|Child Support, Pensions And Social Security Bill - continued||House of Lords|
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Preservation of rights in respect of additional pension ("inherited SERPS")
922. As described in the commentary on clause 38, the Welfare Reform and Pensions Act 1999 made provision for the postponement of the change in the rules, to a date as then unspecified, which would halve the amount of additional pension a surviving spouse could receive. It also provided for a scheme to be set up to establish who would be eligible for preserved rights to the full amount of additional pension on the grounds that they had received incorrect information. This Bill provides for the change to come into effect in October 2002, and refines the eligibility criteria for the scheme. It is not anticipated that there will be additional costs arising from the refinement of the scheme itself. The costs described below relate to the additional programme expenditure resulting from the deferral of the change to October 2002.
923. In the first year (2000-01), the cost is estimated to be £60m. In the following two years, the costs are estimated at, respectively, £160m and £260m, reaching a peak of £270m in 2003-04, and declining thereafter. By 2010, the in-year cost is expected to have declined to the order of £220m; by 2030, to around £60m, and by 2050 it will be negligible.
Disclosure of state pension information
924. The provision of combined pension forecasts is intended to encourage saving for retirement, and in the long-term it is expected this would contribute to a reduction in the reliance on state provision, but it is not possible to quantify the effect on programme costs at this stage.
925. The Department's total administrative expenditure on developing the combined forecasting service will be about £6m to the end of 2000-01. Most of these initial costs will arise from setting up the project to develop the forecasting service and running pilots. The initial cost also includes the first £1m of the estimated £7m IT development cost (to be spread over seven years). Total costs in the following three financial years 2001-02 to 2003-04 are expected to be £7m, £6.5m and £9.5m, with operating costs rising as the service is rolled out from October 2001.
926. Recurring costs thereafter are expected to peak at around £14m in 2005-06 and then fall back to around £9.25m a year. The ongoing cost of £9.25m includes the cost of IT (around £2m), the cost of obtaining individuals' state pension details from the National Insurance Recording System (these will depend on transaction costs that are yet to be agreed but are estimated to be in the region of £3.5m) and the cost of additional staff (around £3.25m).
927. These costs assume that the volume of combined forecasts issued will rise in controlled phases from just over 100,000 in 2001/2 during the pilot phase to 15m a year in 2005/6. They take account of savings in administrative costs of over £2m a year which will arise when the existing forecasting service which issues around 600,000 pension forecasts a year on request is subsumed into the new service.
Other state pension measures
928. There are no financial effects resulting from the other measures in Part II, Chapter I of the Bill (revaluation and modification of earnings factors, sharing of state scheme rights and restriction on index-linking when annuity is tied to an investment).
929. Only one of the measures has any direct financial effect on Government expenditure. Other measures have a financial impact upon business and these are described in the Regulatory Impact Assessment, published alongside these notes.
Commutation of protected rights
930. The measure to permit the commutation of contracted-out rights on the grounds of ill-health will require changes to employer guidance and the National Insurance Recording System (NIRS2). This will lead to a one-off cost of £70,000 in the latter half of 2000.
War Pensions Appeals
931. It is anticipated that the extension of appeal rights will increase the number of appeals by fewer than 1,000 each year and will increase programme costs by less than £1m over the first three full years following implementation. The long-run costs are estimated at £1.5m per year (costs falling to the Consolidated Fund).
932. The administrative costs of the new arrangements, including costs to the Lord Chancellor's Department, are estimated to be in the order of a maximum of £0.8m in the first year of implementation (2001-02) and up to £1 m per year thereafter. These costs relate to the cost of processing the increased volume of appeals.
933. The other measures (introduction of new time limits, and amending the composition of the Central Advisory Committee on War Pensions) will not entail additional programme or administrative expenditure.
