Examination of Witnesses (Questions 240
WEDNESDAY 13 MARCH 2002
MP AND MR
240. Is it your estimate that the take-up of
means-tested benefits generally is rising or falling?
(Mr Darling) If you ask me to cite evidence I will
go back to my impression, as I said to Karen earlier, that people's
propensity to take up some of the new tax credits and so on is
241. But you have actually got no firm evidence
that this is true?
(Mr Darling) Which?
242. The take-up of the means-tested benefits.
(Mr Darling) I can tell you in pensions, for example,
there are now two million people getting the Minimum Income Guarantee
which is more than were getting basic Income Support before, so
I have got that evidence. I think you were asking me generally:
is it my impression that people have a greater propensity to take
these things up. My impression is that it is increasing and I
can point to specifics, like the Minimum Income Guarantee. People
increasingly will come to regard things like the Pension Credit,
Working Families Tax Credit, as they do the tax system generally.
They know the tax system takes money away from people but they
also know the tax system gives them allowances and credits and
so on for perfectly good reasons.
243. What targets have you got for 2005, 2006,
(Mr Darling) What we have done is we have published
the figures which show what we think to be a sensible take-up
assumption. My objective is to make sure that as many as possible
who are eligible for the Credit get the Credit.
244. Okay. Let us move on to a question about
take-up and complexity, and there are two quotes which give completely
different points of view. Baroness Hollis said in the Lords about
take-up: "the pensioner does not have to do the calculating.
The skill is in helping pensioners to know that there is an entitlement
for them to apply for"; but Mervyn Kohler of Help the Aged
said: "people need to know roughly that they are going to
be entitled to a benefit before they pick up a phone". Given
the complexity of the whole system now, how quickly can you be
sure that the proportion of people who you believe over time will
take up the Pension Credit will take it up?
(Mr Darling) In order to deal with that, as I said
to your colleagues earlier, our intention is that as somebody
approaches retirement we will write to them, as we do now, telling
them what their Basic State Pension entitlement is and in the
same letter pointing out they may be entitled to the Pension Credit
and we will explain that it comprises a guarantee if your income
is below £100 next year and also explaining how your savings
and your earnings can be rewarded. That second part of it does
not happen at the moment, we only write about the pension, so
what we will be doing is writing to people telling them of an
entitlement which many people may not know about at the present
time. I think that in time more people will become aware of these
things. The Winter Fuel Payment, you will not find many people
who are not aware of it now, is an extremely popular measure.
In time you will find that more and more people will know about
these things and they will say "yes, I would like it too".
It does take time, it is new, that is perfectly obvious. You either
press ahead and do that or I suppose you could take the view:
"let's scrap the whole thing" and I do not take that
245. Some of the pensioner charities who came
to us complained that your Department has been "less than
open" in assisting them in their role. Can you assure us
that the situation will be different in the future?
(Mr Darling) I do not think that we are. We work with
a number of charities. We do not always agree but governments
do disagree with lobby groups from time to time. If you take Age
Concern, for example, we have had a number of very useful discussions
particularly on the delivery of the Credit. I talked to Rob Marris
about going to places where pensioners want to be, or find it
more conducive to be, and one of the things we are looking at
is working with people like Help the Aged in the premises that
they work in. I think sometimes you do get people saying we are
not being helpful but what they actually mean is we did not agree
with the proposition that they put forward. All governments are
going to do that from time to time.
246. What are you doing to improve the take-up
rate in particular among ethnic minorities? In my own constituency
there are very large groups of elderly Asian people, it is a large
percentage, among whom the take-up I would imagine, I do not have
any figures, is on the low side. How are you going to reach that
group, in particular when many of them do not even use English
as a first language?
(Mr Darling) You raise a very important matter. I
am pretty sure that the take-up rate amongst ethnic minority families,
particularly where there is a language difficulty, is far lower
than it ought to be. The best and most effective way to do that
is to work through organisations and people that these people
work with on a day in, day out basis. If you come along as a stranger
from the outside it is much more difficult. It is something the
new Pension Service is going to pay some considerable attention
to. Since you have been sitting peacefully all morning, it might
be helpful if you would explain to Mr Goodman what we are going
to do there.
