State Pension Credit Bill WM

HL Deb 12 February 2002 vol 631 cc1004-71

3.20 p.m.

Report received.

Clause 1 [Entitlement]:

Baroness Barker moved Amendment No. 1: Page 2, line 6, leave out paragraphs (a) and (b) and insert "in the case of a man or a woman, the age which is the pensionable age in the case of a woman born on the same day as a man

The noble Baroness said: My Lords, as the Minister and I acknowledged in Committee, this is perhaps the most difficult part of any of our proceedings. As noble Lords are getting themselves into some kind of order, I draw the attention of the House to the fact that the noble Baroness, Lady Turner of Camden, who would normally be here, is absent today. She is in hospital receiving treatment. Bearing in mind the great knowledge and expertise that she has often given to the House on these subjects, I am sure that all your Lordships wish her well.

We return to a subject on which the Committee spent a great deal of time—the equalisation of the savings credit. On Second Reading, the Minister gave us a dazzling exposition of some of the many reasons why the Government feel unable to introduce the savings credit element of the pension credit at age 60. We were regaled with the examples of Jack and Frank. I am sure that many of those who attended the Committee debates went away and spent a long time studying those biographies. Perhaps your Lordships also agree that, solely for the purposes of these debates, one has to hope that every pensioner is a single person with no intention of going into any sort of relationship with anybody else and becoming part of a double household. That is not a sentiment that I would espouse in any other circumstances.

I moved an amendment in Committee to address the disadvantage caused to a generation of women aged 60 to 65 between now and 2010 by the fact that the pension credit will apply only from age 65. The Minister explained the deficiencies of that amendment in her usual helpful and lengthy manner. I read her answer in some detail, but it was only about men. not about the problems faced by women.

On reflection, I think that fairness can be introduced for women without causing the problems that the Minister explained to us in relation to men. We should look at the income of men. The Minister pointed out that men aged 60 to 64 do not receive the state retirement pension. However, she also said that it would be possible to deem the income of men aged 60 to 64. The amendment would deem the rate that they would receive. It would be necessary to know what contributions had been made and what they would he likely to equal on retirement. That information is already produced and anyone can ask for it well before their retirement. On that basis, we could ensure equality and fairness at 60, because the rate of the savings credit would be based on actual pension contributions. Those actual contributions would be the basis for the deemed amount and would be used for a calculation of entitlement.

The amendment, and the others in the group, would deal with those women of a particular generation who always seem to miss out in pension reforms and have done so throughout their lives. That is the spirit in which I move the amendment. I beg to move.

Lord Hodgson of Astley Abbotts

My Lords, I have two amendments in the group. I am coming at the issue from a slightly different angle from the noble Baroness, Lady Barker. We should be trying to minimise the complexities and the fundamental shifts that take place in the future. Those arise for two reasons: primarily, in this Bill, because the guarantee credit and the savings credit are not payable at the same age; and, secondly, because of the proposed change in the pensionable age of women, which is not part of the matter under discussion. Thus we have different treatment for the two types of credit and different treatment for men as opposed to women. My amendments would equalise the treatment of men and women as regards the savings credit.

When we discussed the amendments in Committee, the Minister reiterated the central and very sensible point: The savings credit aims to reward people for thrift, ensuring for the first time that they are not penalised for having made efforts to save".— [Official Report, 24/1/02; col. 1611.] That is the central plank of the Bill. She then helpfully gave us some worked examples to show why the amendments would not work. She invited us to read them in Hansard, because they were hard to understand on the fly.

With the greatest respect to the Minister, I think that her officials were disingenuous in coming up with the examples. That is why some of us remain concerned about the issue. The Minister gave the example of Jack, who was aged 63 and had an income of £23 from an occupational pension. To get him up to the £100 figure, he received a £77 credit. She pointed out that if my amendments were accepted, Jack would get an additional savings credit on his £23 that would give him £13.80 extra a week, resulting in a total income of £113.80. She then talked about Frank, who was also 63, but who received an occupational pension of £24, so he received only £76 extra to get him to the £100 minimum guarantee. However, because he was over the maximum savings credit, his entitlement was reduced by 40p in the additional pound that he received from his occupational pension as a result of saving. Therefore, as she rightly pointed out, Jack would get £113.80 and Frank would get £113.40. Frank would be penalised for having saved more. She therefore argued that the amendments would undermine the incentive to save.

With respect, the Minister failed to address the larger anomaly, which will persist if the amendment is not accepted in some form. Perhaps I may introduce to the Minister, Alistair, who comes to us care of the Post Office and BT Pensioners. Alistair also is aged 63, but he has saved nothing at all. He has made no attempt to save for his old age. So, between 60 and 65, he will receive the full £100 single person's guaranteed credit.

However, looked at from the other point of view, from the position of UK plc, Jack has cost £77, Frank has cost £76, but Alistair is costing £100. Surely UK plc should be trying to encourage more Jacks and Franks and fewer Alistairs. If the provision is not amended, we shall be doing nothing to encourage Jack and Frank between 60 and 65 because an Alistair will do just as well as they do. Jack and Frank's anomaly is 40p per week, which is hardly a large sum, whereas Alistair's anomaly is very much greater.

The second example that the Minister gave was a 63 year-old man and a 63 year-old woman, both with a £100 per week occupational pension. The Minister said that the man would receive £13.80 per week because he had no retirement pension whereas the woman would receive nothing because with her pension she would be outside the pension credit limits. As the Minister put it, That would clearly be unfair".—— [Official Report, 24/1/02: col. 1611.] What I think the Minister's officials have ignored or overlooked is what each of those two is receiving in money each week. The woman is receiving £100 occupational pension and £77 basic state pension, totalling £177 per week. The man is receiving £100 per week plus the £13.80. The differential between £177 and £113.80 shows that the unfairness is the other way round, not as the Minister explained it in the example.

The simple way of dealing with the matter is to equalise the ages at which pension credit is available to men and women, with women's pensionable age as the qualifying age.

3.30 p.m.

Lord Higgins

My Lords, I intervene only briefly. We discussed the matter in considerable depth in Committee, and the Minister's contribution on it extends over many columns of Hansard. It is very difficult to debate this matter on the Floor of the House. My noble friend Lord Hodgson has spelt out the situation very clearly. It is the type of issue that is sometimes best addressed in writing, and it has been helpful to have it in Hansard.

The problem stems basically from the fact that, currently, men and women retire at different ages, and the fact that, as the result of the European Court judgment, it is proposed that they should coincide. In the interim period, it is extremely difficult to ensure that both men and women are treated fairly—whatever that may mean. I do not think that we are clear even among ourselves— if I may use the expression in your Lordships' House—as to what "treating them fairly" means.

We have had many representations, not least from the National Federation of Post Office and BT Pensioners which has set out the arguments in considerable detail. I think that it may be worth while for those who have not yet had a chance to see those arguments to do so before Third Reading.

At this stage I ask the Minister only one question. If these amendments are not accepted, will the whole thing "come out in the wash" when the men's and women's retirement age coincides? Will everyone then be treated equally? In short, is this really a transitional problem? Perhaps we should consider between now and Third Reading whether something should be done about transitional arrangements.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)

My Lords. I think that the contribution made by the noble Lord, Lord Higgins, was very helpful: he has nailed the problem precisely. Our dilemma is that we currently have different retirement ages, and that, to make it more complicated still, we shall be gradually moving from one age to another for women. There is therefore a double issue. He is absolutely right also that, at the point at which pension ages for men and women are the same, at 65, both the pension credit guarantee element and the pension credit savings reward element will kick in equally for both. He is absolutely right on that point, as he anticipated.

The noble Lord is also right that, meanwhile, as we are dealing with conflicting notions of fairness, there may not be a way through the issue that is obviously fair. What may be fair to women may be considered unfair to men, although the European Court may rule otherwise. As your Lordships will know, the conclusion that we have reached is that we should treat men and women equally at 60 for the guarantee element, which is the point at which they are poor. but treat them equally at 65 for the savings element, which hinges not on their poverty but on the fact that they have taken their retirement pension. As men cannot take retirement pension until 65, we have established the two different ages.

The minimum income guarantee does not require a given retirement pension level. The pension credit savings element, however, must establish such a requirement as that is the fulcrum on which the element rests. That is why we have dealt with the two ages in different ways.

As I said in Committee when speaking to similar amendments tabled by the noble Baroness, Lady Barker, and by the noble Lord, Lord Hodgson, 65 is the only reasonable choice for a minimum age for the savings credit element. We have had to make the choice not only because of European rules, but because of our respect for the Pensions Act 1995 introduced by the then Conservative government.

It would clearly be unfair if the savings credit were payable to people aged 60 to 64. Men and women would have different outcomes simply because of the unequal nature of the existing state help that they receive. As the noble Lord, Lord Hodgson, identified, depending on the exact circumstances—which could be extremely quirky and extremely perverse—a man could receive either more or less savings credit, in quite unpredictable ways, than a woman in the same situation. That would be unfair. Consequently, as I said, we decided to make the savings credit available from 65.

If we were instead to do as the noble Baroness, Lady Barker, suggests in Amendment No. I and pay the credit at 60, the provision would have to reward the basic state pension, although that is not paid to men until 65. The noble Baroness therefore asks whether we could introduce a version of deeming and reward the additional pension provision that people have made. As I said, that would unfairly reward those who had not contributed to the basic state pension above those who had contributed throughout their working lives.

I gave a lengthy example, which has been quoted back to me. However, as the noble Lord, Lord Hodgson identified, deeming people to have a full basic state pension could lead to situations in which people who have saved more end up worse off than people who have saved less. Equally, as I said in Committee, there are real difficulties about SERPS. Equally, because they are more likely to be in work, and unlike women, men can expect to continue building up provision for their retirement until 65.

As I said, the issue is difficult not only because women have a different retirement age from that for men, but because we are gradually bringing the retirement age for women up to that for men. I could speak for 20 minutes on the issue. All I shall say is that we cannot have a savings element of pension credit that does not rest on the fulcrum of a retirement age of 65—except by means of deemings, for example, which are not only unfair but would be horrendously expensive, to the tune of billions of pounds. That cannot be right.

We are saying that, when people are poor, we shall treat them equally at 60. However, when we are rewarding savings, based on the fulcrum point of the retirement age of 65, we shall treat everyone the same. It may not be a perfect solution, but I believe that it is the optimum one.

Although I could speak to the issue at considerable length, I am sure that your Lordships do not wish, me to rehash our discussion in Committee. I therefore ask your Lordships to withdraw or not press the amendments in this group. Nothing that has been said today or in Committee has persuaded me that, despite its imperfections, there is a better way forward than the solution we have arrived at. So far as I can see, our solution is the best way forward without treating men and women unfairly on the basis of gender, treating individual men and women unfairly, or landing all taxpayers with a horrendous bill arising from deeming men to have taken a retirement pension that they have not yet earned.

The Government cannot move on the issue. Nor—given the concept of the pension savings credit—do I think that we should. I therefore ask the noble Baroness, Lady Barker, to withdraw Amendment No. 1.

Baroness Barker

My Lords, I thank the noble Baroness for her customary full answer on the subject. I am not terribly surprised at her reaction. However, I return to the fact that a woman aged 63 and a woman aged 67 may have the same income but under this scheme will end up with entirely different provision. They may not have done anything different throughout their lives in terms of saving. The only thing is that one will have reached the retirement age for men. I go back to the point that I made in Committee. When we are dealing with the details of these Bills it is sometimes easy to move away from their broad thrust. The broad thrust of the Bill is to try to encourage people to save for their retirement. I cannot see how healthy, fairly active women in their late fifties and early sixties faced with this proposition could have any inducement to save as opposed to spending. There is an inherent flaw in what the Government are trying to do. Having said that, I rest my case at this point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 [Guarantee credit]:

Baroness Greengross moved Amendment No. 2: Page 2, line 28, leave out subsection (6).

The noble Baroness said: My Lords, Amendment No. 2 seeks to delete the clause that gives the Secretary of State the power to reduce the level of the standard minimum guarantee in certain circumstances. The Explanatory Notes state that this power is intended to be used when the claimant or his or her partner has been in hospital for six weeks. I understand that there may be other circumstances when the power will also be used, but my intention in putting forward the amendment is to continue the important debate that we started to have in Committee on hospital downratings.

As noble Lords will be aware, the issue of hospital downratings has received considerable attention recently. I raised the issue as a Starred Question in October following Age Concern's report on the subject. Since then there has been much media interest and parliamentary support for change—an Early Day Motion in the other place has 175 signatures with support from all sides of the House. There is also strong support for reform from a range of organisations including Age Concern, the National Association of Citizens Advice Bureaux, the British Medical Association and the Royal College of Nursing.

In Committee the Minister referred to the need to prevent double provision, as no doubt all Ministers have done for the past 54 years. However, as I said at earlier stages of the Bill, the situation of older people in hospital today is very different from that in 1948. Indeed, that situation was a major spur to the development in this country of the specialism of geriatric medicine in which the UK became the acknowledged world leader. Today very few people "live" permanently in hospital or spend a long spell there when they could be more sensibly—as we know today—and appropriately cared for at home or in a care home. As we all know, most geriatric wards have quite rightly long gone. I would therefore assume that if someone is in hospital for more than six weeks now he or she is there because they are extremely ill. Alternatively, I wonder whether some of the older

people suffering cuts to their state pension are only in hospital for more than six weeks because they are waiting for a placement in a care home or for community support to be put in place to enable them to return home. Does the noble Baroness have those figures?

Nowadays most pensioners have a home to maintain. Bills such as insurance, telephone rental, standing charges, maintenance, TV rental and licence fees do not stop. Families are more dispersed so there may not be someone round the corner to keep an eye on things or to look after a pet. Instead, people may need to pay someone to do those jobs or at least to cover their transport costs. Couples face costs such as taxis to visit or car parking charges which hospital visitors in 1948 would not have thought of having to meet.