Community Sentences and Benefits
934. It is not possible to provide a meaningful forecast of the likely impact on benefit expenditure of these measures. Estimates of the benefit effects will depend on the numbers in receipt of a relevant benefit who commit a breach, after the measures have been introduced. Data collected by the Home Office indicates that in England and Wales, around 30,000 people are currently referred to court for failing to comply with the terms of their community sentence. A further 4,000 people were subject to breach proceedings in Scotland. The Department does not have data on how many of these are in receipt of a benefit covered by these measures. It is clear, however, that any effect on expenditure will be downwards, as a result of the withdrawal of benefits. The upper limit on possible savings is around £7m annually. This estimate is based on assuming that benefit is withdrawn or reduced for a period of four weeks from 34,000 people who are in receipt of a relevant benefit and have breached a community sentence. This assumption does not take account of the possible award of hardship payments which would reduce the level of savings. If the policy achieved the effect of preventing breaches of community sentences, there would be no change in benefit expenditure.
935. The combined administrative costs to the Departments of Social Security and Education and Employment of setting up the systems to administer the measures, and running the pilot phase, are estimated at around £1m. This includes enhancing computer systems nationally as there is no facility to limit a change to the system to a particular area.
936. The combined annual running costs on a national basis are estimated at around £600,000.
Clarification and alignment of Inspectors' Powers
937. The measures in the Bill are intended to clarify and align inspectors' powers, making them more robust. Due to the nature of the changes, it is not anticipated that there will be an increase in inspections by the Benefits Agency as a result of this legislation. However, following the alignment of Local authority powers with those available to the Benefits Agency, it is estimated that Local authority inspections could increase by around 10%. It is estimated that this increase will be absorbed by current staffing provisions. The legislation also allows for closer working between Benefits Agency, Local authority and Child Support Agency investigators. Any financial or manpower effects derived from closer working will be subject to appropriate distribution of resources.
Housing Benefit and Council Tax Benefit review, and Housing Discretionary Fund
938. There are no programme cost effects anticipated from these measures, as they do not change either the structure of, or entitlement conditions to, Housing Benefit or Council Tax Benefit. The Housing Discretionary Fund (HDF) although a new scheme, will, in operational terms, largely mirror existing discretionary payments schemes and be funded in a similar way. Central Government funding and the overall limit on local authority funding is contained in existing allocations and plans, and will not change.
939. There are expected to be minimal set up costs for local authorities arising from the HDF scheme, with no additional ongoing costs.
940. The administration costs of the changes to the appeals arrangements fall to four different bodies:
Housing Benefit Overpayment Recovery
941. This provision will not result in any additional costs to central government. The subsidy paid to Local Authorities for Housing Benefit expenditure and administration already takes account of an element of expenditure caused by fraud, and Local Authorities retain any recovered overpayment of benefit.
942. There is some risk that Local Authorities may not be as successful in recovering overpaid benefit from the fraudulent tenant as from the landlord, but it is anticipated that the potential reduction in recovered overpayments will be minimal.
Child Benefit disregards
943. This measure entails no additional expenditure, as it will simply regularise the payment of Child Benefit in respect of the affected group of children in Scotland, for whom payment is currently being made on an extra-statutory basis.
National Insurance: extension of Class 1A to all taxable benefits in kind
944. The effect of extending the Class 1A National Insurance Contributions (NICs) charge to all benefits in kind not already liable to a NICs charge is estimated to be an increase in National Insurance Contribution revenue of £225m per year on an accrual basis from 2000-01.
945. Operational expenditure in 2000-01 is expected to be around £3.5m, of which £3m are implementation costs of IT changes and staff training. In 2001-02, there will be further implementation costs of about £1.5m. There will also be administrative costs of £5m relating mostly to compliance and banking work, as the first payments are due from employers. These ongoing costs are expected to reduce to £4.5m in the following year, 2002-03.
946. The effect of transferring liability for Class 1A NICs from the recipient's employer to the third party provider of the benefit is a deregulatory measure, and broadly revenue-neutral.
PUBLIC SERVICE STAFFING EFFECTS
947. Overall, the measures in the Bill are not anticipated to have a significant effect on the level of public service staffing. It is expected that, with the exceptions outlined below, where the measures generate additional work, this will be absorbed within existing staff resources.
