Examination of Witnesses (Questions 160
WEDNESDAY 6 MARCH 2002
160. Do you think everybody is going to be prepared
to work an extra two years to subsidise millionaires in Mill Hill.
(Mr Robinson) The issue about the retirement age is
different. I think you are conflating how to sell a more generous
Basic State Pension and simplify significantly State Pension provision
with the separate debate we need now to enter into on raising
retirement age. Remember raising the retirement age is only necessary
to deal with the affordability issue in 30 years' time.
161. Yes, but the point about it is that we
have to adopt this policy now, do we not?
(Mr Robinson) Are you telling me that when you go
to the doorstep and you tell people that the Government will give
them a Basic State Pension, there is also a State Second Pension,
there is also the MIG, which we are going to supplant by the Pension
Credit, and by the way here are the different options for private
pension provision, they turn round to you and say that it is very
clear, they understand that completely?
162. What I do is take the ready reckoner out
of the Pension Credit book and show them exactly where they are
going to be and they find that very easy to understand. I have
given out thousands of them. My basic question first of all is:
where is the fair and equitable approach in all this? Have you
done for your proposals work similar to that done by the IFS in
their document which shows the gains from Pension Credit across
the over-65 income distribution by decile, so we can see what
the effect is? What is quite clear from the work they have done
is that the proposals the Government now have are redistributed
towards the less well off, whereas I get the impression that yours
are not going to produce that result.
(Mr Robinson) It is an interesting example of the
difference between the use of the word "progressive"
when it is used by economists like Andrew Dilnot, or myself, or
by Her Majesty's Treasury and the words "fair and equitable".
I have learned over the last 18 months that those words do not
mean the same thing to people. Formally speaking the Pension Credit
is very progressive. You can draw your decile diagrams and show
that. The question is whether it is perceived as fair and equitable
by the vast majority of people out there. It is the same issue
with the Health Service. It would be progressive, using the language
you have described, to means test health care, to confine free
health care to average people and the less well off and make the
rich pay for their health care. That is very progressive, using
the way you are using the language. I am not sure it would be
regarded as fair and equitable by people out there. You must not
conflate those terms.
163. Have you done the calculation?
(Mr Robinson) No.
164. Would you like to do it and let us have
(Mr Hawksworth) For that you need a detailed micro
model and to produce that sort of model would be a vast research
project in terms of pushing it forward into the future. The IFS
numbers are perfectly reliable as an estimate of what the current
effect would be in 2003-04. We are quite happy to have a division
of labour and allow them to do that.
(Mr Robinson) What the IFS can do and what the Treasury
can do is model the impact now or next year, given what we know
about the current income distribution. It is a much more difficult
and complex job to try to do that for 2050.
(Mr Brooks) May I make two points about the distributional
impact of our proposed reforms? The first is that our reforms
would significantly benefit the very worst off pensioners who
are entitled to but not claiming means-tested benefits. The latest
figures for the numbers of those people are for 1999-2000 and
they suggest between one fifth and one third of pensioners entitled
were not claiming. The sums involved are not insignificant. The
average payment unclaimed was £20. The median payment was
£12.80. For people with a weekly income of somewhere around
£70, £80, that is a really significant amount of money.
Those people would certainly see our proposals as fair. The other
issue to raise is that the current system of tax rebates under
the National Insurance system is highly regressive. It gives much
more to the better off. Under our proposals that money would be
redistributed into a universal State Pension.
165. May I put another point to you which a
guy who used to be a bus driver, came over from the West Indies
in the 1960s, retired a little while ago, put to me? He has a
pension from London Transport of around £12 a week. He says
to me that he worked and put aside his pension and everything
else and he might as well have not bothered because the layabout
down the road, who has not done a stroke all his life, is getting
exactly the same as he is getting. That is not fair. Where is
the just and equitable arrangement whereby effectively you are
going to give everybody the same, not reflecting the fact that
some people have scrimped and saved to put away relatively small
amounts of money either through savings or through pension schemes?
Those are the people on whom Pension Credit is targeted and who
will be well off and answers their argument that it was worth
their while after all to have done what they have done. This is
the other argument I get all the time on the doorstep from pensioners.
If you are knocking on doors you will be getting the same argument.
(Mr Hawksworth) The argument is completely the opposite
way round. Actually under this proposal they would have a Basic
State Pension and they would keep all of the money whereas under
the Pension Credit they would only keep 60 pence of every pound,
so actually they would be more rewarded under this proposal.
166. But everybody would end up on the same
(Mr Hawksworth) No; no. Everybody would get a Basic
State Pension plus whatever other income they got from savings
or other pensions they had put in. Okay there are some further
complications with Housing Benefit and Council Tax Benefit which
affect any regime, but ignoring that for a second, everybody would
get the Basic State Pension plus whatever else. People who have
not saved would just get the Basic State Pension, which would
be a basic adequate minimum and they would not get the extra.
167. Including people who had not paid full
National Insurance contributions.
(Mr Brooks) The question is: do you let those people
168. No, because that is where the MIG comes
in. So people who have not paid National Insurance contributions
will get the same under your proposals.
