Examination of Witnesses (Questions 60-81)|
WEDNESDAY 27 FEBRUARY 2002
60. You were talking earlier about the importance
of information technology systems. Is it your understanding that
automated credit transfer will be the vehicle that will be used
to deliver this credit when it comes on board? There is the frightening
thought of trying to means test five million people and then pay
it through ACT rather than through giro books. Have you had any
discussions with the Department about the system of delivery and
whether ACT will be targeted as the delivery mechanism?
(Ms West) It is the Government's intention to phase
in ACT for nearly all benefit claimants between 2003 and 2005.
61. Will this start in October 2003 with the
(Mr Wilson) It will be greatly encouraged. That will
be the top option on your form and having it paid through the
Post Office Counter in the normal way will be very much discouraged.
Chairman: Option 16!
Rob Marris: Do you think that will have social
implications in terms of Post Office Counters?
Chairman: It certainly will.
Rob Marris: Will it have adverse health implications?
Chairman: You should talk to your local postmaster
about this. I am sorry, I am interrupting you. There are four
important areas to cover and time is always the enemy.
62. Could I take you back to the treatment of
earnings. The Government has said that it is still considering
the treatment of earnings in the Pension Credit. What attitude
would you urge the Government to adopt on this issue and why?
(Mr Lynes) The Government has now said what it is
going to do about earnings, which is that they are going to keep
the existing £5 disregard or £10 for a couple and earnings
above that level will count as qualifying income for the savings
credit, so 60 per cent of your earnings above £5 or £10
will be disregarded. I think I am right in saying we all take
the view that we would rather see a larger disregard.
63. Any idea about the figure?
(Mr Lishman) We have talked about £30 or £40
between us here. That is again one of the questions about whether
there is an element there of encouraging people to do a little
work and thereby enabling that to be accommodated in a disregard.
64. Do you think £30 would encourage pensioners
to do a little work whereas £5 or £10 would not? Would
it make that much difference?
(Ms West) We talked about a day's work. We originally
suggested £30. We would be happier with a bit higher than
that with the intention of allowing a day's work without it disrupting
the administration of the system and encouraging people to keep
active in work if that is what they wish to do.
(Mr Lishman) A particularly interesting area, which
may invite other areas the Committee is interested in, is transfers
within families related to work. There is some evidence of an
increasing transfer within families for grandparently duties in
particular, and if there is a transfer of that sort, then again
there are questions that arise in this context.
65. Is there a difficulty with the fact that
the Pension Credit assessment is done every five years unless
there is a major change in income? Would the £30 be classed
as a major change in income where you would have to do a reassessment?
You do not know?
(Mr Lishman) No.
(Ms West) In terms of earnings?
66. The answer to Rob Marris was, yes, the assessment
will only have to be every five years unless there is a major
change in income. Is there any indication of what level that major
change in income circumstances would be and would what you are
suggesting come under that?
(Ms West) It is the change of circumstances, things
like being widowed or change of address things like that, not
a change of income in terms of your pension income or your savings.
So the question is how earnings will be treated in terms of whether
you need to report an increase in earnings over the disregard.
Certainly if you had a higher disregard to make the administration
simpler, I think that would benefit everybody, including the Pension
(Mr Lynes) I find it very difficult to believe that
you are going to be allowed to declare your earnings when you
retire and then nobody asks any questions about it for the next
five years, but perhaps that is one of the questions you could
put to the Minister.
(Mr Lishman) An increase in retirement income does
not happen in that traditional way.
67. I would like to ask the same questions I
asked in the industry part of this session, which is do you have
a view on uprating the guaranteed element of the Pension Credit,
starting with Mr Lynes?
(Mr Lynes) I certainly have a view about uprating.
If you look at the little publication that the Government produced
about long-term projections of the Pension Credit, they present
three possible scenarios, of which it seems to me only one actually
makes any sense, and that is that both the MIG and the savings
credit threshold should go up in line with average earnings. If
you do that then the broad shape of the Pension Credit remains
the same over the years. If you do not increase the threshold
in line with average earnings then the result is that the numbers
of people entitled to the Pension Credit grow very rapidly, the
cost grows very rapidly, and the level of income up to which people
are entitled also grows very rapidly and I do not think any of
those things can be what the Government intends. However, having
said that the sensible thing to do is to put up both the threshold
and MIG in line with average earnings, if you do that, the implication
is that there is going to be a growing gap between the Basic Pension
rate, which presumably will continue going up roughly in line
with prices, and the starting point for the savings credit, which
will go up in line with average earnings. It is one more argument
for saying the Basic Pension should also go up in line with average
earnings. If you do that, then the whole policy begins to make
some sort of sense.
68. Is that a shared view?
(Mr Wilson) As you were saying, taking away the lower
threshold from the Basic State Pension would seem the logical
way to do it but, again, that is the only real figure in the calculation
of the savings credit that the thing is related to that is not
the product of some obscure calculation that no-one can understand.
