out into an occupational pension pay a reduced rate of National Insurance contributions. Those contracting out into an appropriate personal pension or a stakeholder pension pay full rate National Insurance contributions, but the Inland Revenue pay a rebate of National Insurance and tax relief directly to the pension provider. From April 2002 people contracted out will be no worse off than they would have been had they remained in the state scheme because they will receive the extra help given to low and moderate earners by the State Second Pension by a combination of enhancing National Insurance rebates and topping up their additional pensions.

14.     Some 5.5 million people currently receive an additional pension as part of their retirement income at an annual cost of about £4 billion. The Government Actuary reviews the level of rebates at least every five years.

Occupational and personal pensions

15.     Occupational pension schemes are arrangements organised by employers to provide pensions for their employees. Schemes may be salary related (defined benefit) where the pension payable depends on the length of service and the salary (usually the final salary) earned by the employee; or money purchase (defined contribution) where the contributions are invested. At retirement the pot of money is used to buy an annuity which provides the pension. There are 10.3 million members of occupational pension schemes (8.9 million in salary-related schemes, 1.1 million in money-purchase schemes, and 0.3m in 'hybrid' schemes).

16.     Personal pensions are money purchase arrangements between pension providers and individuals (although there may be group arrangements through employers to give access on favourable terms - group personal pensions).

Stakeholder pensions

17.     Stakeholder pensions are a new type of private pension. Stakeholder pensions are required to meet certain standards laid down in law. The standards include a limit on the charges that can be levied. Stakeholder pensions became available to the public on 6 April 2001. From 8 October 2001, all employers with 5 or more employees should have a designated stakeholder scheme for their employees to join, unless they are exempt. Employers are exempt from this requirement if, for example, they have an occupational pension that all employees can join.

Minimum Income Guarantee (MIG)

18.     The Minimum Income Guarantee, paid as Income Support, is designed to help people who are aged 60 or over, are not required actively to seek work, whose income is below a certain level and is intended to help with basic living expenses. As of April 2001 the weekly rates are £92.15 for a single person and £140.55 for a couple. Currently, there are 1.7 million pensioner households claiming Minimum Income Guarantee.

Bereavement benefits

19.     These were introduced from 9 April 2001 to replace the Widow's Benefit scheme, when they became available to both men and women for the first time. The amount of benefit is based on the contributions of the deceased spouse.

Widowed Mother's Allowance

20.     A weekly benefit payable to widowed mothers who satisfy the qualifying conditions.

Widowed Parent's Allowance

21.     A weekly benefit payable to widowed parents who satisfy the qualifying conditions, equivalent to Widowed Mother's Allowance but also payable to widowed fathers.

Widow's Pension

22.     A weekly benefit payable to women aged 45 or over when widowed, who were widowed before 9 April 2001 who satisfied the qualifying conditions.

Bereavement Payment

23.     A lump sum payment of £2000 payable immediately to help with costs arising on bereavement.

Bereavement Allowance

24.     A weekly benefit payable to widows and widowers aged 45 or over without dependent children. Payable for 52 weeks following the date of widowhood. The weekly rate of Bereavement Allowance payable to a widow or widower aged between 45 and 54 is related to their age at the date of entitlement.

 
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Prepared: 26 February 2002