State Pension Credit Bill [Lords]

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Mr. Boswell: I am grateful to the Minister, who has helpfully explained some complicated administrative issues to the Committee. I do not think that he will dissent if I say that it is very much in pensioners' interests that we get the scheme right. We wish him godspeed in getting on with the job of informing pensioners so that take-up of the new benefit can take place as soon as possible and the detached savings credit—if I may put it like that—can be handled as soon as possible. I hope that the computer system works. If I were he, I would be keeping my fingers crossed, but I shall not ask him to get up and confirm, so that it is in Hansard, that he will be doing that.

I shall rehearse one area on which the Minister commented usefully, to check that I have understood the figures aright. He said that, in respect of pensioners, claims transferring from income support and the minimum income guarantee would be in the order of 1.8 million and that there would be, on the Department's estimation, a further 2.4 million household claims for pension credit. I evince no surprise at the fact that that is broadly consistent with the reply that he gave me in a written answer on Monday 22 April. He said then that about 4.1 million pensioner households would be entitled to pension credit, of which about 1.2 million contained a couple. We can allow for rounding and assume that we are talking about the same figures.

I understood the Minister to say that 6.3 million households have a person aged over 60 in them. [Interruption.] Sorry, a person aged 60 or over. That is not necessarily the total number entitled to pension credit, but the total number of households with such a person. However, the Minister gave a figure of about 4.1 million pensioner households that are entitled to pension credit. Albeit that is households not numbers of people, if there are 6.3 million households altogether that include persons over 60—they might not necessarily yet be aged 65—if I do some broad maths in my head, it seems that roughly two thirds of households containing a person aged over 60 are likely to be sucked into the pension credit scheme ab initio. To bring back a rather more controversial phrase, the

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involvement in means-testing will therefore be about two thirds from the start, not later.

Mr. Webb: If I followed the Minister's figures correctly, the 6.3 million was the number of households containing someone aged over 60 apart from the 2 million already getting income support and who will be brought into the scheme. The figure should not, therefore, be two thirds.

Mr. McCartney: Absolutely.

Mr. Boswell: I am grateful for that elucidation. I had, perhaps, not entirely picked up that point. However, the Minister has performed a service to the Committee in explaining how the scheme is to work and, roughly, its scope.

I hardly need tell the Minister this, but there is a huge administrative task to be done. It is very important that it gets off on the right foot and works from day one. Anything done sensibly to increase the possibility of that is to be welcomed in the interests of pensioners. Some of the assurances that the Minister has given, the thinking that he has exposed and his readiness to share developments with us as they take place are welcome. Our little exchanges have been useful. I beg to ask leave to withdraw the amendment.

Amendment, by leave withdrawn.

Clause 13 ordered to stand part of the Bill.

Clause 14

Minor and consequential amendments

Question proposed, That the clause stand part of the Bill.

Maria Eagle: Clause 14 is another straightforward clause, which introduces schedule 2. I do not propose to detain the Committee any longer than it takes me to sit down at this moment.

Question put and agreed to.

Clause 14 ordered to stand part of the Bill.

Clause 15

Income and Capital

Mr. Webb: I beg to move amendment No. 38, in page 9, line 22, at end insert—

    '(3A) In the case of income from earnings, the amount of qualifying income shall be increased by an amount to be prescribed in regulations, for the purpose of entitlement to savings credit.'.

We now come by means of amendment No. 38 to provoke and prompt discussion about the treatment of earnings which, for reasons that the Committee understands, we were not able to do at an earlier stage. The amendment is an attempt to think about how we might approach the issue of encouraging people, particularly those who have just passed the age of 60 or 65, to stay on in or do paid work for as long as possible. I will say a little more about the specifics of amendment No. 38 and what we were trying to do by it—it might have some eccentric consequences. The Select Committee on Work and Pensions raised the

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issue of the treatment of earnings, and it would be helpful to hear the Government's thinking on it.

