ABOLITION OF EARNINGS RULE ETC. (Hansard, 24 April 1989)

§ Mr. Moore
I beg to move, That the clause be read a Second time.

§ Mr. Deputy Speaker (Sir Paul Dean)
With this it will be convenient to take Government amendments Nos. 36 to 41.

§ Mr. Moore
The purpose of the new clause is to abolish the earnings rule for state retirement pension from 1 October 1989. There are one or two administrative points that might be of interest beyond the House. The new clause will give legislative effect to the important decision taken by my right hon. Friend the Chancellor and me and announced in the Chancellor's Budget statement on 14 March. It will also remove the condition that individuals 677 must be "retired from regular employment". The clause therefore removes all the restrictions which prevent people enjoying their pension while continuing to contribute to the economy and to their own incomes through earnings.
At the moment, someone approaching pension age has to decide whether to retire from regular employment and claim his state retirement pension, or to defer retirement and get annual increments to his eventual pension of about 7.5 per cent. for the first five years after pension age. If he decides to claim his state retirement pension but continues working, his pension is reduced at the rate of 50p on every £1 earned between £75 and £79 a week, and at pound for pound for earnings over £79 a week. This means that someone who earns over £120 a week has his basic state retirement pension completely extinguished. The proposed changes are therefore wholly beneficial.

§ Dame Elaine Kellett-Bowman (Lancaster)
Will my right hon. Friend pay tribute to the late Sir Brandon Rhys Williams, who campaigned on this point for many years?

§ Mr. Moore
I am grateful to my hon. Friend. That suggestion will be welcomed by hon. Members on both sides of the House. I unreservedly give that commendation to our late colleague who can be regarded as having been in the forefront of many of these issues.
Individuals over pension age will be able to carry on working without having their basic state retirement pension reduced. They will no longer be barred from receiving a full state retirement pension if they work more than a few hours.

§ Mr. Timothy Raison (Aylesbury)
Will my right hon. Friend confirm that this welcome measure is in no sense selective or targeted? It applies indiscriminately to all beneficiaries and retirement pensioners regardless of their income.

§ Mr. Moore
I have the distinct feeling that my right hon. Friend is leaping to get into the next series of debates. He is, of course, right on that point. He might be regarded as somewhat wrong—I do not want to pursue this point at large—in that there is a specific problem with regard to retirement which suggests that it covers, by definition, only a limited class of people.
We are retaining provision for people to defer drawing state retirement pension for up to five years, if they so wish. Increments will continue to be added during periods of deferral at the rate of about 7.5 per cent. per year of deferment, with a maximum increment to state retirement pension of 37.5 per cent. for five years deferral. In future this period of deferral will be known as "period of enhancement". This will allow people the option of building up a higher weekly pension for themselves for when they might need it later in life. Individuals who do that will be able to claim, as now, sickness benefit and unemployment benefit. Similarly, invalidity pensioners, as at present, will keep the current option of retaining invalidity benefit during the five years after retirement age, instead of claiming state retirement pension. Reduced earnings allowance will be available to those over pension age for as long as they are as now in regular employment.
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A large number of our elderly citizens stand to gain from these changes: there are 2,500 individuals who currently have their state retirement pension reduced by the earnings rule. Those individuals will be able to earn as 678 much as they wish as well as receiving their state retirement pension. There are many more elderly people—about 200,000—who are currently deferring receipt of their state retirement pension. We believe that most of them are likely to have declined taking their pension as a result of the earnings rule. There are also a huge number of pensioners who are not earning at present and there are about 200,000 earning less than £75 a week. For them, the abolition of the earnings rule will be a considerable incentive to start earning, and to earn more.
Letting pensioners know about these changes and getting their pensions to them will be a major undertaking. In advance of receiving Royal Assent, to ensure that all individuals coming up to pension age are fully aware of other changes, a note is now being included in the pension pack setting out these changes and making clear, of course, that they are subject to parliamentary approval. We plan to write to those people who appear to be deferring claiming their state retirement pension because of the earnings rule. Claim forms will be issued to them from 30 May. Individuals whose basic state retirement pension is currently reduced on account of earnings and whose order books span 1 October will have payments of pension included at the full rate from 1 October. My Department's central offices at Newcastle and North Fylde, as well as all 500 of our local offices, will be involved in processing the claims. I am pleased to say that, despite the size of the task, we are able to give effect to the change from 1 October.

§ Mr. Tony Favell (Stockport)
Has my right hon. Friend shared my experience that groups who help elderly people warmly approve the proposals? I have been approached by many elderly people who say how pleased they are about the changes. Has my right hon. Friend shared that experience?

§ Mr. Moore
Of course I have. My only regret is that we could not have made the change earlier. It has been welcomed by hon. Members of all parties.
Payments will be backdated to 1 October. Our aim is to pay as many individuals as possible by Christmas and the remainder by the end of the financial year.
The expected benefit cost of the measures to public expenditure is £190 million in 1989–90 and £375 million in 1990–91. The Government believe that this new system will provide more choice and flexibility for older people who want to carry on working. It will remove the penalty which has been an important disincentive to elderly people continuing to contribute to society their particular skills and experiences. I commend the clause and the associated amendments to the House.