However, in addition to my concern about the costs that people face is the worry and distress caused by the administration of hospital deductions. Age Concern's briefing refers to a woman who left hospital against medical advice because she did not want to be in hospital for six weeks having seen the problems a fellow patient had experienced when her pension book had not been returned during a three month stay in hospital. NACAB has also produced a briefing giving examples of administrative problems faced by many people. When people are ill we should not expect them to understand how complicated benefit systems work and deal with the bureaucracy, to say nothing of the delays and poor administration that unfortunately they sometimes have to face.

In Committee I raised the issue of the effect of a stay in hospital on the assessed income period. I thank the noble Baroness for her letter on that issue and the reassurance that a stay in hospital will not affect the duration of the period unless one member of a couple is in hospital for 52 weeks. I welcome that but it would be far simpler if the sensible rules that will mean people do not need to report changes in retirement income were extended so that admission to hospital was another change in circumstance that did not affect the level of payments and therefore did not need to be reported.

As the House will know, I have a later amendment on this subject. I should like to see much closer integration between tax and benefits systems. If a pensioner does not need to tell the Inland Revenue that he or she is in hospital, why should they need to inform the Department for Work and Pensions? I fully support the Government's aim of producing a less intrusive and less bureaucratic system. Removing, or at least reforming, hospital downrating rules would help to achieve that aim. I remind your Lordships that this rule has been in place since 1948, as I said before, and has largely been unreformed since then, despite being under almost permanent review. I know that the Minister has referred to read-across with local authority systems and that there are issues about the rules for other benefits, but I believe that there is time for these areas to be fully examined.

I hope that the Minister will be able to tell the House that she is giving serious consideration to abolishing the out-of-date and unfair six week downrating rule. At the very least I hope that she will accept in principle that the rule needs to be reformed and that there will be a genuine review of the current system. I beg to move.

3.45 p.m.

Lord Higgins

My Lords, I wish to speak to Amendments Nos. 13 and 14 as well as to Amendment No. 2 moved by the noble Baroness, Lady Greengross. The noble Baroness has immense experience and expertise in this area and we must take due account of what she says. It seems to me that there are essentially three issues at stake here. First, the question of principle goes right back to the origin of the social security system; namely, that there should not be duplicate payment of benefits. Therefore, if provision is made under one benefit, it should not also be made under a second benefit. Secondly, there are problems as regards the amount of the deduction or downrating. Thirdly, there are problems when a patient is discharged with regard to overpayments being recovered and payment of the original amount to which the patient was entitled being resumed.

I shall discuss those issues in turn. I do not dispute the point of principle which is well established and was reinforced by the Select Committee in another place which reported on the matter some time ago. But having said that, the time has come to reappraise the issue. Apparently, at any one time about 30,000 people have their benefits downrated. I think I am right in saying that when we discussed the matter at an earlier stage the Minister said that the cost of changing the provision would be some £60 million. That may be the theoretical cost, but what is the actual cost to the extent either that overpayments are not recovered or the cost to patients in the sense that there is a delay in resuming their benefits and they never fully catch up? If we are to consider the importance of the point of principle, we need to consider it in relation to possible costs. I hope that the Minister will help us with that task.

As is often the case with work and pensions issues, it is very clear that this matter is of unbelievable complexity. If I were asked to explain which benefits were downrated and which were not, I would have the greatest trouble doing so. It is not surprising that those who suddenly find themselves in hospital and are told that their benefits will be downrated have some difficulty understanding that.

That brings us to the question of how much the deductions will be. In particular, what research has been done on that issue? Those in various charities, and so on, who are concerned with this problem have produced a list of items that remain as ongoing costs even when the patient is in hospital. They include rent, water rates, fuel, telephone rental, insurance, TV licence and rental services, warden charges, maintenance bills, car tax and insurance, other bills, and so on. In addition, some costs increase when a patient is in hospital—for example, the cost of having someone to look after a pet. We need an up-to-date appraisal.

One of my colleagues in the other place asked staff in the House of Commons Library to try to establish what research had been carried out on the matter, The Library was not been able to find any such research. This is the sort of issue that the noble Earl, Lord Russell, typically raises in this House. Apparently, no research has been done. However, the Library consulted officials in the department, who, I understand, were also unaware of any research, but who referred to the 1949 report, which made certain assumptions about costs. As the Minister rightly pointed out, things have rather changed since 1949.

Baroness Hollis of Heigham

My Lords, there is still a Labour Government!

Lord Higgins

My Lords, the Minister says that there is "still a Labour Government"—well, it is all their fault just the same. It is bad enough that the Minister refers to the previous Conservative government.

I am not going to blame the Labour government of 1945. My point is that their errors should be dealt with now. We need an up-to-date assessment. I strongly suspect that the amounts that are being downrated are in no sense up to date and may be inappropriate. I hope that the Minister agrees that further research in that regard is important.

The third issue involves problems on discharge. That issue divides into two parts. The first arises when people fail to notify their hospital that their benefits are overpaid and when the department tries to claw back that overpayment. That may cause considerable concern because the person may have spent the money in the mean time and, if he is on low benefits, he may have the greatest trouble repaying the sum. In many cases, the department may rightly decide that that is not a practical approach.

The other issue involves the question of whether such people are capable of resuming payments once they have been discharged, the amount being paid having previously been reduced while they were in hospital. An amendment moved in Committee sought to deal with that matter.

We need to take into account the state in which many people are discharged. The noble Baroness, Lady Greengross, rightly pointed out that we no longer have the kind of geriatric beds in hospitals that used to be available. I remember when, as a new Member of Parliament, I first went round the hospital in my constituency—a perfectly good hospital— in, I believe, 1965. The condition of its wards was absolutely appalling, quite apart from the stench. People are now discharged much more rapidly but perhaps in a state in which they may not be able to say, "I must be sure to get my benefits restored". A number of representations that we have received involve particular cases in which benefits were not restored. In one case, I gather, that had not been done after seven months.

I came across a case only the other day involving someone who had been discharged from hospital. If we need to judge whether that former patient could deal with this kind of complex problem, we must consider the fact that when he got home his family asked him, "What is that in your arm?" It was the needle that had been used for injections, and so on. The person was so unaware of what was going on that he had not noticed the needle until his family pointed it out to him. It is important to do all that we can to ensure that benefits are resumed at the earliest possible moment.

The amendments that I have tabled are simple and clear-cut. We need to consider clearly between now and Third Reading the extent to which that problem, which is a growing concern to many, can be improved, if not solved totally.

Baroness Barker

My Lords, after two such excellent expositions on this issue, I do not intend to speak for long. Along with other noble Lords, I have recently been asking a number of questions in an attempt to do what the noble Lord, Lord Higgins, suggested; namely, to try to find out what actually happens. That is extraordinarily difficult to do. I have a particular interest in that matter. Another brief that I hold is for social care. As intermediate care increasingly becomes a reality for older people, there is an even greater need for clarity about the position of people receiving NHS care in different circumstances and settings.

I have two main questions for the Minister. The first is about the operation of the 28-day rule. If someone is readmitted to hospital within 28 days, his previous time in hospital is counted in the calculation of the six-week period. How many people on average per year are caught by the 28-day rule? That is extremely important, in view of the Government's new policy on rehabilitation and on moving people out quickly into the community; sadly, they sometimes have to return.

When we discussed this matter in Committee, several of us pressed the Minister on the cost of administering changes. She gave us some helpful figures at that time and in writing about the cost of the arrangement to the Department for Work and Pensions. In view of joined-up government, what is the cost to the NHS of administering the system? That is important because the Government are adopting this approach and, at the same time, talking about increased emphasis on having discharge plans for patients that are successful, that enable them to return home and that enable older people to resume their life.

The noble Baroness, Lady Greengross, and the noble Lord, Lord Higgins, gave examples provided by a range of voluntary organisations, including Age Concern—an organisation for which I work, as noble Lords know—of the distress that the arrangement can cause older people. Such distress has a severe impact on their physical health.

Those are the technical points to which I hope the Minister will respond. I add my strong support to those who say that it is time that the system was renewed. It was designed for the 1940s, when there was a Labour government, but they were of a very different type.

Lord Rix

My Lords, I speak as president of the Royal Mencap Society. I hope that noble Lords notice our new name. I support Amendments Nos. 2, 13 and 14, which were spoken to by my noble friend Lady Greengross and the noble Lord, Lord Higgins.

Although the Bill concerns those in receipt of the state pension, it embraces others, too, inasmuch as the hospital downrating rules, about which we have heard a great deal, apply to all who are in receipt of state benefits, including those with a learning disability. Therefore, I should be grateful if the Minister would clarify which disability benefits will be excluded from the hospital downrating rules and which will be included. How my daughter, who has Down's Syndrome and is blind and virtually immobile through hip dysplasia, is expected to understand all the administrative niceties when she is admitted to hospital beats me, while her carers would find the whole operation both complex and burdensome.

Therefore, as has already been stressed, I hope that the Government will review the hospital downrating rules which are now outdated—after all, does one now receive a discount for the nights that one spends on a trolley?—and bear no relationship to the current state of the NHS and the costs of old age and disability.

4 p.m.

Earl Russell

My Lords, perhaps I may add a few words, first, in support of Amendment No. 2. While there is discussion about the future of this House's powers in relation to statutory instruments, I believe that it is necessary that we probe with some care the creation of a power to make regulations. This is our last chance. If we create a power to do something of which we later disapprove, we discover it too late.

Therefore, perhaps I may look at the words in Clause 2(6) to which Amendment No. 2 refers: Regulations may provide that, in prescribed cases, subsection (3) shall have effect with the substitution … of … a prescribed amount". Is there any implied restriction in the text of the Bill on what type of case may be prescribed? We know what type of case is prescribed at present, but is there any restriction on what a future government, possibly of a quite different outlook from any party now in this House, might prescribe? If there is not, perhaps there should be.

With regard to the body of the main amendment, I remember spending a term working at Berkeley. As one went up the hill, house prices rose as they used to do in central Hampstead by approximately 1,000 dollars a foot. Academics tended to be somewhere between a third and half way up the hill. I once asked who owned the houses at the top and received the answer from a senior colleague: "Plumbers".

I am not sure whether or not that was fair on plumbers, but plumbers expect to be paid. People who are away in hospital and who do not keep their heating running at a level at which they might otherwise do tend to suffer from frozen pipes. Plumbers expect to be paid. Many expenses continue unabated and are perhaps increased because of a stay in hospital. Where a family is involved, one notices that, as the patient's costs may decrease, so the relatives' costs, especially in relation to transport and meals out, are liable to increase.

It has been brought home to me forcefully on my travels when speaking to meetings of the party in rural areas that that is particularly true because of the centralisation resulting from the closure of small local hospitals. In one area of Lincolnshire I remember it being represented to me that previously one could take an hour oil work and visit a relative in the local hospital. Now one had to drive 60 miles, take a whole day off work and lose a whole day's wages. I wonder whether account has been taken of that in the calculations.

I also wonder whether account has been taken of the amount of work that downrating creates for the NHS. In that regard, following the Starred Question asked by the noble Baroness, Lady Greengross, I asked the Minister what cost was borne by the DWP. The Minister replied that there was none because the work was done by the NHS anyway. But I had not noticed that the NHS was short of work to do. Are we perhaps placing on it a burden which we have no call to do? And is this one case where we could reduce the costs of running the NHS without any injury to patients? Having listened to the Minister throughout debate on the Bill, I understand how difficult it is to simplify the social security system. But is there here, just once, the opportunity to do so? If we were able to do so, is there a case for saying that we should?

Baroness Hollis of Heigham

My Lords, I shall speak to Amendments Nos. 2, 13 and 14 as they all address the issue of hospital downrating. Amendment No. 2, moved by the noble Baroness, Lady Greengross, would remove the regulatory powers designed to enable the Secretary of State to prescribe a lower amount in place of the standard minimum guarantee which would be payable to the claimant.

As I tried to explain in Committee, the intention in Clause 2(6) is to replicate the existing position. The Secretary of State should have the power to replace the standard minimum guarantee with a lower amount if, as a result of his taking no action, there would be double provision. That would be the case if someone was in hospital. It would also apply to people in prison or in, say, a convent, where they were fully maintained. If I may, I shall return later to Amendment No. 2.

Amendments No. 13 and 14 refer to benefits that are reduced under the provisions of the Social Security Hospital In-Patients Regulations (S.I. 1975/555). Pension credit will not be subject to those regulations, just as income support and jobseeker's allowance are not subject to them. Each of those benefits has, as pension credit would have, its own provisions regarding hospital in-patients. Therefore, if taken literally, the amendments would apply to a great number of benefits which are outside the scope of the Bill.

Therefore, I have assumed that, for the purposes of probing, the noble Lord was concerned to speak primarily about pension credit. I repeat that it is our intention that the savings credit element of pension credit should be payable throughout a stay in hospital. The arguments for that approach are well rehearsed we believe it is right to reward thrift.

Amendment No. 14 would impose an obligation on the department to restore a person's pension credit immediately upon his discharge from hospital, presumably at the pre-admission rate. The amendment is silent on that, as it is silent on how the department would fulfil what would be a legal obligation, unless of course the pensioner told the department the instant he was discharged.

As I stated in Committee, currently a person is required to notify the department of periods of inpatient treatment and will be required to do so under pension credit. That allows the department to make the necessary adjustments following admission or discharge. To reiterate the point, the department can act only upon the information that it has. When a person is discharged from hospital, his pension credit entitlement will be restored to the pre-admission rate of payment.

If the noble Lord would find it helpful, I could explain the practical steps concerning what happens in cases of readmission. Alternatively, I could hand him a copy of the procedures that we are giving to junior staff, or I could write to him with fuller details. I hope to allay his concerns. I understand that throughout he has been worried about possible delays in the reinstatement of benefit in the case of a pensioner who is fragile, having come out of hospital, and who, at that moment, is unable to cope, possibly having no money. I recognise that to be a perfectly proper concern.

Therefore, I have been trying to take steps to find out what the practical procedures are, and perhaps I may spend a moment on that. When a person is discharged from hospital, his order book is recalled. The assumption is made that the patient has been in hospital for more than six weeks and has therefore received a reduced benefit. Often the pensioner will return the book unprompted. But usually a recall notice is issued to the Post Office asking the postmaster to retain the order book and return it to the benefit office. Normally a pensioner obtains payment on a weekly basis.

