Pensioners: Abolition of the Earnings Rule (Hansard, 23 March 1989)

§ The Parliamentary Under-Secretary of State, Department of Social Security (Lord Skelmersdale)
My Lords, the abolition of the earnings rule is good 825 news for pensioners. From 1st October not only will they be able to receive their full state pension but they will also be able to have unlimited earnings. The new system will give more choice and flexibiliity for older people who want to carry on working.

§ The Earl of Shrewsbury
My Lords, I thank my noble friend for that most encouraging Answer which fulfils yet another commitment in the Conservative Party's 1979 manifesto. How many pensioners will benefit from this excellent and most welcome move?

§ Lord Skelmersdale
My Lords, this is indeed a very welcome move and, as my noble friend said, has fulfilled a longstanding manifesto commitment. It will be for individual earning pensioners to consider whether they will be better off deferring their pension for up to five years. Currently 200,000 pensioners earn over £75 a week. That includes wives who claim a pension on their husband's contributions. Indeed, 2,500 people will benefit immediately because their pension is currently reduced because of earnings of more than £75 a week. We also estimate that there are currently 200,000 earning less than £75 a week who may choose to earn more. And of course there are all those future pensioners who may want to continue to earn.

§ Lord Mishcon
My Lords, can the Minister say whether planted Questions are dangerous to eat?

§ Lord Skelmersdale
My Lords, as a horticulturalist, I am very fond of plants.

§ Lord Boyd-Carpenter
My Lords, can my noble friend assure the House that in the publicity which his department handles in this matter the alternative of deferring retirement and thereby earning an incremented pension will be clearly put before those to whom this concession would otherwise apply so that they are not excited by it into doing what might not be in their case in their best interests?

§ Lord Skelmersdale
My Lords, my noble friend is of course quite right; indeed he has long expereince in such matters. That is why I prefaced my last answer by saying that it will be for individual earning pensioners to consider whether they will be better off deferring their pension for up to five years. The department cannot tell them what to do but their financial advisers can. Deferment is most valuable; for example, if it is a full five-year deferment it enhances the value of the pension by 37.5 per cent.

§ Lord Peston
My Lords, perhaps the Minister can clarify one aspect of the change which has taken place. Am I right in assuming that the earnings of pensioners, should they choose to work, will simply be subject to taxation in the normal way? Further, will it be the case that their pension will be added to taxable income and will also be taxed, or will it be free of all tax?

§ Lord Skelmersdale
My Lords, pensions have always been taxable. Therefore the answer to the noble Lord's question on both counts is yes.

§ Lord Monson
My Lords, will the Minister agree that to the extent that state retirement pensions are actuarially funded by national insurance contributions, the abolition of the earnings rule is entirely to be welcomed? However, will he further agree that, to the extent that such pensions are funded not by contributions but out of current taxation, a somewhat different reaction may be in order? For example, why should young couples struggling to bring up a family and to pay off a mortgage be expected to subsidise from their taxes physically fit, economically active and increasingly prosperous men of 65 and women of 60?

§ Lord Skelmersdale
My Lords, I think that I need a little notice for a question of such complexity. However, I can say that the noble Lord is only half right. A pension is a contributory benefit and if full contributions are not paid, the pension is reduced. But I agree with him in that today's contributors pay for today's pensions.

§ Lord Campbell of Alloway
My Lords, if one is an OAP like myself, can one now defer one's pension up to the age of 75 because of the tax implications? At the moment one can defer it up to the age of 70.

§ Lord Skelmersdale
No, my Lords, the rules on deferment will stay exactly the same as they have been heretofore. One is only allowed to defer a pension for five years.

Lord Morris
My Lords, will my noble friend comment upon the suggestion made by the noble Lord, Lord Mishcon, that the value of the Question is somehow diminished because it happens to give credit to our party?

§ Lord Skelmersdale
My Lords, it never ceases to amaze me how rarely good news is welcomed by those on the Benches opposite.

§ Lord Lucas of Chilworth
My Lords, can my noble friend tell the House how many old-age pensioners who may be able to take advantage of this arrangement do in fact have financial advisers? Does he not think that it would be more helpful to them if guidance were available through leaflets published by the department?

§ Lord Skelmersdale
No, my Lords. Of course I cannot say how many pensioners have financial advisers. However, what I can say is that we plan to write to all the individuals concerned.

Viscount St. Davids
My Lords, has my noble friend noticed that as a result of this change a rush has already started of pensioners who are able and intelligent and who want work taking part-time work behind the counters of major stores, where there has been a marked shortage of workers because of the present levels of employment?

§ Lord Skelmersdale
My Lords, I think that that trend started rather before my right honourable friend's Budget last week. However, I take the point that this change is also good for the labour market.