Draft State Pension Credit Regulations 2002

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Mr. Webb: It is a pleasure to serve under your chairmanship, Mrs. Roe, for what is, I believe, my first time. I shall not attempt to carry on the metaphor of the hon. Member for Daventry (Mr. Boswell) as I sink my teeth into the regulations. My starting point is that the Liberal Democrats would not have introduced the State Pension Credit Act 2002 but, given that it has been introduced, we want the regulations to work, so I have some questions for clarification on how exactly they will work.

Some specific figures have been placed in the regulations: the savings credit threshold in regulation 7 is £77, and the guarantee credit in regulation 6 is £100. We have become familiar with those numbers, which have been used all the way through our debates. The Minister reasonably said that the numbers would not be lower than that and that we would get the final figures in an uprating statement later in the year. However, will she confirm that the £77 figure is wrong? We already know that it cannot be £77, because the Government have pledged that the current £75.50 rate of state pension will be increased by at least £100 a year—£1.92 a week. Therefore, the very lowest figure for the savings credit threshold would be about £77.42 or £77.50. Will she confirm that regulations to replace these regulations will be needed before the state pension credit can come into force?

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Similarly, income support, which I believe is currently £98.15, will be earnings indexed. Again, we already know that it will be more than the £100 specified in the regulations. Will the Minister clarify whether the figures will be in the uprating statement or whether we will need separate regulations on state pension credit that mirror these regulations but include the right numbers rather than what we already know to be the wrong numbers? I am not trying to be funny, I am trying to clarify when and in which set of regulations the right numbers will appear.

Maria Eagle: I thought that I said in my opening remarks that the uprating statement would apply to the numbers in the regulations. That should do it—we do not need another 50 pages.

Mr. Webb: I am grateful for that reply. If I understand it, the uprating statement, which presumably should come in late autumn, will contain all the new rates and thresholds, including all those necessary to bring in the pension credit. One thing that we can be sure of—I do not believe that the Minister would contradict me—is that the figure of £77 is wrong. It will have to be higher, because the Government have already promised that the pension will rise by £2. Therefore, I presume that it would have to be at least £77.42.

Maria Eagle: The hon. Gentleman is tempting me to pretend that I am the Secretary of State making the uprating statement. He will not lead me to do that. The uprating statement will uprate all the figures that need to be uprated in the various bits of social security legislation.

Mr. Webb: I am slightly disappointed by that response. I am simply reminding the Committee that the Government have promised to uprate the basic state pension each year by at least £100. That is the first fact. The second is that the pension is currently £75.50. Therefore, if the Government's pledge is honoured—I have always assumed that it would be—the figure would be, for the sake of argument, £77.50, but the regulations give a figure of £77. If the Minister cannot promise that £77 will be replaced by at least £77.50, she implies that the previous commitment might not stand. I am not sure whether she wanted to do that.

My first concern is about the exact figures in the regulations. My second is about the treatment of capital. I said in Committee on the primary legislation that I welcome the fact that the Government will impute income from capital at a much lower rate than is currently the case. That is an entirely proper thing to do, and regulation 15 gives the new rates. However, there is still a paradox in the way that the pension credit will treat capital.

Let me give an example. Let us suppose that I inherit £20,000 from my parents. It is treated as capital, and an income is imputed to me from it. According to the regulations, we ignore the first £6,000 and then impute £1 per £500 of the balance. Once we reach capital levels between £20,000 and £25,000, we are imputing at quite a heavy rate.

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Obviously, for small amounts of capital imputing is ignored altogether and for middling amounts it is still quite low, but at the high end it is quite a high average rate for the total amount. For example, £20,000 of inheritance creates quite a high imputed income. If one saves £20,000 in, for example, a stakeholder pension and buys an annuity with it, one will be treated as having a very low income because annuity rates are relatively low. There is asymmetry in the regulations between the way in which £20,000 saved in a lump sum acquired through, for example, inheritance is treated, and the way in which £20,000 saved in a pension and converted into an annuity is treated.