Therefore, within the first week of payment the postmaster would be in a position to retain the order book. Usually—this may be helpful—a giro is issued to the pensioner for the first week and a new order book is ready to collect from the Post Office at the second week. That is the way in which reinstatement occurs. It is quite speedy; the target time is 15 days and most are restored within that time. If they are not, within the first or second week a giro is used to top up the existing reduced hospital benefit payment. I believe that that should meet the needs of the pensioner concerned. If the noble Lord wants further information, I shall be happy to write to him at great length on wads of paper but that explanation may reassure him. If payment is made into a bank account, there is no problem. If there is an order book, any delay can be topped up with a Giro to make good the hospital-reduced rate until the new order book comes through—normally within a fortnight. That may help the noble Lord on reinstatement.

The noble Lord asked about costs. The revenue that would be lost if one scrapped all downrating for pensioners would be £60 million and of the order of £100 million if one scrapped downrating for everyone on benefits. It would be curious to scrap downrating for only one group of people receiving benefits. I accept the general point that some expenses increase and some decrease. The noble Lord asked for precise statistics. The current average downrating for pensioner couples represents about 5 per cent of their total income after six weeks. For a single pensioner, on average it represents 18 per cent—which not unreasonably reflects the reduced cost of food, laundry and some reduction in heating costs for a single pensioner. I accept some of the broader points.

The noble Lord, Lord Higgins, and the noble Earl, Lord Russell, know that this is not just a question of hospitals and downrating pensions or benefits but one that applies across social security. If one is a carer of a severely disabled son who received ICA before becoming a widow, one now receives the widow's pension, not both—yet the costs of being a carer possibly remain unabated. Nevertheless, one does not receive two payments for the same situation. That principle underpins the whole of social security law and its importance is recognised by the Government and the noble Lord, Lord Higgins.

Earl Russell

My Lords, I understand the principle that the Minister is explaining but are the vires in the Bill limited to the principle that the Minister is outlining?

Baroness Hollis of Heigham

My Lords, I do not understand that question

Earl Russell

My Lords, does the Bill give a future Government the power to do something over and beyond the principle that the Minister has stated?

Baroness Hollis of Heigham

Yes, my Lords—by regulations subject to the negative or affirmative procedure that could and would be scrutinised by the House. The Secretary of State could decide to apply the principle to, for example, prisoners, people in convents and others in similar situations. There could be circumstances in which it would be appropriate to reduce the minimum income guaranteed by the state where the individual's circumstances mean that they are supported in other ways. I cannot envisage them all. There could be developments in, for example, intermediate care and other situations that we cannot conceive now but which might result in the potential for double payment—against which the Secretary of State would properly want to protect public funds.

Any such extension or activity would be subject to parliamentary scrutiny through the negative or affirmative resolution procedure.

Earl Russell

My Lords, if the Minister would add the word "control" to "scrutiny", that might put an end to discussion.

Baroness Hollis of Heigham

My Lords, it is for both Houses to determine how to treat regulations. Whether this House appropriately has the right to overrule the elected democratic House is perhaps for argument between the noble Earl and me on another occasion. I was making the point that such a measure could not be smuggled in against the public good in future but would be subject to parliamentary procedures.

The Government do not believe that an individual should be paid by the state twice for the same contingency. Even if we could accept the amendment's financial and read-across implications, which we cannot, it is seriously flawed as it would allow prisoners and fully maintained members of religious orders to receive full benefits, as well as people in hospital. On that basis, I imagine that your Lordships do not want to proceed with the amendment in its present form but will want to revisit the issue at a later stage.

I would like to think more about some of the points that have been raised—including by the noble Lord, Lord Higgins, and the noble Baroness, Lady Greengross. I do not want to raise hopes. It may be that we cannot meet any of their concerns but I will try to address some of them. Given also that the amendment has a much wider remit than the noble Baroness intended, I hope that she feels about to withdraw it.

4.15 p.m.

Lord Rix

My Lords, before the Minister sits down, will she kindly write to me regarding the disability benefits that would be affected?

Baroness Hollis of Heigham

My Lords, I failed to answer also the question from the noble Baroness, Lady Barker. The number of persons caught by the linking rules is, we believe, so small as to be insignificant. That is the sort of question of which one requires advance notice. If I can find a more precise answer, I shall write to the noble Baroness.

The noble Lord. Lord Rix, asked which benefits are unaffected by downrating. They include statutory sick pay, statutory maternity pay and industrial injury benefits. The other benefits fall within the scope of downrating.

Baroness Greengross

My Lords, I thank the Minister for her reply and express my gratitude for the time and consideration that she has given to the matter. I welcome also her acknowledgement of the concerns that have been expressed—and which might be addressed, even though the Minister does not entirely accept the amendment.

I want to give the proposal every chance of further consideration. Sadly, I cannot be in the House at Third Reading because I have to be abroad that day. However, I shall follow the proceedings with much interest. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 [Savings credit]:

[Amendments Nos. 3 and 4 not moved.]

Lord Hodgson of Astley Abbotts moved Amendment No. 5: Page 3, line 7, leave out paragraph (a).

The noble Lord said: My Lords, we return to an issue of concern in Committee—the rights of persons who are entitled to something less than a full basic state pension but who have during their lifetime accumulated other savings or built up other pensions.

On withdrawing my amendment in Committee, I thought that there might be some more juice in the orange and we can seek to extract it this afternoon. The three major categories likely to be affected are individuals who work overseas, persons with broken work records and— the largest group—women who have taken career breaks to have and raise a family.

The noble Baroness, Lady Greengross, put down a helpful parliamentary Question, the Answer to which revealed that of' 1.4 million pensioners who do not have a full entitlement, only 300,000 were men and 1.1 million were women. In Committee, the Minister said that 92 per cent of men and 83 per cent of women have a full pension entitlement but the booklet Partnership in Pensions admittedly it is a couple of years out of date but the figures cannot have changed much—states that. 86 per cent of men and 49 per cent of women qualify for a full state pension, the latter representing a big difference from the Minister's figure of 83 per cent. We need to be clear about what is the real figure.

In Committee, the noble Baroness, in replying to this issue, seemed to face in two different directions. She referred to the national insurance credit available for "good cause" which meant that the position of widows was protected, thereby implying that this was not a big problem and not many people were vulnerable. However, she went on to say that there were serious financial implications of around £2 billion per annum. It seems to me that either we have a problem here that is serious or we do not. We need to be clear which it is before concluding our discussion.

If, as they have said, the Government want to give people an incentive to save for their retirement and they want to be fair, we need to be clear on why women are three times more likely than men to have less than a full basic state pension and why persons aged, say, over 50, who have incomplete pension records, could properly be advised to save. Even if they build up an occupational or other pension entitlement, the earnings guarantee will be withdrawn and savings credit will probably never become payable to any great extent. In those circumstances, it is much better for them to take no action and to draw the guarantee from the beginning, thereby breaking the rule of trying to encourage people to save.

I accept that the argument "you get what you pay for" has force. However, it has the least force where people have not been able to pay; for example, where they have broken work records or where their partners have chosen to save for their old age in ways other than entirely through the basic state pension. A number of amendments have been tabled by my noble friend Lord Higgins and the noble Baroness, Lady Greengross, who are ingeniously trying to square this important point. I look forward to hearing the Minister's reply. I beg to move.

Lord Higgins

My Lords, perhaps I might add one or two remarks to those of my noble friend, who has spelt out the situation extremely clearly. I shall speak in particular to Amendments Nos. 9 and 12.

I have problems with this particular set of issues. I cannot help but feel that there is something wrong with what the Government propose. The simple point is that the object of the Bill is to reward and encourage savings. However, the reality is that the way in which the Government propose to do that in relation to people who have deficient contribution records means that many will receive no benefit as far as concerns their savings. It therefore seems to me that there is something wrong. The National Federation of Post Office and BT Pensioners has again been active in putting forward representations on that point. That organisation asserts that the Bill affects something like 75 per cent of its members. Therefore, it is understandable that it should be concerned.

As regards the problem we are discussing with this group of amendments, it seems that something like 1.4 million pensioners are affected. Three-quarters of those are women, one-third of whom will receive less than the full basic state pension. Therefore, this is not an unimportant issue. The crucial point is that the Government maintain that before people with savings but a deficient contribution record and a less than full state pension receive any benefits under the Bill, they will have to top up the deficient basic state pension to the amount of the basic state pension.

I have read carefully the Minister's comments in Committee. I was confused and I think she was confused. In our earlier debate the noble Baroness said: However, when it comes to the saving credit. I believe that it is right that we reflect the effort that individuals have made to build up their savings. If they have built up their savings but their retirement pension record is incomplete, it seems to me entirely appropriate that, first, their savings should be set against their incomplete retirement pension in order to bring … [it] up to that of the retirement pension".—[Official Report, 24/1;02; col. 1643.] I have great difficulty in reconciling the two parts of that statement. On the one hand the noble Baroness says that she is sympathetic to the fact that people should receive benefit from their savings. She then goes on to say, "But, of course, we shall knock that off until you get up to the basic state pension". That has the effect of those individuals not receiving any benefit from their savings. The two parts of the statement which I have just quoted seem to me wholly incompatible.

Baroness Hollis of Heigham

My Lords, does the noble Lord accept that the alternative position is that someone who has savings and an incomplete retirement pension would be rewarded as though he had a complete retirement pension; and thus that would be unfair to two people with different national insurance records?

Lord Higgins

My Lords, I put that in the context referred to by my noble friend. One must distinguish between those who have a deficient record because they have decided not to contribute but would have been able to do so, and those who have a deficient record through no fault of their own. I refer, for example, to a woman whose husband has died and who becomes widowed before his record is complete. There is nothing that she can do about that. She has a deficient record. She is already penalised because she does not receive a full basic state pension. If, in order to cover that, she has made some small savings, under the Bill she will receive no benefit. It seems to me that that is not appropriate if we are to achieve the Government's record.

We discussed this in Committee. As a result, we have tabled somewhat different amendments. My noble friend has tabled his own amendment. Amendment No. 12 states, in effect, that the savings threshold will be the same proportion of the basic state pension as the individual's actual pension entitlement. If the basic state pension is, say, £77 and an individual with a deficient record receives only £50, the savings threshold for that person will be £50. Thus, if the individual's total income is over £50, whether from savings or second pension, that individual will qualify for savings credit in proportion to his contribution record. I hesitate, seeing my former permanent secretary at the Treasury sitting opposite. I am slightly worried that the arithmetic may not be correct.

However, at all events, we are seeking to ensure that if there is a difference between the two sides of the House on this issue, at least the individuals concerned with the deficient record should get some benefit from their savings. Otherwise, it seems clear that people who are already in this situation are not being treated as fairly as they might. They are already being penalised by the fact that their pension is less than other people's. That means also that people in that situation will be deterred from saving in future. There will not be any point in saving unless they can save so much that it takes them above the basic state pension. They will then receive a small benefit from the Bill.

However, the particular group of people I have described will not receive any benefit under the Bill. That seems to be wrong.

Baroness Greengross

My Lords, I support the remarks of the noble Lords, Lord Higgins and Lord Hodgson. Amendment No. 6 is a simplified way of saying roughly the same thing. Many women, particularly older women, will not have access to the protection which younger women have for the years when they were not able to contribute. They should get the same proportion of the savings credit as that which one has managed to put into a pension. Otherwise we are making an example of those people and saying, "It is not worth saving because it won't make any difference". That is the opposite of what the Bill is intended to do. Therefore, my somewhat back-of-an envelope amendment is just a simple way of supporting very much what has been said.

4.30 p.m.

Baroness Barker

My Lords, I speak to my Amendment No. 10, which is in the group. Like the noble Lord, Lord Hodgson of Astley Abbotts, I take as one of my starting points the debate at Committee stage. The noble Baroness gave figures about the number of people who receive the full basic state pension. From an answer to a question asked by a colleague in the other place, Steve Webb, my understanding is that as at March 2001 the number of men and women at present entitled to a full basic state pension in their own right is 92 per cent of the men and 49 per cent of the women. I understand those to be figures which the noble Baroness gave to us at Committee stage, which included the number of women entitled to a full pension as a result of their partners' contributions. That may have caused confusion for some of us.

I turn to the substance of the amendment. I hope that the noble Baroness will have noticed that I have paid a great deal of attention to the argument that she deployed at the Committee stage. She quite rightly drew the distinction between those who could have paid, but did not, and those who did not because they could not.

I do not make many claims for my amendment. I do not claim that it is either simple or elegant. But what I have attempted to do is to consider those women who could not make a contribution because they were looking after children prior to 1978 when home responsibilities protection began to be paid to women in such a position. At that time home responsibilities and child care were not recognised.

On the basis of evidence and records such as child benefit payments, my amendment seeks to reward those whose contributions record was broken for reasons which would not have applied to later generations. For example, Jane—I use that name for the purpose: she is my version of Frank—was born at the end of the war. She had her children in the 1960s and early 1970s. She was therefore out of the labour market at that time. She has now reached old age and yet again, and for the second time in her life, she is penalised.

She belongs to a generation of women who were told that they had never had it so good, but on reflection they appear to have had it uniquely bad. I am sure the noble Baroness will like my amendment because it is targeted, it is not universal and clearly specific. It is also based on evidence. I look forward to the noble Baroness welcoming my amendment with open arms.

Baroness Hollis of Heigham

My Lords, I welcome the opportunity to debate a cluster of amendments around different ways of approaching the issue of incomplete national insurance records generating an incomplete entitlement to a retirement pension on which, as I have said on a previous occasion, hinges the entitlement to savings credit. Because the amendments are sliced in slightly different ways I shall try to deal with each of them and show why they are in error. That will allow your Lordships to return to these matters at Third Reading if that is desired.

All of these amendments probe the question of how we treat people with incomplete national insurance records. We believe that those who have deficient contribution records are rewarded generously through the guarantee credit and can still gain a savings credit. The savings credit redresses an age-old unfairness. Those who have worked and saved and paid their full national insurance contributions, but have a modest occupational pension that does not float them off MIG, at the moment see no benefit for it. I believe that these amendments seek to undermine that policy and create new and different forms of unfairness.