(Mr Gray) I think it is worth adding in the context
of the Partnerships Against Poverty work, where the Department
has been working with the sort of voluntary organisations the
Secretary of State mentioned, that whole process is deepening
and, for example, within that Partnerships Against Poverty framework
it was not long ago that a special sub-group was set up with the
local ethnic minority elders to try to help target support for
those particular groups. There will be particular groups of the
population for whom the access needs are different from the general
and we will need to put special arrangements in place. It is all
part of a growing programme to work increasingly deeply with the
relevant voluntary sector organisations and the local authorities.
(Mr Darling) It is not just for pensioners but in
other areas as well.
247. Last, given the fact that more and more
pensioners do seem to be relying on means testing, and you are
relying on means testing as a kind of mechanism, what is the absolute
maximum percentage of pensioners who you think could be means
tested? Do you not face the risk here that you are going to end
up like the Red Queen in Alice in Wonderland running harder
and harder to stay in the same place?
(Mr Darling) You have got a choice. You either give
all pensioners exactly the same or you choose to do more for people
who need help most. There are one of two ways in which you can
increase people's incomes.
248. But you do not have to means test to do
(Mr Darling) In order to identify somebody with a
low income you have to find some means of identifying that person.
249. You do, but means testing is not the only
(Mr Darling) I know that there is an opinion, which
is one that I have seen, which says that instead of doing this
individually we take the view that older people tend to be poorerit
is self-evidently soand, therefore, you pay more to an
older group and not to a younger group. It is a policy which you
can understand but where I think it is misguided is that you also
get poorer people who are under, say, 65-75 and you get people
who are over 75 who are actually comparatively well off. Of course
you can target money in different ways but there is no getting
away from the fact that once you decide to target, as opposed
to a universal approach, you have to identify these people. Whether
you identify them by age cohort or geographical groups or whatever,
or whether you do it individually, you have still got to make
choices. I come back to the point that the tax system is means
testing in some ways because it takes account of people's incomes,
it is not a new feature.
250. That is narrower under the tax system.
(Mr Darling) The tax system takes a much broader approach
than the benefits system. The benefits system basically works
on the principle that you have to be right to the last penny every
week, whereas the tax system takes the view that it should be
there or thereabouts every year. Gradually what we are doing is
we are seeking to bring together the tax and benefits systems
so that it is seamless ultimately. Where I think the Pension Credit
has its strength is that it takes each individual as they are.
A policy that says, for example, that we will pay more to the
over-75s but not to the under-75s falls down when you have got
a poor 72 year old. It is no comfort to go to the poor 72 year
old and say "stick it out until you are 75 and we will give
you another fiver a week". I disagree with that approach,
which is what you are working on at the moment, is it not, Andrew?
Mr Mitchell: Secretary of State, I need hardly
say to you that things are misrepresented in the Guardian.
The point that has been made, that you have referred to, picks
up a point that was made in the excellent speech that your shadow
made just before he went to Birmingham last week, where he was
pointing out that means testing does have a lot of problems with
it, which is a point that Frank Field has made very eloquently,
and that there is an alternative which is to target funds at particular
groups, and he singles out in that speech those with young children
and the elderly who, as you rightly say, are an element of society
who tend to be less wealthy than they were earlier on in their
lives and in their careers. Moving aside, can I move on to
251. We have got one further very important
area, we are about to run out of time, but could I prevail on
you for another ten minutes maximum?
(Mr Darling) Yes. I was looking forward to getting
stuck into the Conservative Party policy.
252. Secretary of State, we are not here to
debate Conservative Policy.
(Mr Darling) Just as well for you, Andrew. What is
your question anyway?
253. I wanted to pick up a point that you made
earlier about the fact that pensions are a very long-term business
and, therefore, consensus where it is possible is enormously important.
