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Lord Skelmersdale: My Lords, surely one of the rationales for the Bill which the noble Baroness gave at Second Reading was that at last the two computers--namely, the Inland Revenue computer and the Department of Social Security computer--can talk to each other. If one of them is down, that blows the whole idea out of the water. Therefore, I support my noble friend's amendment.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, the noble Lord, Lord Higgins, seeks through his amendments to defer the transfer of the Contributions Agency to the Inland Revenue until the new NIRS system is fully operational. As the noble Lord said, we also discussed the issue during our debates last week on the social security uprating and rerating orders. Therefore, as both the noble Lord, Lord Higgins, and the noble Lord, Lord Goodhart, have invited me to do so, I take the opportunity to give the House an update on current performance.

For those who are unfamiliar with the department's computer systems, a few words of background may be appropriate. The Contributions Agency has recently introduced a new National Insurance Recording System, known as NIRS2. The old NIRS1 system had to be replaced because it was ageing. I understand parts of

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that system were originally built in the 1960s and could not support future operational and legislative changes, in particular those arising from the previous government's Pensions Act 1995. So NIRS2 is a system ordered and specified by the previous administration, and it is necessary because of actions by the previous administration. Perhaps I may add that NIRS1, like NIRS2, was provided by Andersen Consulting. There is no implication that that was not an appropriate method of proceeding. If we had been in the position of the previous government, we too would have had to extend the computer system.

The new system is designed to handle payment of NICs, hold over 65 million individual contributions records, calculate contributory benefits, provide data and pay age-related rebates to pension schemes and providers. It goes without saying that this is one of the biggest systems in Europe, with over 14 million lines of computer software.

My right honourable friend the Secretary of State for Social Security has informed the other place of progress with the system on a number of occasions. Those reports have not sought to underplay the difficulties that there have been with the system; nor have I tried to do so in responding to noble Lords' questions. Our task has been to stabilise the system to enable its full operation to be available at the earliest point. We are now starting to see more of the system working. I hope that I can reassure the noble Lord that, while not everything is working smoothly, we are now planning the recovery. If noble Lords are content, I shall spend a few moments explaining the current position.

First, I want to put the problems in perspective. The problems have caused difficulties for the individuals involved, and I certainly do not want to minimise them. We very much regret that; but we should not overemphasise the scale of the problems. They have only affected contributory benefits--that is to say, the difficulties have not affected payments of benefits such as child benefit, disability living allowance and income support. I said "only", but noble Lords will appreciate what I mean. Similarly, they have not affected contributory benefits in payment before the system went live; indeed, they have only affected new claims. So, for example, over 10 million existing pensioners have been entirely unaffected by the changes. The obvious reason is that the new system was not in place fully to record the 1997-98 payments into NICs. It means that we are trying to make calculations for retirement pensions and widows' pensions which are based on, say, 40 years or 45 years of payments without having the benefit of up-to-date information regarding the last year.

That is the scale of the problem. There is a one-year shortfall of NICs information going into the system. However, we clearly have the information for the rest of those years. That is the degree of error. That is why--and I shall return to this later--for the most part, but with one exception that I shall come to, the degree of error is about £1 to £2 a week for contributory benefits. That is the effect of not having such information. If, as a result, anyone comes below income support, then his or her income support will be manually adjusted to float him or her up to a proper level of income.

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If it is suggested that there have been subsequent overpayments, that can be adjusted slowly through the course of the year. In other words, the scale of the problem is the fact that we do not have accurate contributory information for what would be the last year before a claimant began to receive or sought to receive retirement or widows' benefits. Therefore, for the most part, that degree of lack of information, or the potential for error, is quite narrow. Without trying to talk down the problem, it is not that a computer has collapsed and people are not receiving their payments; indeed, that is not the issue. What has happened is that the new system has come on much more slowly than we expected and we have, therefore, not had full information at the point at which people's new claims have begun to be paid. So, in a number of cases, people may be receiving slightly less than they otherwise should and that is of the order of magnitude of £1 to £2 a week.

Perhaps I may put forward some statistics in respect of the above information. I shall start with the state retirement pension. Those affected were largely those who reached pension age after 5th April 1998--around 50,000 a month. In 97 per cent. of cases a pension calculation has been made based on the contributions record up to and including the 1996/97 tax year, and that rate is being paid. As I said, the problem is having secure information for that final year. That is when the computer was not really able to take on the information. All of those awards will be reviewed, without the need for the customer to ask, once NIRS2 is fully operational and 1997-98 contributions have been posted--that is say, put into--individuals' computer holdings.

Widows' benefits were similarly affected, although over 280,000 widows who formed the existing caseload in April have been unaffected. About 4,000 new claims a month were affected. In 90 per cent. of cases an initial award or emergency payment has been made using other information available. In cases where a full or interim payment has not been made and hardship exists, calculations can be done manually to provide the basis for correct payment. This has so far been done for 3,500 people.