I deal first with Amendment No. 6 in the name of the noble Baroness, Lady Greengross. The amendment could work in about three different ways and all are unacceptable. The first way in which it could work is that the pensioner was entitled to the maximum savings credit multiplied by the proportion of state retirement pension actually received. For example, if a pensioner had 50 per cent retirement pension and a second pension of £30, the pensioner would be entitled to 50 per cent of the maximum savings credit of £13.80, which will give the pensioner £6.90.

A second way of doing it is by multiplying all the pensioner's qualifying income by the proportion of state retirement pension actually received. Therefore, if a pensioner had 50 per cent retirement pension and a second pension of £30, the pensioner would be entitled to a savings credit of 50 per cent of the qualifying income of £30, which will give them £18 instead of £6.90 as in the first example.

All these ways are deeply complicated according to which way one interprets the matter. One can multiply one sum against another. One could arrive at a situation where someone has a savings credit of £6.80, £9 or something like £18. All these figures ensure that the pensioners will receive some amount of money. But in all cases that will generate other forms of unfairness.

I turn now to Amendment No. 9. I am puzzled by the noble Lord's amendment. The noble Lord, Lord Higgins, did not move it at Committee stage, but he spoke to it on the first day. He spoke rather wistfully of the maiden speech in which he made a somewhat similar set of points. I read that speech and l thought that it would have done old Labour proud. So I congratulate the noble Lord who was clearly well informed on the issue. He expressed the desire again that those with deficient contribution records should be rewarded under the savings credit scheme.

What I find so odd is what the noble Lord proposes in his amendment. It does exactly the opposite. As drafted, his amendment would have the effect that only the actual amount of contributory social security benefit received by the claimant should be taken into account as qualifying income for the calculation of the savings credit. That may not be what the noble Lord intended, but that is what we intend. Therefore, there is no question of our deeming receipt of more state retirement pension than that received. So we welcome the noble Lord to the ranks of the converted.

I now turn to Amendment No. 12 which better reflects the noble Lord's considerations. Again, here are other variations of some of the same points made by the noble Baroness, Lady Greengross. They have the effect of reducing the savings credit threshold to an individual pensioner's level of basic state pension where it is below the full rate expected to be about £77.

We believe that there are four possible ways in which the amendment could work. There are four possible ways in which, under the noble Lord's amendment, one could receive a proportionate reward. The first, which is what I believe the noble Lord may propose, is to start the savings credit at an individual's level of basic state pension with a 60p reward for every pound. That option benefits those with incomplete basic state pensions more than those who have contributed to acquire the full national insurance rights. That is because the savings credit would start at a lower point and build up by 60p for every pound until it reached a maximum at the guarantee level of £100.

For example, let us consider two pensioners with a total income of £100. John has £40 as a basic state pension and Simon has £77. Neither is entitled to any guarantee credit. However, pensioner John would start building up his savings credit, based on the noble Lord's amendment at £40 and receive 60 per cent of the remaining £60 of income equivalent to £36. However, Simon would receive just £13.80 since he had only £23 above the basic state pension.

On that first working of the noble Lord's amendment, it would mean that a pensioner with a lower national insurance contribution record would have a final higher income after pension credit than a pensioner with the basic, full state pension. We do not believe that that is fair because he is getting 60 per cent of the difference between his RP and the full sum.

The second way of working the matter is at an individual's level of basic state pension. with a proportionate reward for every pound, which goes back to the version of the noble Baroness. That option would build up the savings credit at a proportionate rate according to the individual's basic state pension rather than starting it as basic state pension and increasing the entitlement to 60p in the pound.

This option would mean that a pensioner with a record of fewer national insurance contributions would also have a higher final income, after pension credit, than a pensioner with basic full state pension.

Let us consider two pensioners receiving a total of £100. George receives £40 basic state pension; Albert receives the full £77 basic state pension. Neither is entitled to any guaranteed credit. However, George, who has the £40 basic state pension, would start building up the savings credit from £40 at a rate of 30p for every £1—that is assuming that £40 basic state pension is approximately half the full amount.

George would, therefore, receive 30 per cent of the remaining £60 of income, equivalent to £18, and his final income would be £118. However, Albert, who has the full basic state pension, would receive just £13.80 savings credit, since he is only £23 above the state pension. Therefore, Albert's final income would be £113.80.

I am sorry but the devil is in the detail. It may sound easy but the point is that somebody with an incomplete national insurance pension record—using the second method of calculation, which I believe is a method suggested by the noble Baroness, Lady Greengross would end up with more money than somebody who has paid his full whack. Now that cannot be fair. George would not receive a proportionate amount, but actually more. That cannot be fair, and I am sure that that is not the intention.

The third and fourth options involved in trying to work out the amendment tabled by the noble Lord, Lord Higgins, are a variation on a theme. It takes us back to a previous discussion that we either deem, or pay, the basic state pension to all over 65. I could go through all that, but that has been done before. However, that, again, would produce some of the unfairnesses that we have already discussed.

It would mean that somebody with a basic state pension of £40 per week and currently receiving an occupational pension of £25 per week would receive a total income of £65. He would receive a guaranteed credit of £35 to bring his income up to £100. Deeming his basic state pension to be £77 for calculating the savings credit means he would receive an extra £13, bringing his final income after pension credit to £113. Equally, he would now be better off than if he had paid his full national insurance stamp—and that is according to the third method of working out described by the noble Lord, Lord Higgins, again overlapping with the noble Baroness, Lady Greengross. That still produces the perverse effect that somebody with reduced national insurance contributions is better off than somebody with the full number of contributions because he is benefiting from the savings credit coming into play at the 60p in the £1 rate between what he actually has and the final sum.

The fourth and final option is to pay all pensioners over 65 the basic state pension at a cost of around £350 million. But what is a few pounds between friends? That cost assumes that the structure does not change. Therefore, those on a category BL basic state pension would be uprated to a full BL pension and those on category A would be uprated to a full category A and so forth. Additionally, the cost would double if we uprated frozen pensions of UK residents abroad—about £700 million, but let that not stand in our way.

Again, that would not be fair because we would then find that two pensioners would be receiving very different amounts. The pensioner who had paid would be receiving the same as the pensioner who had not.

However, the first part of the debate was to suggest that the proportionate method is simple. I believe that it is almost impossible to work out the detail. All the ways that we have worked it out—and we have tried about seven different versions of modelling it produce the perverse situation in which someone with lower national insurance records ends up being better off than someone with a higher and a complete national insurance record.

The second thrust of your Lordships' argument is who actually stands to lose—

Lord Higgins

My Lords, this may be an appropriate moment to let the noble Baroness, Lady Hollis of Heigham, catch her breath. Are we not right in thinking that the object of this Bill is to benefit those with savings? It will not benefit, in any way, those who have a deficient contribution record and whose savings take them up only to the level of the basic state pension.

4.45 p.m.

Baroness Hollis of Heigham

My Lords, yes. Those people have not paid in their national insurance contributions. Had they done so they would have had lower incomes and found it that much harder to save. Therefore, that money is available for them to put into other savings vehicles.

I, for example, deliberately chose, by financial calculation, to take advantage of the married woman's reduced contributions stamp. I calculate that over the years I have saved many, many thousands of pounds. That is serious money.

For me now to come back and say, "Now please deem me as though I paid the full national insurance stamp and you, taxpayer, with a much lower income than mine as a university academic, should subsidise me", would seem to be unreasonable.

Obviously, I would not be a claimant of pensioner credit but the same principle would apply to the reduced married woman's stamp. One would be saying that because they were women, they should be financially compensated upwards irrespective of their situation?

The first point of my argument is that all the variants offered by the noble Baroness, or the noble Lord, on proportionality end up with the perverse result that somebody with lower national insurance contributions ends up with a higher income than someone with a complete record. The second point is who are the unfortunate losers?

Let me go through those people who are going to be most affected. The majority of pensioners who are going to have less than full contribution records are likely to be included among the following groups but it is impossible easily to give easy numbers. Some will be married women who, like myself, opted to pay reduced rate contributions and stand financially to gain by many thousands of pounds over the years. Others will be married women, without children, who were not active in the labour market because they chose not to work. I do not believe that society has any obligation to reward them with a savings credit when they have not actually made good their basic retirement pension because they have chosen not to work and riot to pay national insurance.

Others will be recently arrived from abroad or those who have worked abroad and have not contributed to a reciprocal scheme. Again, the option is available for anybody who works abroad to develop alternative savings vehicles if they are not able to contribute to the national insurance scheme.

The major two groups that have been identified are those women who have been carers and those who have been self-employed. I appreciate that some women have been carers for whom home responsibilities protection and the introduction of credits for ICA in 1976 came too late to boost them to a full pension.

As far as carers' ICA is concerned, it is now simply too late to revisit the circumstances and determine whether they might have been eligible for a benefit that did not then exist. That would depend on the hours they worked; their relationship to the lower earnings level; their earnings and the like. We cannot revisit. We cannot presume people to be entitled to a benefit when the conditions for that benefit did not exist because the benefit did riot exist.

As for HRP, it is impossible to go back and find out what was happening 30 years ago in terms of the hours of caring; the earnings; and the relationship to LEL, which legitimises their access to ICA.

The same applies to HRP. The noble Baronesses, Lady Barker and Lady Greengross, will know that HRP produces 20 years offsetting against the need for women to achieve 39 years national insurance contributions. Most women will be coming to the end of that period.

However, many women will have got protection because their youngest child enabled them to receive that protection in the 1960s and 1970s. Others will be on minimum income guarantee and will receive their protection in that way. However, I believe that it is impossible to revisit the circumstances of the early 1970s and the 1960s and try to determine the facts of retrospective entitlement. No benefits that I am aware of are retrospective in that respect and I do not believe that we should do it here.

The final group—though one cannot distinguish one group from another—that might be covered, or be advantaged by these amendments were they to succeed, are the self-employed. The self-employed are liable for Class 2 national insurance contribution.

Historically, there has been some blurring between the self-employed in the informal economy; those who are self-employed in their own business; and those who simply sub-contract their labour to others—for example, in the building trade.

In the past, for those who wanted to, those who were part of the informal economy or worked as subcontractors, it was all too easy to avoid paying national insurance contributions. Would your Lordships really wish to reward such people and deem them to have paid it for these purposes? I think that is deeply unfair.

I suggest to your Lordships that we cannot now go back and consider good or bad cause for these particular groups—-that is, carers, self-employed, and people working overseas. There are different circumstances associated with all of them and I think it would be unreasonable to do so.

However, there is a broader point relating to the technical side of the amendments. To treat those who have not contributed fully on the same basis as those who have would, I believe, perpetuate again the same sort of unfairness that exists now when someone says, "I've worked all my life. I've put some savings aside and I'm no better off than her down the road who's done nothing at all. And she's got the same income as me because she's getting MIG."

That is the basic unfairness that pension credit seeks to identify.

Baroness Greengross

My Lords, I am grateful to the noble Baroness for giving way. Perhaps I may make one point. I understand the Minister's astute reasoning. Is it not possible for the Government to set a top limit? No one should receive more than the proportion of pension which they have paid. Therefore, it could not just go on escalating so that they receive more of anything than someone who has paid a full national insurance contribution. There are many regulations which have exceptions or limits to them. In the same way, if one wanted, one could exclude people working abroad or self-employed people from this benefit. But on the wider point, why not set an upper limit, which would mean that they would always get less?

Baroness Hollis of Heigham

My Lords, I am addressing the tabled amendments. Obviously, if the noble Baroness wanted to come back with further amendments, we could see how they would work. As the amendments stand, all the versions that we devise end up with the perverse consequence that someone who has incomplete records can receive more money than someone with complete moneys.

The substantive second point is whether this is the right method of proceeding. What I was trying to say in conclusion was that we have introduced pension credit because people believe that if they have modest occupational savings of, say, £100 per month—for example, a widow or a low paid local authority worker—they are no better off than if they have no occupational pension at all because MIG floats them above that figure. Under our proposals, they would keep £60 of that £100 per month, which is why they are better off. We are addressing a perceived sense of unfairness.

If we said to someone out there, "Well, you have got an incomplete national insurance record, but none the less you will receive some of the savings credit even though you have not got up to the full £77 entitlement of retirement pension", that would introduce an equally valid sense of unfairness between those who have contributed fully and those who have not—especially when we are dealing with groups such as the self-employed, those who have been abroad, those married women who have taken the reduced married women's stamp and saved money in the process and those who have alternative savings vehicles and have chosen to exercise those because they have been living abroad. At the end of the day, I know that the noble Lord, Lord Higgins, believes that this is a right and proper way to approach the matter. I think that he is wrong. On many issues I can see where he is coming from but there may be technical difficulties to meet. But I think that this is unfair. The savings element of pension credit hinges on the £77 retirement pension. If one has not contributed to that, it does not seem right that one should be rewarded for those moneys one has above it.

That is our position. I must suggest to those proposing the amendments that the Government are unable to accept their reasoning and therefore their amendments.

Lord Hodgson of Astley Abbotts

My Lords, we are very grateful to the Minister for her characteristically thorough response. Obviously, there is much there for us to read through. As she has rightly pointed out, the devil is in the detail. I just emphasise where I and maybe some other noble Lords are coming from: this is about people who have deficient state contribution records through no fault of their own. It is about incentives to save; and it is about fairness. It is all very well to talk about the £77 hinge, but there are people who will have made quite substantial contributions to reduce their costs to the Exchequer and to the state and who will receive no credit for it. I am sure that we shall all want to reconsider the matter having read the remarks of the noble Baroness. In the meantime, I beg leave to withdraw.

Amendment, by leave, withdrawn.

[Amendments Nos. 6 to 14 not moved.]

Baroness Noakes moved Amendment No. 15: After Clause 3, insert the following new clause—

"WITHDRAWAL RATE No one drawing a state pension credit shall suffer a withdrawal rate of benefit greater than 40 per cent.