The Select Committee was concerned that the opportunity was being missed to encourage people to do paid work for longer. We are not talking about forcing people to work full-time until they drop but about flexible retirement and enabling people to work past the traditional fixed pension ages. The Government's policy is that that is a good thing. It is demonstrated by discussions on flexible retirement and the Cabinet Office report on winning the generation game. In general, the Government are encouraging people who are willing to work longer, and I support that goal.

The question is whether the Bill is doing enough or whether it is a missed opportunity. In a specific way, amendment No. 38 tries to help and encourage people to work, but let me explain the difficulty in trying to use the pension credit for that purpose. There are two components: the guarantee credit and the savings credit. To some extent, they work in opposite directions because, as in the case of income support, a pound is lost under the guarantee credit for every pound earned beyond the disregard. That remains the case in the Bill. Nothing has happened in the guarantee credit element to encourage earnings, unless there are plans for changes to disregards in regulations, but we are not aware of any.

Can we use the savings credit to reward earnings? The question is whether the Government have done so. Earnings are to be treated in the same way as private pensions, although the Select Committee report said that the disregard on earnings that applies to the guarantee credit will also apply to the savings credit. I hope that the Minister will correct me if I am wrong on that, but it is the way that the Select Committee wrote it up. If I earn £15, only £10 will be taken into account for the guarantee credit, and only £10 will be taken into account for the savings credit. That is my reading of what the Select Committee said. I do not know whether it is right.

Obviously, the problem is that the savings credit rewards pensions but rewards earnings up to a maximum amount. If the pension is £77 and the minimum income guarantee is £100, earnings up to £23—or £23 after a disregard—are rewarded in full up to the 60 per cent. maximum and then the reward starts to fall away down to zero at £135 of total income.

The amendment is trying to achieve for people with very small earnings an increased reward under the savings credit for slightly higher earnings. To give a simple example, someone with a basic pension of £77 and earnings of £10 will get a reward under the savings credit for the £10, leaving aside the disregard. The amendment would add an amount, set in regulations, to the £10 to increase the sort of thing that the savings credit rewards. That is what we were trying to do. I am not 100 per cent. convinced that we have achieved it, but that is where we were coming from. Very small amounts of earnings would be topped up through the savings credit. By regulation we would add, fake or deem some earnings to give more savings credit and thus reward very small amounts of earnings.

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Obviously, that would only apply up to £23 a week, including whatever reward we gave to people. Beyond that point, giving them something under amendment No. 38 would actually reduce the savings credit, so I would be the first to admit that it simply probes the earnings issue and that it may have some peculiar consequences that we might not want.

The simplest way to reward earnings is to take them out of the savings credit altogether and just have a socking great disregard on the guarantee credit element. I am straying ever so slightly, but for reasons that I hope are apparent. One way of rewarding earnings is to use the mechanism of the savings credit but, arguably, the simpler way would be to forget counting earnings for savings credit and simply have a socking great disregard such as the Select Committee recommended, of, for example, £40 a week. People would receive up to £40 extra for working.

When the Secretary of State gave evidence to the Select Committee, he was asked about earnings and said that he did not foresee any changes. I do not wish to pursue the issue at length at this stage, but I wish to mention that this is an opportunity for the Government to deliver on their agenda of encouraging people to work a bit longer and to have a phased, not a cliff-edge, retirement by giving them a reward such as some pension from the Government. Amendment No. 38 is one way in which we can reward them; disregards are another, and those will achieve something through the Bill that fits in with a Government agenda that I, and I suspect the Conservatives, happen to share. If we do nothing, we may miss an opportunity. We have not heard enough from the Government on that.

6 pm

Mr. Clappison: The hon. Gentleman is right to draw attention to the importance of the clause. We must carefully consider whether it will make people more or less willing to work part-time after they have retired, and I hope that the Under-Secretary can allay the several concerns that I have.

I listened carefully to the hon. Gentleman and I have read the words of Baroness Hollis. It seems that the Government's intention is to treat earnings the same as savings, subject to a disregard of £5 for single people and £10 for couples.

 
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