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Baroness Hollis of Heigham: The alignment for going into residential care and so on was raised about two or three years ago--in 1995, I think--by Kenneth Clarke when he was Chancellor of the Exchequer. The capital limits for other areas of income support affecting pensioners were last raised in, I think, the late 1980s.

Lord Higgins: This has been an illuminating debate in many respects. Perhaps I may put two specific points to the Minister. She well knows our objections to some aspects of the minimum income guarantee; can she tell the Committee to what extent she believes that people

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will now be in receipt of the minimum income guarantee who did not previously take up the basic pension plus the same amount of income support?

My second point runs with that made by the noble Earl. I have raised it frequently, recently on the Tax Credits Bill. As she rightly said, a large number of people do not take up their pension entitlement or, more accurately, their income support entitlement, because of the capital limits. But the whole set of capital limits across the Government's social security policy--right the way through to the ones we discussed a few days ago in relation to the working families' tax credit--are seriously out of line with each other. If the Minister wants more people to take up their benefits, that is probably the most important aspect. One knows full well that when some people are down to £3,000--or, at the most, £8,000--they are very reluctant to give that up because it gives them finally an aspect of security for which they have saved all their lives. So far as concerns this side of social security, the limits are way out of line with the rest of the structure.

Lord Haskel: It is unfortunate that my noble friend Lady Castle should attack the Minister on the take-up of income support. My noble friend the Minister has fought very hard to try to get income support taken up by everyone. She was instrumental in raising the matter when in opposition, and in government she has worked diligently to see why people are not taking up this benefit and to encourage them to do so. So one should speak up in her defence.

Speaking as a potential recipient of the extra £10 proposed by my noble friend, of course we should all like to have the extra amount. I think I understand and sympathise with what my noble friend is attempting to do. She is attempting to restore matters to what they might have been. We should all like to turn the clock back; certainly the Government would like circumstances to be different. But we have to deal with things as they are, not as they ought to be. At present, the poorest people need to have their low level of pension topped up by means of income support. A minimum income guarantee will be in place next year; and there will be arrangements for a second pension. So it is to be hoped that this situation will not arise in the distant future. But meanwhile, these are the ways in which poor people can presently benefit. It is a very sensible way to handle matters.

Baroness Hollis of Heigham: I did not expect to return to the Dispatch Box on this matter. However, this is Committee stage, and I was invited to do so by the noble Lord, Lord Higgins.

On the first point, we seek to increase the take-up of pensioners' entitlement to income support by repackaging it, relabelling it, calling it a "pensioners' entitlement" and so forth, because we want people to claim what is their entitlement. As I said, our best estimate is that the current take-up is about 76 per cent. We should like to be able to deliver, by means of the minimum income guarantee, a take-up of at least 85 per cent. Beyond that level it may be very hard to reach

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people. That is the measure by which we are seeking, through the minimum income guarantee, to make a difference to the current arrangements under income support.

The noble Lord's second point related to capital limits. He asked whether I agreed that they were out of date. I can confirm the dates that I gave to the House. The residential homes limit was raised by Kenneth Clarke in 1996, but the upper limit to the income support capital rule was increased from £6,000 in 1988 to £8,000 by 1990. So our memories were correct. It is one of the situations that the Government are keeping under review.

Baroness Castle of Blackburn: First, I should like to answer the point made by the noble Lord, Lord Haskel. I am the first to admit that the Government and the Minister are trying extremely hard to get the million poorest pensioners to take up income support. They made a great point of their poverty in the election, the manifesto and indeed in another place in a speech by Harriet Harman a year ago. "We must never", she declared, "forget the very poorest pensioners. So we are setting up pilot schemes", and the rest of it.

But I would also say this to the noble Lord, Lord Haskel. Various Labour governments of whom I was a member--1964, 1966 and 1974--were equally concerned with the problem of take-up. We went to all sorts of effort. We changed the name from "national assistance" to "supplementary benefit"; we looked into what might be holding people up. Margaret Herbison, the Secretary of State at the time, was a most warm-hearted woman who poured all her energies into trying to get a better take-up. But it was because we came up against the difficulty of people saying, "We don't want your daft means test", that we decided that we had to move progressively towards lifting pensioners above the need to apply for means-testing--hence the earnings link and SERPS.

Without keeping the Committee too long, I also want to say this to the Minister. I have always admired her powers as a magician. She can pull more rabbits out of hats than anybody I have ever seen on the Front Bench. She did it again today: "Oh, we do know one of the reasons", she told us--"probably one of the main reasons, why the poorest pensioners"--"poorest" is the Government's word--"are not taking up their entitlements. It's because they've got all this capital stashed away". Why have we not heard that argument before? It is the first time I have heard it--that in fact these desperately poor pensioners have behind them such funds and they do not want to have to eat into them. So I am withdrawing the amendment; and I warn the Minister that we shall return to the attack.

Amendment, by leave, withdrawn.

Schedule 2 [Pensions: miscellaneous amendments]:

Baroness Turner of Camden moved Amendment No. 44B:


Page 93, line 41, at end insert--
("13A. Section 150 of the Administration Act shall be amended as follows.
(1) In subsection (1), after "prices" insert "or earnings".