The noble Baroness said: My Lords, this amendment deals with the important area of the withdrawal rate of benefits. The Bill proposes that income beyond the £100 minimum guarantee level will be reduced by 40 pence in the pound. The story does not end with the withdrawal of the savings credit. The Government say in the Explanatory Notes that the rules that apply to housing benefit and council tax benefit will in the main reflect those of pension credit. But it appears that that generosity does not extend at the margin.

The Minister wrote a very interesting letter to my noble friend Lord Higgins, which was copied to the noble Baroness, Lady Barker, in which she illustrated the rates of withdrawal of the various benefits including the income tax effect. The standard withdrawal rate for savings credit, housing benefit and council tax benefit is 91 per cent. The Minister outlined that matter in Committee. But with the impact of tax, which is complicated by the individual circumstances of the pensioner, that can rise to a staggering 93 per cent.

That is a very difficult level of withdrawal to contemplate as being fair, just and reasonable. Perhaps just as importantly, the Bill should be promoting savings. It does absolutely nothing to promote savings if the pensioner can see the trap waiting for him once his savings get beyond the level of generation of income which pulls these withdrawal rates into effect.

In Committee, the Minister told us that large numbers of pensioners would be involved if the amendment, which we have before us again today, were agreed to and that it would be very costly. I think she also said that there would be no cash losers under the Bill. I hope that she will forgive some scepticism from these Benches, given the complexity of the matters and with so much presumably needing to be dealt with by regulations which are not yet before us.

The biggest problem is that these high marginal withdrawal rates-91 and 93 per cent—are a massive disincentive to savings for the future pensioner population.

I fully accept that Amendment No. 15 is inelegant. It seeks to cap those withdrawal rates at 40 per cent. I should very much like to find a more elegant formulation for it. For now we remain to be convinced that it is right to have a withdrawal rate of more than 40 per cent for all of the benefits taken together that are caught by these withdrawal rates. I beg to move.

Baroness Hollis of Heigham

My Lords, Amendment No. 15 would ensure that no pension credit recipient suffered a marginal deduction rate of more than 40 per cent. The noble Baroness, Lady Noakes, in her final remarks said 40 per cent " all taken together". As I explained in Committee, the costs associated with that are £17.5 billion, almost nine times as much as our pension credit proposals. I am sure that the noble Baroness does not mean to raise the cost for pension credit by such large amounts, even from those Benches. So I shall assume that she is referring only to ensuring that those pensioners receiving the savings credit do not suffer marginal deduction rates of more than 40 per cent.

That is not what she said. But that may be what she actually means. I should not wish to put a £17.5 billion tag around her neck, particularly as we go into the weeks running up to the Budget. To do this, we would have to extend the allowable amounts in housing and council tax benefits to the end of the savings credit so that single pensioners with weekly incomes up to £135 and pensioner couples with incomes up to £200 are passported on to full housing and council tax benefits. The cost of doing that, which is a much more modest amendment, is £600 million. It is poorly targeted because the pensioners who would gain from that amendment would all have incomes in excess of the guarantee credit.

So my first response is that the cost—whether it is the biggie or even the littlie—is extremely expensive and going to the wrong people. I do not think that the noble Baroness really wants that.

The second point made by the noble Baroness, which I believe is the thrust behind the amendment, is her worry about marginal deduction rates, or MDRs, which will be 91 per cent for the approximately 8 per cent of pensioners who may receive the taper out of the pension credit, housing benefit and council tax benefit—with a further 2 per cent, or so, on top if they also pay tax. I take her point: no one likes high marginal deduction rates. The noble Baroness's language of incentives would be right for people with an option of increasing their income who chose not to do so because of high MDRs. Who is in that situation? People in work who know that, if they work for another £10, they will keep only 9p, 90p or £1. Those are the people who will he deterred by MDRs.

Where there is a high MDR but a fixed income, no change in behaviour will follow. If one is a cash gainer—my understanding remains that there will be no cash losers under the Bill—the concern of the noble Baroness about MDRs is unrealistic. I make that distinction. MDRs are a problem for those in work who have the option of increasing their income but may be deterred because of what are effectively very high rates of tax. For people who have fixed incomes, such as pensioners for whom such choices do not come in to play, MDRs can in no sense be a deterrent because there is nothing to deter them. The net result—this is important—is that they will remain cash gainers by between £7 and £11 a week, on average, from pension credit.

Given those two points—first, that the amendment would be excessively expensive, whichever figure the noble Baroness chooses, and poorly targeted; and, secondly, that what matters here is not MDRs but whether pensioners are cash gainers, as they will be—I hope that the noble Baroness will withdraw her amendment.

5 p.m.

Baroness Noakes

My Lords, I thank the Minister for her reply and for the cost estimates, which are indeed significant. In speaking to the amendment, I stressed the impact on future populations of pensioners and, in particular, the incentive effect on saving. Marginal deduction rates will not work only on those in work, who may see only 7p or 9p left from £1 of earnings. They may well have an impact on those considering the effect on their position for marginal extra saving—the sacrifice that they would make while they work to save for their retirement; or, indeed, their decision once in retirement whether to keep their savings or to start to draw them down and spend them.

We have constantly been talking about the effect of the Bill on the incentive to save because it is important that there should be a great incentive for individuals to save so that they do not become a long-term burden on the state. We have constantly asked about that future pensioner population, and have often received answers about the effect on the current pensioner population. Those are two distinct issues. However, I heard what the Minister said, in particular on cost. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [Exclusions]:

Baroness Greengross moved Amendment No. 16: Page 3, line 39, leave out subsection (1).

The noble Baroness said: My Lords, I tabled this amendment in Committee but it was the last amendment considered on the first day of the Committee stage, so it was late when we reached it and was considered only briefly.

As the Minister covered the substance of the issue in Committee, I shall, again, be brief. The issue here is whether couples should be assessed individually, as is the case with tax, or together as pensioner couples, as is the case for benefits. A move towards integration will help us to move from the language and practice of means-testing to the language and practice of entitlement, which I think we all want.

My question is simply whether the Government intend eventually to integrate state pension credit with the tax system. I know that that could be done only in the long term. When asked in Committee whether the Government were going to disaggregate, the Minister said: The answer to that is no".—[Official Report. 24/01/02; col. 1690.]

That seemed a pretty clear answer. Yet in the consultation document published in November 2000, I, for one, was encouraged to read that the intention was indeed to, look at the tax system to consider whether there could be alignment with tax rules … smoothing the path to greater tax/ benefit integration in time".

Am I to assume that the Government are not now making any effort along those lines? I beg to move.

Baroness Hollis of Heigham

My Lords, I shall he brief. Pension credit is designed to meet household need—the guarantee element—and to reward savings that are at present being absorbed by the relative generosity of MIG. The whole of social security is based on the concept of a household. The Government have no intention to disaggregate. There is, therefore, no likelihood that the pension credit would be or could be disaggregated, as the noble Baroness suggests.

Under the noble Baroness's proposal a woman who had a wealthy husband or cohabiting partner with little personal income but who was, none the less, in a wealthy household would be entitled to pension credit, even though her partner or husband had a very high income. That cannot be the basis of social security; it never has been. I must say that we shall not go down that road. I am sorry, but it is right to be absolutely clear. With that assertion—it is not really an explanation, it is an assertion—I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Greengross

My Lords, I thank the Minister for that explanation. It is rather disappointing because we appeared to be moving in that direction, but I understand. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 [Fixing of claimant's retirement provision for assessed income period]:

Baroness Noakes moved Amendment No. 17. Page 5, line 41, at end insert— ( ) Where a recoverable overpayment of state pension credit has occurred as a result of an error which was not caused by the claimant, in the determination of the amount of an element of the claimant's retirement provision, the amount recoverable shall be limited to the amount overpaid in a period of 12 months or the assessed income period, whichever is the shorter.

The noble Baroness said

My Lords, the amendment is intended to restrict the amount that the department can recover from the claimant where the overpayment is due to an error not caused by the claimant—in other words, official error. The amendment would allow the department to recover one year's overpayment, but no more. It differs crucially from the amendment proposed by the noble Baroness, Lady Turner. in Committee, in that it applies only to official error, not those made for any other reason.

Official error is not an insignificant problem. The department's own figure to September 2000 relating to income support and jobseeker's allowance is 3 per cent. There is no reason to think that the error rate will somehow magically be less when dealing with pension credit. So many pensioners may be affected by official error. We also know that old people are fearful of getting into debt and do not like it. The fear of debt especially of repayment—could well affect the uptake of pension credit. We know that the non-uptake of means-tested benefits generally is high. Some people say that the introduction of this greater level of means testing will mean another great leap upwards in the amount unclaimed by entitled non-recipients.

It is fair to pensioners to restrict the recovery of amounts overpaid where that is not due to their error. It would also act as an incentive to the department to reduce that high official error rate. It might even promote the virtuous outcome through which the department benefits and pensioners need not fear the consequences of overpayment due to error made in calculating their entitlement. I beg to move.

Baroness Hollis of Heigham

My Lords, I shall try to allay the concerns of the noble Baroness. The amendment is redundant because overpayments that arise through no fault of the claimant—those due to official error—are not recoverable under Section 71 of the Social Security Administration Act 1992. Pension credit is included in that provision by paragraph 10 of Schedule 2 to the Bill.

Baroness Noakes

My Lords. I am grateful to the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 18: After Clause 10, insert the following new clause—

"ANNUAL REPORT The Secretary of State shall lay before Parliament an annual report on the performance of the pensions service that shall include—

1. (a) an estimate of the take-up of the state pension credit;
2. (b) the costs to the department, including details of staff, telephone and information technology costs;
3. (c) service level indicators for judging the performance of the pensions service in providing the state pension credit; and
4. (d) an analysis and commentary of the performance of the pensions service judged against the service level indicators."

The noble Lord said: My Lords, after the exchange on the previous amendment, we seem to be making progress.

The amendment deals with the question of an annual report and the question of performance indicators. It is what would be described at a Labour Party conference as a composite motion, as it brings together the two matters that we discussed in Committee—I am not sure why that should be a matter for amusement—as recorded in Hansard at cols. 198 to 204 for 29th January.

When we had that debate. there was a widespread view that it was extremely important that the specific question of how the new pension service performed in relation to the state pension credit should be transparent, accountable and focused. Although this is, in no sense, an exhaustive list, we suggest that, in particular, there should be an estimate of the take-up of state pension credit. The whole issue of take-up is absolutely crucial, and there is disappointment in all parts of the House about the low level of take-up. It is a matter that gives us all concern. We must hope that the level of take-up as far as concerns the pension credit is reasonable and that the department will succeed in ensuring that those entitled to it do, in fact, make a claim. More generally, the level of take-up has been giving us cause for concern with regard to a great many benefits.

Secondly, we suggest that the costs to the department should he set out, so that we can discover each year how efficiently the department has operated the scheme. In previous debates, the Minister has put much stress on the fact that the new pension service will rely heavily on telephone services to reach the constituents of Members of another place. It should also rely on information technology, but, as we know from the experience of the department, it is not easy to take advantage of modern technology in the field of social security, where matters are so complex. Those are two particular areas where such a report should operate.

In the second part of the amendment, we are concerned that there should be suitable indicators for judging the performance of the service in providing the state pension credit. At the end of each year, the report should contain, an analysis and commentary of the performance of the pensions service judged against the service level indicators".

In Committee, my noble friend Lord Fowler, who, as a former Secretary of State, has great experience of the area of social security, emphasised the importance of post-legislative scrutiny. He quoted a particular example from his own experience. It is certainly the case that we have not given sufficient attention to the matter in the past. In replying to the earlier debate, the Minister said that there was, of course, the department's annual report. I see that the Minister is waving such a report, but I doubt that it is really a bestseller. Quite rightly, the Minister is laughing. I have a nasty feeling that the annual report, which covers the whole range of the department's activity, does not normally come to the fore of noble Lords' daily reading—or even annual reading.

It is, in a sense, a completely new benefit, and we want a focused report that the House can appraise each year. It is right that we should have that, and it is equally right that it should be in addition to anything that may be said in the department's annual report. More particularly, it is important that it should be clearly set out in the Bill, when we are introducing a new benefit of this kind. I beg to move.

5.15 p.m.

Baroness Barker

My Lords, I apologise for the slight disruption to your Lordships' deliberations earlier. Noble Lords will be pleased to know that my mobile phone is not with me in the Chamber; it is somewhere else. Perhaps in days to come, when the information services on pagers are improved, noble Lords will be able to get an estimate of their pension credit via their pager.

I strongly support the noble Lord, Lord Higgins, in this matter. Noble Lords will remember that we had a long debate in Committee about benefit take-up. I do not wish to rehearse the arguments that we had then, but I believe that the noble Lord, Lord Higgins, is right to suggest that the scale of the change—a change that will bring almost half of the pensioner population into the scheme and is proposed in a framework Bill—represents art enormous risk for the House to take. It seems right that we should have a detailed and comprehensive look at the workings of the scheme in years to come. The DWP annual report may not be a best-seller, but I am sure that it will become bedtime reading for some of us. The operation of the scheme must be examined in significant detail.

The Minister kindly wrote to me about the plans for research to follow up the research into why pensioners do not claim MIG. It is helpful that that research will go ahead, and I look forward with great interest to hearing what it says. All the way through our deliberations, I have expressed the fear that a scheme that, to the Minister, may be simple mathematics is. in fact, complex in its operation. It will be particularly difficult for lay people to explain to pensioners. We know from the existing research that one of the key factors in benefit take-up is informal information from people such as doctors, nurses, care assistants and other pensioners. The role that pensioners play in explaining to other people what the benefit system offers is often underestimated.

For all those reasons, I believe that the noble Lord is right. I strongly support him on this matter.

Lord Fowler

My Lords, I strongly support the amendment, although not the idea that it is like a Labour Party composite. I always thought that those were the worst possible motions.

Baroness Hollis of Heigham

My Lords, I am sure that the noble Lord would like to tell the House that the Labour Party has since abandoned that procedure.

Lord Fowler

My Lords, I am delighted that it is, at last, coming into the 21st century, as far as such matters are concerned.