(Mr Robinson) We would maintain the current contributions
system so you would have to have paid your National Insurance
contributions to get to the Basic State Pension and that would
mean that the MIG would remain but as a residual for those people
who have not paid National Insurance contributions, which is arguably
what it was supposed to mean in the first place.
169. But they would get exactly the same as
the people on the Basic State Pension, or less. If you put in
a Basic State Pension of £100 and you are maintaining MIG
as well, people on MIG would then get the £100 as well.
(Mr Robinson) Yes, as in the current system.
170. So whether or not you have paid the National
Insurance contributions becomes irrelevant to how much you get
from the state.
(Mr Robinson) That is the same now. If you have not
made National Insurance contributions you will be brought up to
(Mr Brooks) At the moment not only is the Basic State
Pension lower than the MIG but your additional savings
171. That is where the argument comes from,
from people who say they might as well not have bothered.
(Mr Hawksworth) The Pension Credit does not solve
that. For people currently, without the full contribution record,
with only the Basic State Pension, getting less than that there
would still be 100 per cent withdrawal rate under the Pension
Credit. So the Pension Credit does not actually solve that particular
problem. Maybe it could do if there were greater cost but it does
not solve that problem.
172. The last point I want to put to you is
about Housing Benefit and Council Tax Benefit. How is that going
to relate to your proposal?
(Mr Robinson) The statement we make here is the statement
that you would find in every government document, which is that
it is very important to reform Housing Benefit and Council Tax
Benefit but we do not do that here.
173. What does that mean? Does that mean people
will lose out or not? We know that with the Pension Credit the
Government is working to make sure people do not lose out.
(Mr Robinson) It means perhaps the next major piece
of work we do or John does or the IFS does is how we reform Housing
Benefit and Council Tax Benefit.
(Mr Hawksworth) One point to make is that, under the
Pension Credit proposals, the Government has proposed that the
applicable income instead of the MIG should be the MIG+£13.80,
say, for a single pensioner, so that you do not get the clawback
until that higher rate. Possibly one could have some similar regime.
Obviously it would be a cost and you would have to look at that.
Maybe you could say that above the Basic State Pension the applicable
income for Housing Benefit and Council Tax Benefit would be, I
do not know, 10 to 15 per cent above the Basic State Pension.
To parallel the existing regime, you would have to look at what
the precise cost of that is. I would admit we have not done that.
174. About a quarter of an hour ago I wanted
to query something Peter said, which was that everybody would
be £20 a week better off. They will not be, will they? The
way the presentation of your report has come over today is very
clearly that there is a trade-off, that we get rid of this complex
systemand I accept that there are serious weaknesses in
its complexitythat the trade-off is that everybody is then
£20 better off. May I just summarise what I think and then
you can tell me whether I am wrong? People who are going to be
better off are the group who do not claiman important groupand
those who are above the current MIG level. They are the ones who
would be up to £20 a week better off. For everybody else
their trade-off for their extra two years of working life is that
they are paying for an end to the means test. If that is the doorstep
trade-off, I am very pleased for you to go out and do it. We have
to be very, very careful that the presentation does not come over
as being that everybody is going to be £20 a week better
off, because they are not. The poorest pensioners on MIG are gaining
nothing from this whatsoever, are they?
(Mr Robinson) I am sorry, if I said everyone is going
to be £20 better off, I apologise. I should not have said
(Mr Hawksworth) The whole point of this is that it
is meant to be broadly financially neutral, so inevitably there
will be winners and losers.
175. You were not attempting to be misleading
for a second. The point is that in terms of presenting this as
a simple package, whose strength is its simplicity against a package
whose weakness is its complexity, there is a real danger that
it just comes over as being that we will get rid of the credit,
we will get rid of MIG in exchange for which everybody is £20
a week better off, but nearly a third of pensioners gain not a
single penny from what you are suggesting.
(Mr Robinson) The easiest way to think about the distributional
consequences of what we are proposing is that over this decade
there is a re-distribution from me to my parents. My parents are
retired. They will get an extra increment to their Basic State
Pension. I will lose my rebates. Over the long term I will have
to work two more years, so that when I retire I can be assured
that I will get £100 a week in today's terms from the state
which then gives me the complete clarity to make my own provision
on top of that through my own private savings. That is the trade-off
for people of my generation.
176. Which is great but what I am concerned
about is a 35-year-old plasterer on a fairly low income who is
now being expected to work an extra two years to give an extra
£20 a week to the person who is retired on a very substantial
(Mr Robinson) The argument would be the same for them,
that in return for their extra two years of work they can be absolutely
guaranteed that they will get £100 a week from the state
non-means-tested and any provision they have made on top of that
will go to them completely.
177. But they will be guaranteed that they are
not going to go below that anyway.
(Mr Robinson) They will be guaranteed that they will
not be caught in the means test.
178. Exactly. So the deal is not the money,
the deal is the means test.
(Mr Robinson) Yes.
179. As long as we are clear about that. I just
want to be absolutely clear that the deal for most of those people
is the paperwork not the pounds.
(Mr Robinson) It is the clarity. It is the argument
that people currently cannot really determine what kind of means
test they may face in the future and that if they are presented
with a very simple dealwork, you get your £100and
then the additional savings you make you retain completely, which
is the selling point.