I turn now to the current position. From 6th January of this year NIRS2 has been providing the necessary calculations for retirement pensions and widows benefits. So all new awards from that point should be made by the system in the normal way; in other words, the backlog problem runs from either March or June of last year through to January of this year. We are now discussing the best way of reviewing the cases of those who have been given interim awards of retirement pension over the past few months so that they can receive the correct rate of benefit, which, as I said, may have been, on average, an underpayment to them of £1 to £2 per week. If the retirement pension cannot be paid because the information is more volatile than that, or if it is paid at a reduced rate, the claimant is advised of the availability of income support.

The noble Lord asked last week, and again today, whether pensioners who have not yet received their pension and do not receive it until after April 1999 will get both the increase in pension for people who defer claiming and the uprated amount from April 1999. The

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answer is that where a claim is made but there is a delay in payment increments are not paid. However, when the award is finalised arrears are paid at the rates due for the relevant period. So someone who claimed benefit before April 1999 but does not receive it until after that date will get the uprated amount from April and be paid arrears at the applicable rate for the period before then. Therefore there will be no loss.

From 1st February we expect to be able to send claim packs to people approaching state pension age. Up to now we have been using data on the old NIRS2 system. That deals with retirement pensions, and widows' pensions where the problem relates to the last year of what may be a whole life's contributory record.

I now move on to contribution-based JSA and incapacity benefit. The problem here is much simpler because, for the most part, to be eligible one only has to have made two years' contributions and, therefore, the full array of records is not required. Moreover, there is usually an alternative source of information--namely the employer, because obviously at that point people are still in work.

I shall deal first with jobseeker's allowance. From 9th November we have had the electronic link between NIRS2 and the jobseeker's allowance computer system up and running. That has meant we have been able to pay all new and repeat claims to JSA. Before that, between 20th June and 9th November, about 1,063,000 JSA claims were disrupted by the problems with NIRS2. Ninety-five per cent. of those were paid using the contributions record from the Departmental Central Index, which is our back-up system, using information supplied by the customer, by emergency procedures such as the faxing of information, or by the award of an interim payment.

I turn now to the fourth and last of the contributory benefits; namely, incapacity benefit. Since 18th November NIRS2 has been providing information to Benefits Agency offices to enable them to make payments of incapacity benefit. Before this, as with JSA, 95 per cent. of claims were paid using contributions information from the Departmental Central Index, information supplied by the customer or by the Benefits Agency using faxed information available to the Contributions Agency from NIRS.

Those claiming retirement pensions, widows' benefits, incapacity benefit and jobseeker's allowance have been issued with an entitlement notice explaining the situation with initial payments and a letter where emergency payments are offered. Perhaps I may emphasise here that, if anyone seeks information about his or her situation, it is not handled by the NIRS2 computer, so we do not get into that "black hole" to which reference has been made. The information will come back to people in the usual way. I have checked on the situation and it is the case that we have made contact with CABs, Age Concern, Scottish CABs, local authorities and the pensions industry to ensure that the fullest possible information is sent out to people. As I said, any information that people seek will be handled in the usual way and does not depend on the functioning of NIRS2. So there should not be a problem with any correspondence in that situation. However, if there is,

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obviously I would be glad privately to receive information from the noble Lord to that effect and would of course look into the matter.

The noble Lord also asked what compensation is being made for delays. If one area of the computer is for contributory benefits, the other is to make payments of age-related rebates to pension providers. As at 1st January, £1.4 billion has been paid, which is approximately 60 per cent. of the payments made by this time last year. We expect most of the balance to be paid by March, although some payments in April and May are possible. Again, to keep the matter in proportion, age-related rebates represent between a 3 per cent. and a 9 per cent. age-related rebate in addition to the normal NICs. The normal NICs information would go through to NIRS--the normal rebate. The degree of discrepancy is between 2.5 per cent. and 9 per cent. and is age-related. Of course, that will be paid subsequently when we have the full information to which I referred.

The average loss, if I may put it this way, is about £2.50 a week. Again, I do not seek to minimise the situation. We are talking about a limited number of people; indeed, we are only talking in figures of up to £100 where people are considering whether they should be contracting back into SERPS out of a personal scheme by virtue of the age-related rebate. The potential loss there goes up to about £100 a week and affects only a tiny number of people. For the most part, it is simply that between 91 per cent. and 97 per cent. of the NICs rebates are being rebated to the employer. The area of the problem is that last little bit between the 2.5 per cent. and the 9 per cent., which is age-related. We expect all that to be fully in place by April or May.

3.30 p.m.

Lord Goodhart: My Lords, the noble Baroness has spoken about retirement pensions and an average drop of £1 or £2 a week. Does that include SERPS or is SERPS a different case?

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