That should not, in any way, dent the argument in favour of the amendment. I support the amendment for the kind of reasons that I set out in Committee. We should concentrate more on post-legislative scrutiny than we have done. We should check on how legislation has been and is being implemented. That is what matters most to the public. Certainly, we should aim to improve pre-legislative scrutiny, as every political commentator in the country urges us to do, but some of the biggest mistakes in recent years have occurred when a Bill has actually been implemented. It is an administrative fault. It is a management error that can defeat the intent of Parliament and. if I may say so, can defeat the intent of the Ministers who introduced the legislation in the first place.

In Committee I gave one example where such an error had occurred. I have to apologise to the House because I understated the case. It is not usual for me to understate a case, but on that occasion I did so. I spoke of the widows of thousands of former soldiers deprived of many millions of pounds in pensions, in some cases for as long as 50 years, through a blunder by the Ministry of Defence. The Income Tax Act 1952 was misinterpreted. It was interpreted correctly by the Royal Navy and the RAF, but not by the Army. I pointed out that that went on for around half a century. However, in fact we now know that it could have gone on for much longer than that and that the mistake could go back not to 1952. but to 1919. Indeed, had it not been for one very persistent gentleman, I am not sure whether the mistake would ever have been discovered.

I have read the exchanges in the other place which took place yesterday, I understand that the department concerned is still looking into the details of the case, and rightly so. However, I do not think that anyone could deny that a serious error was made. In fact, it is an extraordinary position. That case shows how an administrative failure can carry on year after year. I think that we need to guard against it and I believe that the amendment moved by my noble friend seeks to achieve that.

The other case I mentioned was that of widows' rights under the state earnings related pension scheme. Those were changed in the Social Security Act 1986. They were made quite openly in a Bill that I actually introduced. The Bill was debated in Committee, it was controversial and Statements were made on it. The Bill was challenged in Committee and its proposals were fiercely debated. Once the Bill became law, as Secretary of State I issued my own leaflet on the matter. Nevertheless, for some 10 years afterwards, the department gave out the wrong advice in one of the leaflets that it had produced. Let us be blunt: it was an administrative failure. I had long since moved on, but the leaflet was wrong and every report suggests that it never went anywhere near Ministers, although it went through the hands of over 100 civil servants.

I criticise the situation, but all I seek to do here is to point out that these errors can take place. They can go on for year after year, and they are to the utter disbenefit of the public.

I do not say that all these problems will be automatically solved by the production of an annual report, or even by an annual report of the kind proposed by my noble friend. However, I think that an annual report which sets out an estimate of the take-up of the state pension credit, the costs to the department, how the benefit is being implemented and the effectiveness of that implementation process is terribly important. However, what is utterly important is that this would be a report to Parliament. The fact is that it would not be a generalised annual report. No doubt an annual report from the department is a perfectly good idea, but necessarily that would be a generalised report covering a whole series of benefits, taking in the work of a whole department. What my noble friend proposes here is a specific report about a specific new benefit. It would provide us with the information that we want to know, covering areas such as take-up and how effectively it is being introduced.

However, the most important impact that such an annual report would have would be its impact on those who are administering it. It would become a reality through its accountability to Parliament in a way that otherwise it would not achieve. Perhaps I may put this as gently as I can: it would have a persuasive impact on everyone in the department because the facts of the situation would be known and reported. In other words, I believe that it would improve the position very substantially for the public and, perhaps I may suggest, it might even very substantially improve the situation for the Government and Ministers.

Lord Hodgson of Astley Abbotts

My Lords, I rise briefly to support my noble friend in his amendment. My noble friend Lord Fowler has just pointed out that it would be a report to Parliament. However, I also see it as a report to the users, the customers of the Pension Service. I believe that those who are looked after by a government department are entitled to know the broad standards of service which they can expect. It forms a part of empowerment and would signal a move away from the notion of means-testing to one of entitlement, underlining the fact that people will be customers of the Pension Service. For that reason I believe that the service level indicators are important. Extracts or reports on those might even on occasion be sent to those in receipt of pension credits, because that would be another way of telling them what is being done on their behalf. Indeed, it could even invite their comments. I strongly support my noble friend.

Baroness Hollis of Heigham

My Lords, we are proud of the pension credit. There can be no greater endorsement than when someone says, "I wanted to introduce this and I wish that I had done so". We are proud of it because we believe that it will both address the problem of pensioner poverty and reward pension savings. It will do so in an elegant way but, as has been accepted on all sides of the House, also in ways that may become quite technical in the small print. Indeed, I believe that we have already experienced that earlier today.

Given that we are proud of pension credit and that we want to ensure a high take-up, we would not in any sense wish to keep back from the light of scrutiny the performance either of pension credit or of the Pension Service. As the noble Baroness, Lady Barker, pointed out, there will be a programme of research to establish exactly what we have achieved by introducing pension credit. We publish research reports. Indeed, on many occasions in your Lordships' House the noble Earl, Lord Russell, and I have debated points such as "page 57, footnote 3". No doubt we shall continue to do so.

We now publish annual statistics on the take-up of the minimum income guarantee, something for which both the noble Earl, Lord Russell, and I pressed when in Opposition. I am sure that we will publish take-up figures for pension credit. The present Government have systematically set targets for performance in all the most important areas of the public service. We publish targets and we report our achievements. We will publish targets for pension credit and we will publish our achievement.

We shall also have the departmental report. I am sorry that it was not the bestseller that the noble Lord opposite and I would wish it to be, but I understand that it might have somewhat limited sales. Nonetheless, it provides a great deal of information. The Benefits Agency publishes a separate report providing further information about the administration of pensions and benefits. I expect that the Pension Service, of which pension credit in a sense is a sub-set, will report in a similar way. It appears rather inconceivable that the Pension Service, of which we are so proud, would not report in ways similar to that of the Benefits Agency.

More generally, Ministers are accountable to Parliament. Noble Lords regularly grill me, while in the other place Select Committees grill Ministers. If the House were to decide that the Bill should include a statutory requirement, of course that could not go beyond pension credit. From what I understand noble Lords wish to achieve here, I think that that would be too narrow.

Once we have completed our reforms, a person approaching state pension age will receive a single invitation to claim their entitlement. I suspect that the person will telephone the Pension Service saying that they wish to claim their pension. At that point Pension Service staff will go through all their entitlements, including basic state pension, SERPS, graduated pension and pension credit. I hope that once the IT is well founded, the administration will be seamless. To require us to unravel the administration of that entire seamless service in order to report on only one aspect of pension entitlement does not seem entirely sensible. Thus I have concerns about trying to report on pension credit in isolation. I understand that, given the Title of the Bill, noble Lords cannot ask for a report to be made on anything further than pension credit. I give way to the noble Lord, Lord Fowler.

Lord Fowler

My Lords, I wonder why the Leader of the House in the other place has referred to post-legislative scrutiny as an "enormous gap" in our defences?

Baroness Hollis of Heigham

My Lords, I take that point entirely. I am sorry that the noble Earl, Lord Russell, is not in place because he would agree that that is something which I have always sought to set in place; that is, tracking devices. For example, before we move into major policy development, we should run pilot schemes to see what might happen. Once a policy is established, one should put in place tracking systems to see what may be the consequences of a policy and to ensure that no aberrations or perverse effects that we had not anticipated have crept in. In all that, I entirely agree with the noble Lord. Having said that, the amendment is technically defective and could not stand as it is.

I take the point that your Lordships have made. I am happy to give an undertaking—although not in the form of the amendment, which, as I say, is technically defective—that we will report to Parliament on the level of performance in the transitional period while we are introducing pension credit. The Secretary of State will almost certainly monitor what is happening as pension credit settles down, and I am happy to undertake that we will report—embracing these questions, certainly, and others that have not been raised here—each year for the remainder of this Parliament. I shall certainly want to know what is happening and I have no reason to think that your Lordships would not wish to do so.

We will include in the report information about take up, specifically on the savings credit. After three years, both Houses might reflect on whether it was appropriate to integrate this report into either the departmental report or the report of the Pension Service more generally. If it meets your Lordships' concerns that we will address this issue specifically for the remainder of this Parliament or for three years, I am happy to give that undertaking today because I share the intentions behind the amendment.

5.30 p.m.

Lord Higgins

My Lords, I have listened carefully to the noble Baroness and, in particular, to the points made by my noble friends Lord Fowler and Lord Hodgson. I am grateful for the Minister's sympathetic response to our proposals. None the less, the argument of, "Oh well, it would be nice if we could go much further", and then to point out that we cannot go further under the terms of the Bill does not get us very much in advance.

We need to make a start on this. My noble friend Lord Fowler rightly pointed out that it is important that post-legislative scrutiny should be made better. but I do not think that the noble Baroness's undertaking does that. Previous proposals have been placed on the face of a Bill—the most famous is the Rooker, Wise, Lawson amendment in regard to economic forecasts—and if they are on the face of a Bill they have a different effect to the kind of undertakings given by Ministers in the course of debates, which are then forgotten and not brought before the House again. Similarly, there is a case for a continuous process rather than for one which runs merely for the length of a Parliament and so on.

Baroness Hollis of Heigham

My Lords, before the noble Lord decides what he is going to do, how does he address the point that it is a defective amendment? I did not want to hammer on about this point—I try not to get on to defective amendments because, certainly in my time in opposition, I am sure every amendment I produced was defective—but I am concerned to address the issue. If the noble Lord is seriously attempting to put this on the face of the Bill, what will he do about the fact that the amendment is defective and therefore cannot stand as it is and will have to be revisited in some way?

For example, the performance of the Pension Service concerns matters outside the scope of the Bill. Terms such as "service level indicators" require far more definition and may not be relevant in 10 years time, and so on. I could "destruct", if you like, the amendment on technical grounds.

Lord Higgins

My Lords, the noble Baroness said that it was technically defective in the first instance, but she did not spell out why. Not specifying the precise performance indicators does not make the amendment technically defective. We have said throughout these proceedings, time and time again, that the whole issue of the Pension Service is relevant in relation to the state pension credit. This amendment is concerned with the state pension credit.

I am not convinced by what the Minister has said about the amendment being technically defective. If, on reflection, she comes to the view that it is, we are at a very early stage of our proceedings, both in this House and another place, and we can certainly come back to the issue if need be. But we need to make a start. It is important that this should be on the face of the Bill and I wish to seek the opinion of the House.

5.34 p.m.

On Question, Whether the said amendment (No. 18) shall be agreed to?

Their Lordships divided: Contents, 123; Not-contents, 143.

Division No. 1
CONTENT
Addington, L. [Teller]	Jopling, L.
Astor of Hever, L.	Kimball, L.
Attlee, E.	King of Bridgwater, L.
Avebury, L.	Kingsland, L.
Baker of Dorking, L.	Knight of Collingtree, B.
Barker, B.	Lester of Herne Hill, L.
Beaumont of Whitley, L.	Lucas, L.
Blatch, B.	MacGregor of Pulham Market, L.
Bradshaw, L.
Brooke of Sutton Mandeville, L.	Mackie of Benshie, L.
Brookeborough. V.	Maclennan of Rogart, L.
Buscombe, B.	McNally, L.
Campbell of Alloway, L.	Maddock, B.
Campbell of Croy, L.	Mar and Kellie, E.
Carlile of Berriew, L.	Marlesford, L.
Carlisle of Bucklow, L.	Masham of Ilton. B.
Carnegy of Lour, B.	Methuen, L.
Cavendish of Furness, L.	Michie of Gallanach, B.
Chadlington. L.	Miller of Chilthorne Domer, B.
Clement-Jones, L.	Miller of Hendon, B.
Colwyn, L.	Mowbray and Stourton, L.
Cope of Berkeley, L. [Teller]	Murton of Lindisfarne, L.
Craigavon, V.	Newby, L.
Cuckney, L.	Newton of Braintree, L.
Cumberlege, B.	Noakes, B.
Darcy de Knayth, B.	Northesk, E.
Dean of Harptree, L.	O'Cathain, B.
Denham, L.	Oakeshott of Seagrove Bay, L.
Eccles of Moulton, B.	Onslow, E.
Elliott of Morpeth, L.	Palmer, L.
Elton, L.	Park of Monmouth, B.
Fearn, L.	Pearson of Rannoch, L.
Flather, B.	Peel, E.
Fookes, B.	Phillips of Sudbury, L.
Fowler. L.	Plummer of St. Marylebone, L.
Freeman, L.	Razzall, L.
Gardner of Parkes, B.	Reay, L.
Glenarthur, L.	Redesdale, L.
Goodhart, L.	Rees, L.
Gray of Contin, L.	Renfrew of Kaimsthorn, L.
Greenway, L.	Rennard, L.
Hanningfield, L.	Roberts of Conwy, L.
Harris of Richmond, B.	Rodgers of Quarry Bank, L.
Haslam, L.	Roper, L.
Henley, L.	Rotherwick, L.
Higgins, L.	Russell, E.
Hodgson of Astley Abbotts, L.	Russell-Johnston, L.
Hooper, B.	Saltoun of Abernethy, Ly.
Howe, E.	Sanderson of Bowden, L.
Howell of Guildford. L.	Scott of Needham Market, B.
Inglewood, L.	Seccombe, B.
Jenkin of Roding, L.	Selborne, E.

Sharman, L.	Trefgarne, L.
Sharp of Guildford, B.	Trumpington, B.
Shaw of Northstead, L.	Vinson, L.
Shutt of Greetland, L.	Vivian, L.
Skelmersdale, L.	Waddington. L.
Stodart of Leaston, L.	Wade of Chorlton, L.
Strathclyde, L.	Wallace of Saltaire, L.
Taverne, L.	Walmsley, B.
Thomas of Gwydir, L.	Wilcox. B.
Thomas of Walliswood, B.	Williams of Crosby, B.