It starts at the level of the full Basic State Pension. When you
take that away you are making it a bit more confusing and, of
course, it will have the effect, because people's pensionsstate
and occupationalrise in line with prices of bringing less
and less of an occupational pension within the band of the savings
credit. So already every year your amount of savings credit is
going to change and that will add extra complications if it is
operated in that way. Essentially there is not one sensible way
of uprating the Pension Credit.
69. You would not think it is sensible?
(Mr Wilson) All the options have strange consequences
in terms of bringing vast amounts of people into means testing
over the next 20 or 30 years or changing the formula in some way
that makes the benefit less clear.
70. You said you would like to see the Basic
State Pension uprated in line with earnings as well as the guaranteed
amount and the threshold. I know the projections of the cost of
just uprating the two elements of the Pension Credit are very
significant. The cost of doing that and uprating the Basic State
Pension would be enormous. If you had to choose between getting
the money through the Credit or spreading the same amount of money
more thinly amongst the whole of the pension population, which
one would you favour?
(Mr Lynes) I do not think that is the choice, in fact,
because nobody is suggesting that the money that the Government
is not spending on linking the Basic Pension to earnings is instead
going to be spent on targeting benefits. It is not what the Pension
Credit is about because the Government is more or less boasting
of the fact that the Pension Credit is going to be a great deal
(Ms West) You may want to come on to incentives for
younger people but one of the reasons that we certainly support
the argument for a higher Basic Pension is that it gives more
incentives to younger people because they know they will not face
these higher withdrawal rates with their benefits and it may be
more likely, with a decent level of State Pension, that the stakeholder
pensions and second state pensions will be successful and will
encourage people to save because they will have a firm foundation
on which to build up extra income.
71. Just one final question on a slightly separate
topic. A number of MPs have had communications from people representing
foster carers about their eligibility for Home Responsibilities
Allowance that parents get when they receive Child Benefit. They
do not get entitlement to a full State Pension, they do not get
credits towards it. Is that an issue which you as people at the
sharp end would come across? Do you think it is a serious issue
and what is your favoured solution to it? Is it through the Pension
Credit or through the Basic State Pension?
(Mr Kohler) In honesty, it has not been an issue which
has come to Help the Aged's attention but I guess that is because
foster parents would not think of Help the Aged as being a port
of call to make a protest. I am sure that there is a logical case
for things like the HRP to be applicable in a wider and more liberal
way. There must be a better case.
(Ms West) It is not an either/or situation, is it
really, because if somebody gets HRP it will mean they are more
likely to get the full Basic Pension and therefore they are more
likely to benefit from the savings credit if they have had additional
income at the same time. Like Help the Aged, it is not something
that we have had a lot of enquiries about, but if you are busy
caring for a family you are not thinking about your own future
pensions and certainly it is an area that we would want to see
72. Ms West mentioned earlier the key issue
of Housing Benefit and Council Tax Benefit. What do you see as
the inter-relationship here when the Government has said in the
White Paper that nobody will lose Housing Benefit or Council Tax
Benefit as a result of the Pension Credit? Mathematically, as
it is set out now, do you think that will hold good?
(Ms West) Yes that is right, because they are going
to increase the applicable amounts within Housing Benefit and
Council Tax Benefit for people over 65 when they apply for savings
credit. As far as I can see, it is right in saying that people
73. The formula is right?
(Ms West) I think so, yes.
74. What about claw-backs in terms of residential
care charges or home help charges?
(Ms West) I will say something else about the Housing
Benefit issue first. What it does mean because of the inter-action
between the different systems is that you get higher marginal
reduction rates, which is an issue of incentives and people feeling
that they are better off than their neighbour who saved less.
You will get interaction between Housing Benefit, Council Tax
Benefit, savings credit and income tax for those people that are
taxpayers. Your highest possible marginal deduction rates, other
than the people who get 100 per cent reduction because they have
not got a full pension, for people with savings credit, the Minister
says the highest reduction will be 93 per cent. That will be for
people on Housing Benefit and Council Tax Benefit and also taxpayers.
That will mean for every extra pound of income they will only
get 7 pence. For people getting Housing Benefit and Council Tax
Benefit and savings credit it will be 91 per cent. I was looking
at marginal reduction rates and doing all the different calculations
and I came up with at least 15 different marginal reduction rates
depending on different circumstances and I do not think I got
to the end of it.
75. Without throwing the whole thing out of
kilter, is there any way of getting that 93 per cent down because
that means you can change the ripple effect?
(Ms West) You could make the tapers less steep, which
means you make the thing more expensive and you bring more people
into the means-tested system. That is the only way in the context
of the system and one of the reasons we go back to the point that
if you have a higher Basic Pension you keep people out of the
taper system altogether.