948. In the case of the Child Support measures, temporary staff may be recruited in order to prepare for and implement the reforms, but the long-term impact on staffing is not known at this stage. There is likely to be a small increase in staff in the Benefits Agency and Inland Revenue as a consequence of introducing the State Second Pension of around 150 to 250 over and above planned recruitment levels. This is expected to be required over 2001-02 and 2002-03. In the very long-term, some of these additional resources will no longer be required, but it is not possible to estimate at exactly what stage this will occur. It is estimated that a further 160 staff in the Retirement Pension Forecasting Advice Unit will be needed, in addition to the existing staff of around 140, as the volumes of combined forecasts build towards the target of 15 million per year by 2005.
949. The effect on staffing levels resulting from the implementation of the proposals on Community Sentences and Benefits will be assessed following the pilot phase.
SUMMARY OF THE REGULATORY IMPACT ASSESSMENT (RIA)
950. Seven of the measures in the Bill are expected to have either a moderate or significant effect for business. The main impact arises from measures to improve the framework for occupational and personal pension schemes and the extension of National Insurance contributions to benefits in kind.
951. The introduction of the State Second Pension does not impact directly on employers. The RIA that supported the Bill on its introduction to the House of Commons on 1 December 1999 indicated that the outcome of the consultation exercise on the future contracting-out regime (in particular the National Insurance rebate), may result in additional costs to employers.
952. However, the option that the Government has chosen does not affect existing arrangements. There will therefore be no additional costs as a result of this measure.
953. No direct impact on charities or the voluntary sector, as a result of the measures in the Bill has been identified.
Costs to business
954. A full Regulatory Impact assessment for the Bill is available in the library of each House of Parliament, and on the DSS website (http://www.dss.gov.uk).
955. The following paragraphs summarise the main points.
956. Costs to business will occur as cases are transferred to the new scheme and Deduction from Earnings Orders (DEOs) are reviewed to reflect the rate of maintenance payable. Reviews may occur more frequently than now as the rate of maintenance is adjusted through the transitional period. There may also be a slight increase in the number of DEOs issued as the CSA caseload expands. However, this will be offset as the clearer assessment of liability improves compliance by other collection methods.
957. A significant reduction in information required to make an assessment will generate savings for business. Less information will be required from employers on non-resident parents' circumstances, and income details for parents with care will no longer be required at all.
958. These changes are not expected to increase overall business costs.
Revaluation of earnings
959. The annual revaluation of earnings factors (used for the purposes of calculating the earnings related element of the State Retirement Pension made via SERPS) currently covers movements in earnings over each twelve month period from December to December. The measures in the Bill will move this period to September to September. The change will result in some marginal beneficial effects to employers and pension administrators as a result of the new revaluation figures being available earlier in the year.
Combined Pension forecasts
960. Measures in this Bill will permit state pension information to be disclosed to employers/pension providers.
961. Currently state pension forecasts are provided on request to around 600,000 people per year, mostly to individuals who are nearing retirement. The majority of members of private pension schemes already receive annual pension statements of their private pension rights. The intention is that in the future those in occupational or personal pension schemes, around 18.5 million people, will receive annual combined pension statements which include details of both their private and state pension rights.
962. The aim is also to provide annual state pension forecasts to around 1.5 million employees who are not members of their employer's occupational pension scheme. Provision of combined pension forecasts by employers will be voluntary.
963. Set-up costs are expected to be in the region of £15m, with annual ongoing costs of £2m.
Occupational and Personal Pensions
964. Measures to speed up the winding-up of occupational schemes will lead to additional administrative costs for Opra of up to £2.6m per year. As these costs are recovered by a levy on pension schemes, the cost will pass to the sponsoring employer or the schemes themselves. In addition, schemes will be required to report to Opra on the winding up process, at an estimated cost of up to £1m a year.
965. Measures to increase the number of member-nominated trustees will impact on costs in a variety of ways depending on the route the employer took to satisfy the current legislation and the route they choose to satisfy the new requirements. Overall, we estimate that the measures will lead to a first year cost of £12.5m and generate on-going administrative savings of £5.3m per year.