NOT-CONTENTS
Acton, L.	Harris of Haringey, L.
Ahmed, L.	Harrison, L.
Alli, L.	Haskel, L.
Andrews, B.	Haskins, L.
Archer of Sandwell, L.	Hayman, B.
Ashton of Upholland, B.	Hilton of Eggardon, B.
Bach, L.	Hollis of Heigham, B.
Barnett, L.	Howells of St. Davids, B.
Bassam of Brighton, L.	Howie of Troon, L.
Bernstein of Craigweil, L.	Hoyle, L.
Billingham, B.	Hughes of Woodside, L.
Blackstone, B.	Hunt of Chesterton, L.
Borrie, L.	Hunt of Kings Heath, L.
Boston of Faversham, L.	Irvine of Lairg, L. (Lord Chancellor)
Bragg, L.
Brennan, L.	Jay of Paddington, B.
Brett, L.	Jeger, B.
Brooke of Alverthorpe, L.	Jenkins of Putney, L.
Brookman, L.	Jones, L.
Brooks of Tremorfa, L.	Judd, L.
Burlison, L.	King of West Bromwich, L.
Campbell-Savours, L.	Kirkhill, L.
Carter, L.	Laird, L.
Chan, L.	Layard, L.
Christopher, L.	Lea of Crondall, L.
Clark of Windermere, L.	Lipsey, L.
Clarke of Hampstead, L.	Lockwood, B.
Clinton-Davis, L.	Lofthouse of Pontefract, L.
Colville of Culross, V.	Macdonald of Tradeston, L.
Corbett of Castle Vale, L.	McIntosh of Haringey, L.
Craig of Radley, L.	McIntosh of Hudnall, B.
Crawley, B.	MacKenzie of Culkein, L.
Currie of Marylebone, L.	Mason of Barnsley, L.
David, B.	Massey of Darwen, B.
Davies of Coity, L.	Merlyn-Rees, L.
Davies of Oldham, L.	Mitchell, L.
Desai, L.	Morgan, L.
Dixon, L.	Morris of Aberavon, L.
Dormand of Easington, L.	Morris of Manchester, L.
Dubs, L.	Murray of Epping Forest, L.
Elder, L.	Nicol. B.
Evans of Parkside, L.	Orme, L.
Evans of Temple Guiting, L.	Parekh, L.
Evans of Watford. L.	Paul, L.
Falconer of Thoroton, L.	Pendry, L.
Farrington of Ribbleton, B.	Peston, L.
Faulkner of Worcester, L.	Pitkeathley, B.
Filkin, L.	Plant of Highfield, L.
Fitt, L.	Ponsonby of Shulbrede, L.
Fyfe of Fairfield, L.	Prys-Davies, L.
Gale, B.	Puttnam, L.
Gibson of Market Rasen, B.	Radice, L.
Gilbert, L.	Ramsay of Cartvale, B.
Golding, B.	Randall of St. Budeaux, L.
Goldsmith, L.	Rendell of Babergh, B.
Gordon of Strathblane, L.	Richard, L.
Goudie, B.	Rooker, L.
Gould of Potternewton, B.	Sainsbury of Turville, L.
Graham of Edmonton, L.	St. John of Bletso, L.
Greengross, B.	Sawyer, L.
Grenfell, L.	Scotland of Asthal. B.
Grocott, L.	Scrota, B.
Hardy of Wath, L.	Sheldon, L.

Simon, V.	Warner, L.
Taylor of Blackburn, L.	Warwick of Undercliffc, B.
Temple-Morris, L.	Whitaker, B.
Tenby, V.	Whitty, L.
Tomlinson, L.	Wilkins, B.
Tumberg, L.	Williams of Elvel, L.
Uddin, B.	Williams of Mostyn, L. (Lord Privy Seal)
Varley, L.	Williamson of Horton, L.
Walker of Dortatster, L.	Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.45 p.m.

Clause 15 [Income and capital]:

The Deputy Speaker (Lord Skelmersdale)

My Lords, in calling Amendment No. 19 I must inform the House that. if it is agreed to, I cannot call Amendment No. 20.

Baroness Noakes moved Amendment No. 19: Page 9, line 11, leave out paragraph (a).

The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendment No 21.

The amendment seeks to remove paragraph (a) from Clause 15(1), thereby removing "earnings" from the ambit of "income" for the purposes of the pension credit. It would mean that all of a person's earnings would be disregarded in all pension credit calculations—-both guarantee credit and savings credit.

Amendment No. 21 is different. It seeks to introduce a specific earnings disregard based on part-time work of 16 hours, valued at the lowest wage rate; namely, the minimum wage. Both amendments would disregard all or part of "earnings".

In Committee, the Minister said that the position as regards earnings had not yet been decided. But it is an important issue-800,000 pensioners could be affected, and possibly even more if a younger spouse's earnings were factored in. We really do need to know exactly what the Government intend in regard to earnings. I do not believe that we should be expected to consider the Bill without knowing that. What the Government intend to do in regard to earnings is possibly one of the most important outstanding issues relating to the Bill. I hope that the Minister will now place the Government's intention on record. I beg to move.

Lord Addington

My Lords, Amendment No. 20, standing in the name of my noble friend Lady Barker and in my name, is grouped with this one.

The case for disregarding earnings is simply one of making sure that pensioners can carry on working for as long as is reasonably possible. With an ageing population and with people "ageing more slowly" the idea would seem to make sense. Our amendment is a modest attempt to drag out of the Government their thinking on the subject.

If earnings are taken into account, the question will arise of certain people earning huge amounts of income and of the minimum income guarantee. The list of definitions of "income" in Clause 15 includes "income from capital" and, income of any prescribed description". Surely these will remove the very high earner from the provision. I suggest that a provision such as that put forward in the amendments should appear on the face of the Bill, if not at this stage then very soon. It would probably improve the whole set of proposals.

Baroness Hollis of Heigham

My Lords, noble Lords on the Opposition Benches have asked a number of times how earnings would be taken into account. They rightly warned me that they would return to the issue. I owe the House an apology. We are still considering the detailed treatment of earnings as "income" within the pension credit.

However, I welcome the opportunity of debating amendments covering the treatment of earnings and pension credit income assessment. What I can say is that, as a minimum, we shall bring forward the current earnings disregards from MIG. Any proposals will apply equally to the guarantee element and the savings credit element of the pension credit. We propose also that the present rule in MIG which excludes pensioners in remunerative work over 16 hours will not apply to pension credit. In effect, we have abolished the somewhat arbitrary 16-hour rule.

I turn first to Amendment No. 19. The amendment proposes to remove earnings from consideration as income within Clause 15 of the Bill and, therefore, from consideration within the calculation of both the guarantee credit and the savings credit of any pension credit claimant aged 60 or over. Earnings of their partners, of any age, would also not be counted.

I do not want to keep boring the House with the cost implications, but the cost of this amendment would he nearly £2.5 billion. That is more than the cost of the pension credit as currently set out in the Bill—precisely because so many people between 60 and 64 are in work. If we disregarded their income and made them eligible for pension credit, we would have some serious problems.

Amendment No. 21 would introduce a disregard of the earnings from 16 hours' work—equivalent to two days' work at the minimum wage. That would equal a weekly earnings disregard of around the first £65. However, the amendment would apply the disregard to all people aged 60 and over, which would cost around £350 million a year to implement, rising to £650 million a year if the disregard applied to both members of a couple individually.

Under Amendment No. 20, all earnings of those over state pension age would be disregarded. We cannot perpetuate in new law the same old inequities in the state retirement age. I ask the noble Baroness, Lady Barker, to reconsider her proposals on equal treatment grounds.

We have debated many amendments on this major issue. It may help if I explain the context. Currently, 50 per cent of men and 25 per cent of women aged 60 to 64 work, at wages that can rightly be substantial. In addition, a further 800,000 people aged 65 and over are at work. I am delighted that they are working. It is welcome for the economy and for them. Work for pensioners is not just about ensuring that we have a steady flow of human resources or trying to get the demographic balance right; it is about experience, handing on skills and promoting inter-generational understanding and respect. It is a key part of active ageing and social inclusion. We share those values.

We have no difficulty with promoting opportunities for older workers. The challenge is how best to do that. Some of the amendments that we have discussed today and in Committee would have disregarded earnings in part or in full for all people over the age of 60. The cost of a full disregard, at about £2.5 billion, is prohibitive. I hope that your Lordships also appreciate the Government's view that, taken together, the working tax credit, the abolition of the 16-hour rule and bringing forward the existing disregards in the income-related benefits best suit the needs of those aged 60 to 64.

That leaves the question of how best to promote the interests of those aged 65 and over. I suspect that that is what the noble Baroness is really concerned about, but the amendment does not narrow the issue down in that way. Again, there are three options in play. The first is simply to bring forward the existing disregards in the income-related benefits—the first £5, or, for couples, the first £10. The second is to disregard some higher amount. A disregard of £40 per household would cost £80 million, for example. A further possibility, which we have not debated so far, would be to annualise the existing disregards or some new ones. That might intrigue the noble Baroness, because it might suit smaller businesses by providing welcome cover for holidays or sickness without putting a pensioner to the trouble of keeping to the law as it stands.

One further option is to disregard all earnings for those over 65. Using old currency, where the things that mattered were income, earnings and capital, that proposition would abolish one third of the test. It would also put pension credit on the same standing as retirement pension, for which all earnings are ignored. However, it would come with a heavy price of perhaps £250 million—that is a quarter of a billion pounds. That is one reason why discussions are still going on about the issue. The cost is at odds with what would otherwise appear to be a decent social policy.

There is one further issue to consider. Clause 5 allows for the aggregation of household income, which is the only sensible approach. However, that also introduces a challenge of how to treat a younger partner's earnings in the income assessment when the claimant is aged 65 or over. Would the younger partner's earnings be covered by the claimant's disregard? Would those earnings be rewarded or just taken into account in the income assessment?

The issue of earnings and pension credit is very much in our minds. It could be very expensive and it is complex. The issue reads across significantly to the other Bill that is currently going through the other House. Given that the issue is under active consideration, I hope that the noble Baroness, Lady Noakes, and the noble Lord, Lord Addington, will not press their amendments, although I obviously expect them to probe our intentions further at Third Reading. I am only sorry that I cannot give a clearer answer tonight.

Baroness Barker

My Lords, before the Minister sits down, does she accept the tenor—or the push, to use her word of today—behind all the amendments that have been tabled? On all sides of the House, we are not seeking to reward those with high earnings. We are seeking to be as specific as we can to help people on low earnings. It has been intriguing to listen to the Minister. I have not been keeping count to see who has put forward the most expensive amendment.

Baroness Hollis of Heigham

My Lords, it was the noble Lord, Lord Higgins.

Baroness Barker

My Lords, the noble Lord, Lord Higgins, seems to be winning the lottery at the moment.

It is sometimes difficult to know what the Minister means when she cites a cost. Is it the cost of disregarding all earnings or the cost of disregarding earnings within a limited amount? I hope that the case is being made to the Treasury that the argument is about limited disregards to enable people to earn small amounts by doing small jobs that, in many cases, other people do not want to do. Such jobs can have a big impact on the social and care economy, which is currently in desperate shape. That is another factor that could be put on the balance sheet.

Baroness Hollis of Heigham

My Lords, I accept that point. This is not meant to be disparaging to either side, but the issue is not so very different from the role of, say, therapeutic earnings for somebody on a disability benefit. The issues are not the same, but they can be read across. It is desirable for people who wish to contribute in that way to do so.

Any total disregard of earnings would have a very high cost. The £250 million that I mentioned earlier is not small change. It is a serious opportunity cost. If that became government policy, other things would not happen as a result, either for other benefits or in other areas. That is big money. However, by definition the money would almost always go to relatively low earners, because higher earners are likely to be disqualified on the grounds of capital, savings and the like. One could imagine perceptions of somebody having very high earnings and virtually no capital, but that is unlikely. In practice, a full earnings disregard would still probably target those whose capital or savings did not take them over the threshold. Nobody should treat that figure of £250 million lightly. It is seriously big money. Given that and the complexity of some of the issues that I have raised relating to those aged 60 to 65 and the question of younger partners, we are still arguing out the best way to take what we all regard as a desirable policy push. It may be too difficult, but we are giving it a try and discussions are continuing.

I ask noble Lords to accept that undertaking on my part and to revisit the issue, if they should choose, at Third Reading.

Earl Russell

My Lords, before the Minister finally sits down, she has given us a figure for the cost of accepting the amendments, but, assuming that the lack of a disregard has a disincentive effect, can she give us the cost of not accepting the amendments?

Baroness Hollis of Heigham

No, my Lords. It would involve some opportunity costs forgone. The assumptions behind pension credit relate to take-up numbers, capital, what is counted and other issues. I am not sure that it would be possible to do what the noble Earl has asked. I shall mull it over and if I have any useful information on that point I shall be happy to write to him, but I suspect that it will be difficult to prove. The noble Earl will understand where I am coming from on that.

Baroness Noakes

My Lords, I thank the noble Baroness for that detailed response and for the detailed costings. We understand that she is grappling with the issues within the corridors of government. She will also understand that we and the Liberal Democrats are very concerned about how earnings will he treated. That is a major uncertainty that was not dealt with in any of the earlier documentation, including the Explanatory Notes, so some of us cannot see how the pension credit will work for some key groups. For that reason, I am sure that the Minister will not be surprised to find that we shall return to the issue at Third Reading. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 20 and 21 not moved.]

6 p.m.

Lord Hodgson of Astley Abbotts moved Amendment No. 22: Page 9. line 22, at end insert— ( ) For the purposes of this Act, a person's income shall not include any income arising from rent or the release of equity in a person's principal place of residence.

The noble Lord said: My Lords, I return briefly to an issue that we discussed in Committee. Although I was very grateful to the Minister then for her assurance that a person's home would not be included at any point in the calculation of savings—whether true or deemed—I am still not convinced that the Bill as currently drafted gives pensioners who own their own home as favourable treatment as non-pensioners who also own their own home.

For a good many years all political parties have agreed that people should be encouraged to own their home. There is obviously a range of reasons for that policy which is too broad to concern us in this debate. However, the state has recognised the desirability of such a policy in a number of ways—within the tax system, but most notably by making one's home capital gains tax-free on disposal. By allowing pensioners who own their own home to withdraw capital without completely swamping the savings credit, Amendment No. 22 aims to achieve a degree of equality.