(Mr Lishman) Can we follow on to the care at home
and people living in residential care question. This is an area
which is primarily, we understand, a Department of Health responsibility
and we have not yet seen evidence that DWP and the Department
of Health have got their act together in any way which should
enable people who are paying for care at home or living in a residential
home to get the full benefit of savings credit.
(Mr Wilson) It seems difficult if you are going to
say saving always pays but then they give you your pension with
one hand and take it away with the other, via the Department of
Health and charges. That will not make sense to ordinary pensioners.
Also obviously people in care homes who are on Personal Expenses
Allowance (pocket money for people in care homes) will get their
75 pence in April and that will be it.
(Ms West) I think there will be a problem if people
find they are no better off, having seen all the Government advertising,
because they are paying all that money over to community care
(Mr Lynes) It is worth adding that the Minister in
the House of Lords said they estimated that eight per cent of
people getting the Pension Credit would have the 91 per cent deduction
rate because they are getting Housing Benefit and Council Tax
Benefit. That means 400,000 people so it really is rather a big
76. Just going back to means-testing, which
is what we started with, you have all expressed opposition to
the credit on the grounds that it is an extension of means testing.
Do you not accept the Government's premise that it is better to
target help at those who are in greatest need?
(Mr Lishman) We get constantly in the position where
we are saying we really do not want to start from here. This is
the problem we are facing in the work that we do and you as a
Committee are facing in the work that you are doing, and we are
asking what are the detailed effects of these particular elements?
I think the thing which people are finding it very difficult to
address (and it seems to me to be an area where this Committee
may have potentially a very helpful role) is what has been described
as the "unravelling" of the pension settlement and the
need to find a common basis for agreement, which is a long-term
settlement about how people prepare for income in later life.
One of the problems we have is that we are constantly addressing
how we cope with the current pensioner population. We will come
on to savings in a moment perhaps, but in this case I think we
have a significant problem that arises simply because we are saying
let us look at this particular bit and think about what the options
are in this particular case. It seems to me that we need to move
towards a system which will provide peoplefor instance
my son who was 26 last weekwith a clear basis of knowledge
which will enable them to make rational decisions in order to
achieve a reasonable income in later life. Indeed, another question
may be how he is to pay for his long-term care at that stage if
he needs it. If we can move towards that settlement and we understand
how that is going to be funded on a long-term basis, then we can
work back to the issues that the Committee is now looking at and
we are dealing with all the time, which are the issues about how
we deal with a short-term problem. If we concentrate on looking
at that short-term problem all we are going to do is find ourselves
constantly asking and answering these sorts of questions about
different sorts of relationship, about different sorts of long-term
costs and so on. We have to look to the long-term future and then
work back and I think that is an area where many of us are less
than happy with the direction of the current political debate.
77. Mr Lynes?
(Mr Lynes) I think the NPC would want to stress the
nature of the retirement pension, which is an insurance benefit
for which people are currently paying their contributions and
they are paying those contributions on the basis that, firstly,
they are helping the existing generation of pensioners and, secondly,
hopefully they are helping themselves because they are earning
entitlement to benefit by their contributions. What is happening
to the National Insurance Fund is scandalous. Working people are
paying in their contributions week by week on the assumption that
that money is going to finance benefits to today's pensioners
and, in fact, the National Insurance Fund is salting away money
at the rate of several billion pounds a year. I think we have
got to get that right. People may not like paying National Insurance
contributions particularly but they are much happier about paying
them if they know that this is an insurance scheme, which is going
to earn them the right to benefits than they are about paying
income tax to finance means-tested benefits that they hope they
will never have to apply for.
78. Can I comment briefly on that. The majority
of the benefits bought by National Insurance are not means-tested,
namely the Health Service and Jobseeker's Allowance.
(Mr Lynes) No National Insurance benefits are means-tested,
79. We have had some ideas from Mr Lynes and
Mr Wilson about what they would want us to put to the Minister
when we see him in a fortnight. Mr Lynes, you mentioned Clause
3 as something you wanted to raise and the earnings disregards.
Is there anything else that you think we should be putting to
(Mr Lynes) If the Government is going ahead with this
scheme, which clearly they are, one of the things that I would
most like to see is some clarity about what they see as its future,
what they are going to do about uprating in particular, whether
the 60 per cent is going to remain 60 per cent permanently, in
which case why is it not in the Bill?
80. Things of that kind? That is very helpful.
(Mr Lishman) On the specific question of entitlement
to savings credit for women aged between 60 and 64, and secondly,
on the question that if 43 per cent of people aged between 25
and 34 have not considered saving at all, what is this credit
going to do that will have any effect on that in the wider context
of those people's lives and an overall pension settlement?
(Mr Wilson) A commitment on the take-up level is vital
otherwise it makes a nonsense of the Pension Credit.
81. And the point you made about information
(Mr Wilson) Indeed, the ability of the Pension Service
Chairman: Ladies and gentlemen, you have been
very, very helpful. Thank you very much for your submissions and
your appearance this afternoon. Thank you very much.