I remember I was a Government Whip on the 1994 Pension Bill where
a little known junior Social Security Minister, William Hague,
took it through against Donald Dewar. It was an enormously comprehensive
piece of legislation but it was characterised by a consensual
and constructive approach. It seems to me that, in so far as one
can do this in pension policy, it is enormously important, and
I would underline that point. You were saying earlier on how difficult
it is to get younger people to focus on a need to make provision
and it is much more difficult, of course, if the parties across
the House of Commons are disagreeing on what is the right way
to make provision for the future. Looking really at the Pension
Credit, which again, as you said, in the Lords has been welcomed
by a number of your predecessors from my side of the House, it
does have a number of very valuable points but it seems to me
that perhaps the most difficult point with it is its complexity.
There are a number of points I want to make briefly but it is
its complexity; it is enormously hard. I have sat through this
inquiry learning a great deal about it and it does strike me that
almost all the people who are going to be taking advantage of
the Pension Credit are going to be reliant on the methodology
that is given to them by the Department. It is very difficult
indeed to understand. This complexity goes on in a number of other
ways as well. Those who are engaged in selling pensions, and we
heard from them, have pointed out that it is an extra layer of
complexity to an already bewildering system of state pension provision
for them, as well as for those who use it. One of them said to
us that "Planning for retirement will become even more hazardous
and many people are likely to conclude that it is more sensible
to spend their money while they are young and let the future take
care of itself." It does seem to me that this is a real danger.
Do you agree? What steps are you planning to take to try and mitigate
(Mr Darling) You asked a very long question, which
had a number of bits to it, and I am wondering which bit you are
inviting me to agree with. Can I just make a couple of observations
and then I will come to your last point. On the political consensus
point, as you will know from your past experience, a lot of people
out there, the industry in particular, say "would it not
be much better if the two parties could agree?", and I am
sure if the Liberals joined in that would be absolutely fine as
well. It is worth bearing in mind that actually in Britain there
has been a fair degree of consensus on quite a lot: that essentially
there should be a state element, there should be a private funded
element, occupational pensions have had cross-party support for
years. Even if you look at matters like the basic floor, Income
Support or Minimum Income Guarantee, there has always been an
agreement, from both political parties, that it has got to be
somewhere. We will argue about the amounts, and those sorts of
things will always endure, but essentially if you look at some
of the main features of the pension system, they have endured
for a long time. Of course there have been changes but essentially
there has been a degree of consensus. Obviously if you can get
cross-party agreement that is okay, although as you well know
cross-party agreement is not necessarily a guarantee of success.
The Child Support Agency circa 1993 is a superb example where
a bit of opposition, and I say that at our own expense, might
have been time well spent. I also think, to be scrupulously clear
about this, you mentioned the Pension Bill in 1994 where there
was a lot of consensus between Donald Dewar and William Hague,
so in other words when we come to re-look at some of that stuff
where both of our parties with the best possible intention maybe
have imposed a layer of regulation that has not been effective
and, therefore, it is in the interests of all parties to look
at this thing again. Your point about consensus is okay although
we will part company from time to time. We will wait and see,
this is not the place to discuss your policy, there will be plenty
of other opportunities to do so and I look forward to each and
every one of them. On your more general point, the complexity
point, which comes back to a point that Karen Buck was making,
it is possible, I suppose, to have a very simple system but the
difficulty with simplicity is you can end up with a hell of a
lot of losers. Remember, a lot of the pension system has grown
up for different reasons at different times and if you suddenly
say: "let us strip it out and go back to a pretty basic pension
and you are on your own after that" you will end up with
losers and my guess is that would not be sustainable. I think
the system in this country at the moment, where it is quite clear
what the state will do either in a Basic State Pension or S2P
and you give people the choice of going into a company pension
or a private pension and all the rest of it, that is fairly well
understood. I also think, despite the valiant attempt by the two
of you to try and say that the Pension Credit is maybe a step
too far because it is awfully complex and all the rest of it,
I just do not think that stands up. The basic philosophic concept
of saying, "if you save some money, you earn some money,
we will give you a credit for it", is a fairly straightforward
concept. My guess is that as we introduce it from next year, as
it builds up and people can see the difference it makes, I think
people will concentrate not so much on the wiring behind it but
on what it actually does. Just as I defy anyone in this room to
take us through the tax tables or to take us through how you actually
calculate your Basic State Pension, to which each and every one
of us in this room will no doubt be entitled, I think what people
are more concerned with is what is the outcome here and as the
outcome becomes more apparent then I think the acceptability,
the desirability of the measure will become more apparent.
