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Standing Committee Debates
State Pension Credit Bill [Lords]

State Pension Credit Bill [Lords]

Standing Committee A

Thursday 18 April 2002


[Mr. Win Griffiths in the Chair]

State Pension Credit Bill [Lords]

Clause 3

Savings credit

Amendment proposed [this day]: No. 21, in page 3, line 7, at end insert—

    '(2A) The Secretary of State shall as soon as practicable after the end of the fiscal year 2004–05 and as soon as practicable after the end of each year thereafter lay before Parliament a report setting out—

    (a) the number of persons with a withdrawal rate of 100 per cent. in respect of income beneath the savings credit threshold, and

    (b) the total value of the income concerned.'.

2.30 pm

Question again proposed, That the amendment be made.

The Chairman: I remind the Committee that with this we are discussing amendment No. 5, in page 3, line 26, at end insert—

    '(6A) Such regulations shall provide that, in the calculation of qualifying income, a claimant may substitute for his actual rate of retirement pension an amount equal to the rate of retirement pension that the claimant would have been entitled to if the provisions of paragraph 5(7) of Schedule 3 to the Contributions and Benefits Act (home responsibilities protection) had been in force since the claimant attained the age of 16.'.

The Minister for Pensions (Mr. Ian McCartney): I apologise for the absence of my hon. Friend the Under-Secretary of State; she is chaperoning my right hon. Friend the Secretary of State in the debate in the House this afternoon. She intends to return to participate in our discussions. I shall reply to the debate that my hon. Friend commenced. I hope that Committee members will be kind to me as I want to make sure that I do as good a job as she would do in response to the amendment. I shall probably take my time because several issues have been raised and I want to treat them with appropriate care

The hon. Members for Hertsmere (Mr. Clappison) and for Northavon (Mr. Webb) are also not here this afternoon. I do not want to make cheap shots at Committee members when they are not here—not that I would ever do that—but I want to place on record the Government's response. It will give them an opportunity at a later date to see whether I have answered adequately the points that they raised.

I shall start with amendment No. 21. The proposal would safeguard the monitoring of the effect of pension credit only on a particular group of pensioners. While I wholeheartedly support the objective of monitoring, it is inconceivable that we would not want a wider view of the impact of pension credit on recipients. The amendment would promote parliamentary interest in only one group of pensioners. That would not serve the majority of pensioners or

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fellow hon. Members who have constituents in a range of circumstances.

The amendment refers to the position of two groups of pensioners who will still face benefit withdrawal rates of 100 per cent. under pension credit—the 60 to 64-year-olds and those over 65 with total incomes below the savings credit threshold, who qualify for the guarantee credit only. A key objective of pension credit is, as far as is practicable, to reward those who have worked hard and saved. It is only right that a full state pension based on contributions and credits for those with broken work records and who had caring responsibilities should be the basis for state provision. For those reasons, we decided to set the start point of the savings credit at an amount that, at least initially, equates to the full basic state pension. Of course, pensioners with less than full pensions are still entitled to the full guaranteed amount of pension credit.

The important point for pensioners is the guaranteed income they will receive from pension credit, not the marginal deduction rate, which is largely irrelevant to them. They are unlikely to change their income, so there will be no question of the marginal deduction rate acting as a disincentive for them to save. It may be helpful to the Committee if I explain more about it. The cost of ensuring that no one faces a marginal deduction rate greater than 40 per cent. would be £17.5 billion. Under the current minimum income guarantee, 2.5 million pensioners face a taper of 100 per cent. That means that their benefit entitlement is reduced by £1 for every £1 of extra income received.

Following the introduction of pension credit, pensioners aged over 65 with incomes between the savings credit threshold and the guaranteed credit—between £77 and £100 for single pensioners and £123 and £154 for pensioner couples—will face a reduction in benefit entitlement of between 40p and £1 for every £1 of extra income, for example, a taper of 40 per cent., not 100 per cent. We estimate that the number of pensioners who face a 100 per cent. taper will be reduced to about 900,000. In addition, 700,000 fewer pensioners will face a 40 per cent. taper, and those on a 40 per cent. withdrawal rate could gain up to £13.80 a week if single or, in the case of a couple, £18.60.