Clarification and Alignment of Inspectors' Powers
966. As a whole, the greater clarity these measures provide should benefit employers. However, the removal of discrepancies between BA and Local Authority (LA) powers may lead to some increase in the number of inspections conducted by LAs. Additional costs to business estimated at £150,000 a year.
Recovery of Housing Benefit Overpayments
967. The measure will reduce costs as landlords who report suspected fraud may no longer be required to repay any subsequent overpaid benefit.
Extension of Class 1A NICs to Benefits In Kind
968. Employers will be required to administer and pay class 1A NICs on an extended range of benefits in kind. While the scheme has been designed to minimise the administrative burden placed on employers, we estimate additional costs of £20m in set-up costs, £2.5m a year in on-going administrative costs and £225m in increased NICs liability.
969. The Bill will also provide that, where a third party provides an employee with a benefit attracting a Class 1A NICs liability, and the provision of the benefit has not been arranged or facilitated by the employer, the Class 1A NICs liability will fall on the third party provider. The Government estimate that this shift in liability will result in annual compliance savings of up to about £1million per year.
EUROPEAN CONVENTION ON HUMAN RIGHTS
970. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). Baroness Hollis of Heigham, Parliamentary Under-Secretary of State at the Department for Social Security, has made the following statement:
In my view the provisions of the Child Support, Pensions and Social Security Bill are compatible with the Convention rights.
GLOSSARY OF TERMS
The Social Security Administration Act 1992: the Act that contains most of the rules and regulation-making powers to specify how social security benefits should be claimed, paid and administered. It consolidated the existing legislation in 1992, and has been amended subsequently. See also the Contributions and Benefits Act.
Attendance Allowance (AA)
A non-contributory, tax free, non-means-tested benefit paid to meet the extra costs arising from the care needs of elderly and disabled people. Paid at two rates: higher rate (needing care day and night) and lower rate (needing care day or night).
Basic Retirement Pension (Basic Pension)
The flat rate state pension paid to people who have met the minimum contribution requirements. Married women, widows and some widowers can receive a pension based on their spouse's contribution record.
A non-contributory, non-means tested, non-taxable benefit payable for each child in a family from birth up to age 19, or to a fixed termination date related to the end of non-advanced secondary education.
A community sentence means a sentence which consists of, or includes, one or more community orders. Community orders may be imposed by the Courts on persons aged 16 or over who have been convicted of an offence. A community service order is an order requiring a person to perform unpaid work for not less than 40 hours and not more than 240 hours. A probation order requires a person to be supervised by the probation service for a period of between 6 months and 3 years. A combination order comprises elements of both community service and probation orders.
Contributions and Benefits Act
The Social Security Contributions and Benefits Act 1992: contains most of the provisions for setting out the rules for National Insurance contributions and entitlement to social security benefits (with the main exception of Jobseeker's Allowance). It consolidated the existing legislation when it was introduced in 1992, and has been amended since then. See also the Social Security Administration Act.
Deductions from earnings order
An instruction from the Secretary of State to a non-resident parent's employer to make deductions directly from his salary to pay his liability. Used where voluntary arrangements have broken down. A non-resident parent may also choose to pay by this method.
Disability Living Allowance (DLA)
A non-contributory, tax free, non-means-tested benefit, introduced in April 1992, to meet the extra costs of care and mobility needs of people who became disabled before the age of 65. There are two components: a care component (paid at higher, middle or lower rate) and a mobility component (paid at a higher or lower rate).
Financial Services Authority
The FSA is a statutory authority to be established by the Financial Services and Markets Act to regulate the UK financial services industry. It has powers to authorise financial service providers, to regulate their actions and impose disciplinary sanctions. Part of their role is to investigate complaints from individuals who believe they have been given wrong or bad advice by the company that sold them their personal pension.
Home Responsibilities Protection
Home Responsibilities Protection protects the basic retirement pension position of someone caring for a child under 16 or a sick or disabled person. It is not a National Insurance credit or benefit in its own right, but works by reducing the number of qualifying years needed for a full basic retirement pension.