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(2) In subsection (2), for "Where it appears to the Secretary of State that the general level of prices" substitute "Where it appears to the Secretary of State that the general level of prices or earnings".
(3) In subsection (2)(a), after "beginning" insert "and, in the case of the first of the sums specified in section 44(4) of the Contributions and Benefits Act and the sum specified in column 3 of paragraph 5 of Part IV of Schedule 4 to the Contributions and Benefits Act, not less than the percentage by which the general level of earnings is greater at the end of the period than it was at the beginning".")

The noble Baroness said: I rise to move the amendment standing in my name and that of my noble friend Lady Castle of Blackburn. Again, we are returning more thoroughly to the whole issue of the earnings link.

The value of the basic pension is crucial for today's pensioners. As we know, it had been intended originally that it should rise in line with the wages index. It was a basic element in the Castle Plan introduced by my noble friend in the mid-1970s. Since 1980, however, the earnings link has been broken. As a result, the basic pension fell from 22.6 per cent of average earnings in 1980 to 17.4 per cent in April 1996. It is set to fall to 10.8 per cent by 2020, when many of today's pensioners will still be alive.

Nevertheless, the basic pension is the biggest element in many pensioners' incomes today. The fall in the relative value of the basic pension during the years of retirement would matter less if pensioners' other incomes could be expected to rise in line with earnings. However, occupational pensions, once in payment, are seldom increased by more than the rate of inflation and in most schemes even that is not guaranteed. It is only the basic pension that has ever been linked to earnings. The restoration of that link is the only practicable way of ensuring that all pensioners will receive a share of increased prosperity, which was the original intention. It would also fulfil the manifesto pledge that the basic pension will be retained as the foundation of pension provision.

The point may be made, as it was in regard to the previous amendment, that to increase the basic pension in this way would not only benefit the poorer pensioners; everyone would stand to benefit. Yes, but of course pension incomes are subject to tax and the better-off would have to pay tax on it. Moreover, an increase in the basic pension would obviate the need for means-testing, which as my noble friend Lady Castle has indicated, has been a major drawback in getting poorer pensioners to apply for means-tested benefits such as income support. Other alternative methods of increasing pensioner incomes would not deal with the issue of getting people to apply for means-tested benefits.

We are really talking about the social insurance scheme. The intention of social insurance was originally that everyone would benefit, everyone would pay a contribution and there would be a minimum benefit for everyone. We have moved away from that. We are certainly moving very far away from it if we are now concerned only with providing increases for poorer pensioners and expecting other people to provide for themselves, ultimately through the private insurance system.

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We may be told that other countries in the EU--notably Germany--are looking at pension provision and seek to emulate what we have been doing in this country. However, I suspect that Herr Schroder in Germany will have a tough fight on his hands if he seeks to alter the present generous pension provision for which his citizens have paid. I believe that there is a case for returning to the original Castle Plan concept. As doing it all at once might be too much, a phased approach could be adopted because, as my noble friend Lady Castle said, no one expects the Government or any government to make up the difference all in one go.

Nevertheless, the principle is important. We are now talking basically about a system of social insurance instead of a system in which there is special provision for poorer pensioners and in the end everyone else is expected to provide for themselves through the private insurance market. Ultimately that will not prove to be a satisfactory scheme. In the mean time, the poorer pensioners do not benefit as much as they ought and are reduced to looking at possible means of supporting their income through means-tested benefits which many find unacceptable. I beg to move.

6 p.m.

Lord Goodhart: The noble Baroness made a case with which we are familiar and sympathetic, as everyone must be in view of the poverty of many people who are of pensionable age, particularly those who are well past that age.

However, my party was persuaded some years ago that the earnings link was no longer sustainable. We published a policy paper in 1993 which accepted that. I refer to the report of a working party which I chaired and of which my noble friend Lord Russell was a member. We accepted that the earnings link could not remain. The demographic figures were not acceptable. There is expected to be a continuing increase in the proportion of the population who are of pensionable age. There has already been a considerable increase and, so far as one can tell, it is likely to continue. It is due in part to longer life-spans and in part to a relative fall in the birth-rate which means that there will be fewer people to support those in old age.

We reached that conclusion with considerable regret, but nothing that has happened in the past few years has led us to change our minds. Therefore, reluctantly we accept that we cannot go back to the pre-1980 situation, even when one takes into account the increase in the pensionable age for women which will equalise pensions at the age of 65 for both sexes.

On the other hand, we also believe that it is not possible simply to leave matters on the footing that there will be a basic pension which will be maintained in real terms and will form a smaller and smaller proportion of average earnings, topped up, if necessary, by a minimum income guarantee which is, arguably, a disguised form of income support.

That is why we regard it as a matter of considerable importance that alternative arrangements be made. I am anxious to know, first, what the Government see as the likely level of pension that will be paid to someone who

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has qualified with full contributions for the proposed state second pension. We hope that it will be fixed at a level above the present basic pension. As I understand it, it is the Government's intention that the level of the state second pension should be linked to earnings rather than prices.

It is also why we believe that it is important that people should be encouraged and, where appropriate, required to take out funded pensions, the stakeholder pension being an appropriate vehicle; that they should be required to contribute themselves, and that employers should also be required to contribute to the stakeholder pensions. Only through such a structure will it be possible to provide an adequate level of pension for those on low or lower-middle incomes.

Therefore, while we do not feel able to support the noble Baroness's amendment, we are also unhappy with the alternatives that have so far been promised by the Government. In particular, we are unhappy at the fact that taking out a stakeholder pension will not be compulsory and therefore it will not be possible to require employers to make contributions to the pension.


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