Although the amendment does not involve interaction with housing benefit and council tax benefit, that has a bearing on what the hon. Member for Hertsmere said this morning. The 1.3 million pensioners entitled only to savings credit will also receive housing benefit and council tax benefit. The 450,000 who have an 81 per cent. withdrawal rate will be at least £11 better off than they are now. Approximately 4 per cent. of people entitled to pension credit, or 150,000 pensioner households, will be subjected to the marginal deduction rate. Such people are entitled to the reward element of pension credit, to receive housing benefit and council tax benefit, and to pay the 10 per cent. income tax rate. Approximately 0.5 per cent. of people entitled to pension credit, or 20,000 pensioner households, may be subject to a marginal deduction rate of about 93 per cent. Such people are entitled to the reward element of pension credit, to receive housing benefit and council

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tax benefit, and to face a 22 per cent. rate of income tax. In total, therefore, 4.5 per cent. of people entitled to pension credit may face a marginal deduction rate of slightly more than 91 per cent.

The arrangements that will be in place for monitoring pension credit will provide Parliament with a comprehensive assessment of the impact of pension credit on pensioners. Those monitoring arrangements are still being developed. Arrangements will be in place to provide robust information on pension credit recipients. We intend that the Department will publish data from its administrative records on those and other groups quarterly. Information on the total incomes of each group is currently not published quarterly, although the average benefit payment is. The intention is that such information will continue to be available on request.

The Government are committed to monitoring and subsequently evaluating pension credit, and we have taken steps to ensure that effective arrangements will be in place. I assure hon. Members that the results will be reported, as is the case for existing social security benefits.

Although the amendment is unnecessary, given that it was tabled in order, rightly, to ensure transparency, I shall make an offer to the hon. Member for Daventry (Mr. Boswell), who speaks on behalf of the official Opposition. When we are putting the arrangements in place with officials, I could arrange meetings with our officials to discuss the arrangements so that he is clear and understands the work being done to ensure that the monitoring facility will be effective.

Before I speak to amendment No. 5, I shall respond to several points that have been raised. I hope that my doing so will give a clearer understanding of my detailed response to amendment No. 5. As I said, I do not intend to take any cheap shots at the hon. Member for Northavon, who is not present, but I shall respond to some of his points factually and give full answers to his questions.

There are 1.4 million pensioners who have less than a full basic state pension and deficiencies in their national insurance contributions. A lack of administration data makes projections for pension credit difficult, but about 14 per cent. of minimum income guarantee claimants, or 266,000, have less than a full basic state pension. Of the 5.5 million who will be entitled to pension credit, about 13 per cent. will have a deficient record. Some 164,000 women, mostly aged between 60 and 70, have a deficient record, but it is difficult to quantify how many of those have a deficiency because of a lack of home responsibilities protection, as that information was not available prior to 1978.

Amendment No. 5 would deem a notional amount of basic retirement pension for the purpose of saving credit calculation as though home responsibilities protection had been retrospectively awarded to all pensioners. To enlighten the Committee, home responsibilities protection has been available since

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1978. It covers people who have, for complete tax years, been awarded child benefit for a child under 16 or have cared for more than 35 hours for people with prescribed disability benefits. It is one of the major changes made to increase the capacity for people to earn a basic state pension. It is interesting that all the major changes since the creation of the basic state pension in the late 1940s came from Labour Governments. That is an important historical fact. Home responsibilities protection is an important step that was taken by a Labour Government; so, too, is the state earnings-related pension scheme and the new pension credit. Three generations of Labour Governments have attempted to expand the opportunities for people to gain access to income in retirement, and to deal with the difficulties caused by the record of the Conservative Government.

The protection offers a reduction in the number of qualifying years needed for a full basic pension. For instance, a woman needs 39 qualifying years of contributions or credits for a full pension. Every year of the protection reduces that number. There is, of course, a cut-off; home responsibilities protection cannot reduce the number of qualifying years below 20.

The amendment proposes that we apply the conditions of entitlement for home responsibilities protection to people who would have been covered had the legislation existed before 1978. By my reckoning, we would have to recreate those conditions way back to the 1920s in some cases. The protection hangs on prescribed social security benefits, some of which did not exist in 1978, or existed in other forms. We would have to try to simulate the caring situation to see if it looked like the 1978 criteria. That may have been a credible but daunting proposition in 1978, but it is not credible now. It simply is not practical.

I understand what the hon. Member for Northavon was trying to do, but in reality, it falls down, and is impossible to implement. For the future, the state second pension will ensure that the groups that are of concern receive much better treatment than was set out in the 1976 legislation.


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