Incapacity Benefit (IB)
A taxable contributory benefit introduced in April 1995 to replace Sickness and Invalidity Benefits for people who are unable to work because of illness or disability. Payable weekly at 1 of 3 rates:
Income Support (IS)
An income-related benefit introduced in 1988, as successor to Supplementary Benefit, to support people not in remunerative work, whose net income is less than a minimum level set by Parliament, and determined by age, family membership and other circumstances.
Invalid Care Allowance (ICA)
A non-contributory, non-means-tested benefit for people who give up the opportunity of full-time work to provide care on a regular and substantial basis (at least 35 hours or more a week) to a severely disabled person.
Jobseekers Act 1995
The Jobseekers Act 1995: established Jobseeker's Allowance.
Jobseeker's Allowance (JSA)
A benefit introduced October 1996 to replace contributory Unemployment Benefit and income-related Income Support for all those over 18 needing financial support because of unemployment, administered jointly by Employment Service and Benefits Agency.
Lower Earnings Limit (LEL)
The level of earnings below which there is not a liability for employees to pay National Insurance contributions. It is also the level at which people secure entitlement to basic contributory benefits. Earnings above this point (and up to the Upper Earnings Limit) accrue entitlement to SERPS or to contracted-out rebates.
An agreement for making, or for securing the making, of maintentance payments, or, in Scotland, aliment, to or for the benefit of any child.
National Insurance contributions (NICs)
Contributions payable by those in work and their employer into the National Insurance fund, which are used to pay contributory social security benefits to qualifying individuals. Self-employed people pay a lower rate but have more limited rights to benefits. Contributions are divided into six classes, which bring access to different benefit entitlements:
The Welfare Reform Act (Section 69 and Schedule 9) introduces a new Primary Threshold as the point from which employees start to pay NICs. This means that from April 2000 employees will not pay contributions on earnings below the new Primary Threshold. It is proposed that from April 2001, the Primary Threshold will be aligned with the Secondary Threshold and as such, the Income Tax Personal Allowance. However, where an employee has earnings between the prevailing Lower Earnings Limit, and the new Primary Threshold, they will be treated as if they had paid contributions on those earnings to protect their ability to build up entitlement to contributory benefits.
Class 1: Payable by employed earners on all earning between the Lower Earnings Limit and Upper Earnings Limit, and by employers on all earnings above the Earnings Threshold. Class 1 contributions give access to all National Insurance benefits, both at a flat rate and with earnings-related increases where relevant (provided that the individual meets the specific conditions of entitlement for each benefit).
Class 1A: Contributions paid by employers in respect of employees' car and fuel benefits. The charge is based on the cash equivalent of the car benefit and the car fuel benefit provided for private use of the employee.
Class 1B: Contributions paid on settlements (PAYE Settlement Agreements) made with the Inland Revenue by an employer. This class of contributions was introduced in April 1999.
Class 2: Flat-rate contribution paid by self-employed earners. Benefits are payable at the basic rate only, and there is no entitlement to certain benefits (for example Jobseeker's Allowance).
Class 3: Flat-rate voluntary contributions payable for any period when people were not liable to pay class 1 or 2 contributions because they were not employed or were outside of the UK.
Class 4: Profit-related additional contributions payable by self-employed earners with profits above an annual threshold, up to an upper threshold equivalent to the Upper Earnings Limit for Class 1 contributors. These contributions do not give entitlement to any additional benefits.
National Insurance Credits
A Class 1 National Insurance credit is a credit of earnings for the sole purpose of assisting a person towards satisfying the contribution conditions for basic Retirement Pension, Widows' Benefits, Incapacity Benefit or Jobseeker's Allowance. A credit is available for weeks where a person is unable to work due to one of a number of specified contingencies, the most common of which is that he is incapable of work through illness or disability or he is unemployed, available for and actively seeking work. Alternatively, a credit may accompany receipt of a particular benefit such as Invalid Care Allowance or Statutory Maternity Pay, or be awarded automatically to a man within five years of state pension age who has no liability to pay contributions. Earnings cannot be credited beyond the extent needed to give a person a Qualifying Earnings Factor for that year.
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