Does the Minister accept my analysis that that creates a potential distortion? Obviously, we cannot do a lot about inheritance because one inherits or one does not, but saving lump sums is treated differently from saving exactly the same amount and converting it into an annuity. Does she accept that that potentially gives rise to distortions and—this is something that we do not want to see—people planning their savings behaviour to work the system more effectively? There is no parity.

An economist who sat down to calculate the ideal method of imputing income from capital would say that it was a method that is neutral as to the form in which the saving took place, but the regulations are clearly not neutral. The rules have not been neutral for decades, and a system that penalises large amounts of capital in the way in which this system does and the previous system did is not neutral.

Mr. Brazier: The hon. Gentleman is speaking with his customary clarity and charity. To put his point bluntly, as in several other areas, the benefit seizes on all the worst aspects of the old system and amplifies them.

Mr. Webb: Despite being charitable, I do not agree with the hon. Gentleman. There used to be an absolute ceiling on capital that meant total disqualification, whereas there is now an absolute ceiling that allows one to get something in a situation in which one would previously have got nothing, which seems to be a move in the right direction.

Schedule VI concerns the treatment of earnings, on which we have rehearsed the arguments, which I will not repeat, at length. It gives us the specific earnings disregards, one of which is £5 a week, which is the basic period if one is not a lone parent or disabled. Will the Minister confirm that the £5 a week figure was introduced by the Conservative Government in 1988 and has not been uprated since? She might say that she does not accept the findings of the Select Committee, which said that there should be a much larger earnings disregard, but surely having a figure that has not changed in nominal terms in 15 years is going to the other extreme. Everything that the new Secretary of State has said, which I entirely welcome, about retirement, getting rid of the cliff-edge notion, encouraging people to work longer and all that rhetoric sits ill with a £5 earnings disregard.

As we have heard, the regulations will come into force in October 2003 along with the new pension credit. The Minister said that 1.8 million existing

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minimum income guarantee claimants will be transferred to it, and that there will be some 1 million new savings credit and combined claimants. I wonder whether she will say something about the logistics of implementing the regulations, because handling 1.8 million new calculations—arguably that happens every April, which is the standard—plus 1 million new claims could create a bottleneck in the system. Will, for example, pre-October 2003 awards be rolled over for a few months before being enhanced or backdated? I know that there is a year in which to claim, but people will clearly want the money as soon as they can get it. What arrangements are in place to see that the regulations will be delivered on 6 October 2003?

At this point I shall put on my constituency hat. Where can my constituents who want information about the pension credit in advance of 6 October 2003—many older people want to plan their finances in advance and it is no good waiting until the system is up and running—get a detailed explanation? I know that there are plans for a network of local centres, but where can my constituents go for face-to-face advice on the pension credit? Will the people giving advice have IT access to the person's relevant information? It may be that my constituents can talk to someone in a library who will go away to check the computer and come back with a response, but the system does not seem to be in place yet.

Mr. Jonathan Djanogly (Huntingdon): I admit that I am new to this area, but I believe that a significant proportion of pensioners miss out on benefits through lack of information. The hon. Gentleman highlighted a generally important point that relates not only to how the regulations will be introduced but to the overall position. It will be most helpful if the Minister addresses that.

Mr. Webb: I am grateful for that comment. It is true of course that there is a general issue relating to advice and information. Even at the end of the first year that the credit has been up and running, the Government are working on the assumption that one in three claimants will not receive it. The reason why I referred to one particular place in the country is that it is easy for the Government to generalise and claim that everything will be rolled out and in place. However, will my constituents, or the hon. Gentleman's, be able to get detailed, face-to-face advice from someone with a laptop that contains their details, in advance of the introduction of the regulations? When will information be available to each of us in our respective areas?

We know that the regulations will be introduced, but we want make them work as best we can, and there are several outstanding issues that we would like to be addressed.

5.26 pm

 
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