254. Will you at least bear in mind the point
was made by those who are involved in the private pension industry,
and I read the quote from one of them, basically saying it is
getting so complex now, so difficult to advise, that it is almost
an encouragement to adopt the old policy of eat, drink and be
merry for tomorrow we die.
(Mr Darling) Do bear in mind that you will find people
in the industry who would very much like us to have a situation
where there is a Basic State Pension at a fairly low level because
it makes selling a damn sight easier, because they would say "you
have got to buy one of our products" even though it may not
be the best thing for that person. I take the view, and I do not
know what your view is on this, for someone on a low income, or
low-ish income, they are probably better off in the state system
than in a funded system because they are never going to save enough
to make it worthwhile. There is a view out there, and some salesmen
will tell you, "if you did not have that floor or these things
then perhaps people would buy funded pensions" but I do not
think that is the right thing for them to do. What I can say the
Pension Credit does is it does remove the dilemma for a number
of people because even if you save a modest amount, if you were
getting ten quid a week in your pension, the Credit will give
you more. That removes one of the disincentives, one of the problems
that was facing people selling products. If you want to look at
complexities and things, as I said to you earlier, I think you
would be far better looking at how we can strip away some of the
regulatory complexities, the tax complexities, to make these products
easier to sell. At the moment selling someone a pension is very,
very difficult, as you probably know. I once asked one of the
companies in Edinburgh, when I was in Opposition in fact, to take
me through the process and after two hours I could take no more
of it, and this was just a pretend attempt. I think when you get
to that stage you really have to ask yourself whether or not that
complexity can be justified. Those complexities are a more serious
barrier to selling than the fact that you have the Pension Credit
which, as I say, removes some of the disincentives from the system.
255. Let me ask two final questions which are
more directly related to the matter before us today. Can you tell
us how the Pension Credit and the State Second Pension complement
each other? I ask you that point in the light of something that
Andrew Dilnot said when he came to talk to us because he told
us that he could not see the State Second Pension lasting much
beyond the introduction of the Pension Credit. Do you suspect
that he is right?
(Mr Darling) No, and I will tell you why. Remember,
most people will not be in one sort of pension throughout their
44 years of working life. If you take, for example, somebody who
leaves university, they work four or five years for, say, a local
authority, so they have got some local authority pension scheme
rights, and then they take time off to have children for four
or five years or so, what will happen to that person is they will
have access to the State Second Pension then. We assume they earn
£10,800 a year at today's prices so they get four years'
worth of pension there. Then they go into a private company, so
they have got some occupational rights. Later on they may take
time off to look after an ageing relative or something like that,
back into S2P. So when they come to retire their pension income
will be made up of a number of sources, as many people in this
room will find they have got a bit of SERPS, for example, as well
as a bit from occupational pensions or whatever. The reason I
mention that is I think people fail to take account of the fact
that whilst some people might be on the State Second Pension all
of their lives, there will be other people who will come in and
out of it depending on what is happening during the course of
their working life. The fact is that 18 million people will gain
from S2P, people with broken work records, people who are carers,
people with disabilities and so on, and it is an important part
of our strategy to help people build their pension entitlement
up. Of course S2P is creditable, is rewardable, just in the same
way as your company pension or your private pension or whatever.
I think what some people fail to understand is they tend to look
at these things as if you will be in S2P all of your life. Some
people will be but I think most people will come in and out of
it. The other thing about S2P that is worth bearing in mind comes
back to the point the Chairman asked right at the start. If you
remove the State Second Pension two things would happen. One is
you would remove at a stroke the underpinning of the company pensions
because they are funded, as you know, on the contracted out rebates,
which is a proposition that I find difficult to understand, especially
at the present time. The other thing is if you do not have one
there when someone might be advised that their private pension
is not quite right for them, where do they go if you do not have
it? I do think you need both.
256. Thank you very much.
(Mr Darling) Is that it?
Chairman: That is it. I am grateful to you.
We hope to get this Report in time for the Commons stages, as
I said earlier, and your evidence this morning has helped us enormously
to do that, so thank you very much. Again, our best wishes to
the Minister of State.