Without rehearsing the arguments made in Committee, I believe that, without the amendment, people at the margin—I accept that we are dealing with the margin—will be discouraged from buying their own home. More importantly, pensioners will be encouraged to continue to hold a relatively huge asset in their general portfolio in a non-income producing form. Their house is bound to be a very large proportion of their assets, and they will hold it in a form that does not enable them to draw benefit from it. That clearly does not benefit them; it does not benefit their families; and it does not benefit the communities in which they live. I hope that the Minister will find it in her heart to think again on the issue. I beg to move.

Baroness Greengross

My Lords, I am sympathetic to the amendment, particularly in relation to equity release. When I was at Age Concern, we became involved with "safe home income plans"—Age Concern is still involved in them and publishes an annual guide to them—as such schemes are a very good way for income-poor but asset-rich older people to realise some of their capital to increase their income. The tax treatment of such schemes has changed quite a lot over the years, often for the worse. I should be very worried if they were made less attractive by any of the Bill's provisions.

In other words, we want to ensure that a person's entitlement to the state pension credit is not entirely wiped out if she takes out an equity release scheme to provide additional income to live on, to do repairs on her home, or even to do something frivolous—which can be the case, and should be quite understandable. Although it is of course a question of balance, I hope that the Minister will err on the side of generosity in this regard.

Baroness Noakes

My Lords, I too should like to explain briefly why I support Amendment No. 22. As I understand the position, if a pensioner holds on to his own home, it will not be part of his capital and there will be no deemed income from it, whereas if he decides to enter into one of the equity release plans, either an income stream or a capital sum will come into the pension credit calculations. I am struggling to see how it is logical to say that holding on to one's own home has no pension credit consequence, but that yielding the home's value during one's lifetime does have pension credit consequences.

In Committee, the Minister talked about level playing fields in the retirement investments market. If I correctly understand what she has been saying, the proposed treatment will kill such investments stone dead and probably encourage pensioners simply to hang on to their own properties. What kind of level playing field is that?

Baroness Hollis of Heigham

My Lords, I am obviously grateful for the opportunity to return to an amendment that we considered in Committee. However, I am not sure that my arguments have advanced from those I offered in Committee.

In Committee, I gave information about what would happen if a pensioner drew a lump sum against the value of his property or a home income plan. I promised to write if the information that I gave then, quite quickly, was incorrect. I confirm that what I said was correct. Therefore, if a person draws a lump sum for no specific purpose the amount would be treated as capital and a notional income of 10 per cent above £6,000 would be assumed. In turn, the amount of the notional income would be added to the qualifying income on which the savings credit would be calculated.

On the other hand, a lump sum drawn for a specific purpose such as home repairs would be ignored as capital. We may return to the issue when we discuss capital and income. However, I assure the noble Baroness, Lady Greengross, that expenditure such as buying a car or taking the cruise of a lifetime would not be regarded as deliberately depriving oneself of capital to make oneself eligible for pension credit. Some of her concerns may be dealt with more fully in a later debate.

Any income—for example, in the form of annuity payments—from a home income plan would be treated as weekly income to be taken into account in the pension credit calculation and rewarded in the same way as other annuity income.

Our policy on equity release schemes seeks to strike a balance between reforming the capital rules, so that they are fair and simple, and avoiding destabilising the personal finance market by incentivising one form of providing for one's retirement above others. If we were to treat income from equity release schemes more favourably than other forms of capital—by disregarding such income, for example—the result would be to increase the incentives to save in this way with the aim of taking out equity release schemes.

On this and many other such issues, we have consulted extensively with the various relevant financial industries. They are all concerned that we maintain a level playing field between different forms of income so that we do not distort the arrangements that people have entered into over time. I am certainly advised that, regardless of other equity issues, the arrangement proposed in Amendment No. 22 would have such a distorting effect

To give your Lordships a little reassurance, I should add that income from equity release will be treated more favourably in pension credit than it is under current MIG arrangements. As income, it would be eligible for a savings reward, and as capital it would be eligible for the savings reward on any notional income over the £6,000 disregard. The income will therefore come into play for the savings element but will not be disregarded.

I come now to the issue of income arising from rent. In our previous debate I explained that the number of pensioners likely to be affected by the provision would be small. About 5,000 pensioners currently claiming MIG are receiving income from rent, usually from boarders or lodgers. Currently, there are various disregards depending on the terms of letting or subletting. A disregard of £4 or £13.55 per week is applied for lettings without board, and a weekly disregard of £20 is applied for lettings with board.

This is a complex issue which—like PLRs or royalties—we have not yet finally settled. However, we intend to cover the detail of the level of future disregards in regulations. We are seeking to simplify the rules as they stand. We think that about 10,000 pensioner households—of 11 million or so pensioners—entitled to pension credit will have income from boarders or lodgers. I assure the noble Lord, Lord Hodgson, that the new rules we introduce for that income stream will be at least as generous. in all cases, as those currently in place in MIG. Indeed, the rules are already relatively generous.

Pensioners can derive income from their principal residence by renting out rooms or by taking out an equity release scheme. We shall no doubt revisit those issues when we come to debate some of the regulations. I hope that, in the light of that explanation, the noble Lord, Lord Hodgson, will feel able to withdraw his amendment.

Lord Hodgson of Astley Abbotts

My Lords, I am again grateful to the Minister for her response. I think that she has given reassurance on quite a number of points. However, she turned away at the critical moment and did not say whether the cruise of a lifetime would be included.

Baroness Hollis of Heigham

My Lords, the cruise of a lifetime would not be regarded as a deliberate disinvestment of capital in order to increase one's eligibility for pension credit. As I said, however, we may return to that issue when we debate a later amendment. I could not resist trying to reassure the noble Baroness, Lady Greengross—who is such a doughty fighter for the absolute right of older people occasionally to be frivolous—on the issue.

Lord Hodgson of Astley Abbotts

My Lords, I am sure that we are all grateful to the noble Baroness for that further reassurance. She also made a fair point about the need to avoid distortion in relation to different types of saving. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 23 not moved.]

Baroness Greengross moved Amendment No. 24: Page 9, line 23, after "capital" insert "over the prescribed threshold

The noble Baroness said: My Lords, in moving Amendment No. 24, I wish to speak also to Amendment No. 25 with which it is grouped. These two amendments in my name relate to the level of capital or savings that will be ignored. They have the support of Age Concern. I am grateful for Age Concern's information on the matter.

Under the Government's proposals the first £6,000 of capital will not be taken into account. These amendments would increase that level to a minimum of £11,500 and require that figure to he uprated annually in line with prices or earnings. My aim in tabling these amendments is to make the system both fair and simple and to bring about greater alignment with other assessments.

All of us who have had any dealings with older people on low incomes know that the assessment of savings for income-related benefits has long been a major concern. I very much welcome the Government's positive approach to reforming the system. In Committee there was some debate on whether it was better to assess actual income rather than using an assumed income. I support the Government's approach for the reasons the Minister put forward such as providing a simpler, less intrusive system that particularly helps those with very small amounts of savings. I also welcome the fact that the Government listened to the views of organisations on this issue. However, I question whether £6,000 is the right level. Although I note that the department estimates that 85 per cent of pension credit recipients are likely to have less than £6,000, this is still a modest level for lifetime savings.

My proposed figure of 11,500 would provide a much better level of security and would also address concerns that some noble Lords have expressed about the notional 10 per cent rate for savings over the £6,000 threshold. Under the proposed system there is a danger that some people with modest savings, say, over about f 12,000, could actually be worse off than under the original plan to assess actual income. By ignoring a higher level of savings that problem would be addressed while still providing most benefit to those with the least resources. It would also further simplify the system by ensuring that even more pensioners were taken out of the savings assessment altogether.

My other aim is to ensure alignment with local authority care assessments. Currently for people in care homes £10,000 savings is ignored for income support and £11,500 for the care assessment. Tariff income starts at different levels of saving. It is no wonder that people find charging systems confusing; I think that we all do. Perhaps the Minister does not find them so. but she must be the only person who does not. I understand that £11,500 will also be the amount that should be ignored when people are charged for care services at home under new guidance that will be implemented by the time the pension credit is introduced. So, a common threshold of £11,500 for both pension credit and local authority assessments would make the system easier both for older people and for staff, including the new employees of the Pension Service who must understand and take in a great deal of information quickly.

I know that the Government are aware of the need to co-ordinate assessments for different benefits within the DWP and across other departments. A good example was the Minister's statement in Committee that the pension credit assessed income rules will apply also for housing benefit and council tax. I very much welcome that. However, aligning capital limits would be another important way of joining up systems.

Finally, it is important that capital limits are regularly uprated so that they maintain their real value. With social security benefits that often does not happen. For example, the level of savings ignored for income-related benefits remained at £3,000 from 1988 to 2001 and is still £3,000 for people under 60. I have suggested a formula for annual uprating but there may be better ways to do that. I understand that the Department of Health is planning regularly to uprate its threshold and the important point would he to keep the levels aligned.

I accept that placing a level of savings on the face of the Bill may not be the best way to achieve my aims. However, I very much hope that the Government will he able to give careful consideration to the principles behind these amendments, which I believe would help achieve their aims of a fair and simple system targeting help on those with low and modest incomes. I beg to move.

6.15 p.m.

Baroness Noakes

My Lords, the noble Baroness, Lady Greengross, made a powerful case for the coordination of capital limits at one level. The multiplicity of limits is confusing for pensioners. The logic of amalgamating benefits seems to me to he difficult to resist. The requirement to uprate the capital threshold—whatever that threshold is—is an extremely important one even though inflation measured by the retail prices index is, according to the Government's target, 2.5 per cent. That is roughly where it is at and where it is forecast to be. Even that modest level of inflation over a relatively small number of years has a serious eroding effect on capital. It takes only eight years to lose value of well over 20 per cent. That aspect is extremely important.

Earl Russell

My Lords, I should like to say a brief word in support of Amendment No. 25. We are aware of constant pressure to husband parliamentary time. The Minister and I know very well that the issue of uprating can take a great deal of parliamentary time. I mean no denigration of the efforts of the Minister, which I very much appreciate, when I say that a clause of this kind might save us both a very great deal of time in future.

Baroness Hollis of Heigham

My Lords, the noble Baroness, Lady Greengross, proposes in Amendments Nos. 24 and 25 to insert the value of the capital disregard, and the requirement to uprate it annually, on the face of the Bill. She proposes that we align our capital disregard with the local authority capital disregard for support with residential care, nursing homes and home care, but also that we should go further and uprate the disregard every year by either earnings or price inflation, whichever is the greater.

I am sorry to keep coming back to my next point. However, I am intrigued by the support of the noble Baroness, Lady Noakes, for the amendment. Any increase to the level of the capital disregard inevitably carries a cost. I wonder whether the noble Baroness, Lady Noakes, has any idea of what the sum might be in terms of the amendment's provisions.

Baroness Noakes

My Lords, I am sure that the Minister is going to tell me.

Baroness Hollis of Heigham

My Lords, I am indeed. Just for the fun of it I might go over today's proceedings to see what sums those on the Benches opposite envisage spending. Leaving aside the £17.5 billion, which I agree was a little offside as it were, my current figure is something like £3 billion. However, the clock is ticking and we are doing quite well. It will be fun to revisit some of the expenditure proposals.

Lord Higgins

My Lords, when we vote in favour of such expenditure I shall let the noble Baroness know.

Baroness Hollis of Heigham

My Lords, is the noble Lord now merely talking about words and no action surely not? The cost of such an amendment, if we were to accept it as it is, would be £500 million a year—half a billion pounds. Alternatively, of course, we could seek to make it cost neutral by recovering that sum by increasing the notional rate of return on capital above £11,500. I wondered whether the noble Baroness, Lady Noakes, would propose that. I considered the sum involved. I am happy to tell the House that to make the provision cost neutral we would have to go for a rate of return on capital over £11,500 of 20 per cent, and probably nearer 25 per cent. I am not sure that that would entirely commend itself to the Benches opposite.

Costs in the longer term could also increase because of the incentive to switch away from pensions as a form of saving for retirement. That is the more serious point that I have tried to emphasise throughout. The level at which we set capital disregard—the whole of what we have been talking about—is an important factor in maintaining the level playing field between pensions and non-pension investment vehicles. That is the serious point that I hope your Lordships take on board. The more attractive it is to use other savings vehicles—whether the PEPs and ISAs that we did not explore on the previous amendment, equity release, or any other form of savings vehicle because they are disregarded in some sense—the less attractive pensions, which are taken fully into account, become. As a result, we send out perverse signals. "Save anywhere you like so long as it is not in pensions" seems to be message from some of the amendments that we have considered. That cannot be sensible.

The Government's policy means that 85 per cent of pensioners who are entitled to pension credit will see any income that they receive from their savings ignored entirely. Furthermore, ignoring the first £6,000 of savings means that only pensioners with capital above £12,000 will face effective assumed rates of return that are greater than 5 per cent. The FSA and Age Concern asked us to go for the £6,000 limit but with a notional rate of return above that in order to maintain the level playing field from the FSA's point of view. We should heed its advice carefully.

The noble Baroness mentioned the analogy with local authority homes, and the point was picked up by the noble Baroness, Lady Noakes. The reason why local authorities have a higher savings level is precisely because the private home is taken into account in terms of value, which is not done in relation to pension credit. I am not sure that the noble Baronesses, Lady Greengross and Lady Noakes, wish to go down that route. That is why there are significant differences—because the situations are different. They are apples and oranges in that respect. Languages of alignment are therefore deceptive unless one aligns other conditions, which would be seriously damaging to pensioners and quite unreasonable.

Within our proposals, we have included the requirement for the Secretary of State to review the amounts used to calculate the guarantee pension credit and the savings credit. We are required to undertake that annually and it will be scrutinised by Parliament. As part of that process, the Secretary of State will also review the level of the capital disregard and uprate it where he deems necessary. We believe that that provides the necessary safeguards and reassurances.

The first part of the amendment to align the arrangement in terms of local authorities but without taking into account housing has a cost of either £500 million or is cost neutral, which has a notional return on savings of between 20 per cent and 25 per cent. That must be unacceptable to noble Lords. Secondly, on assurances about the annual review being part of the uprating statements, I suspect that I will be able to clarify the situation.

I hope that the noble Baroness will withdraw the amendment, but I am sure that she will be sorry that we are not spending yet another half a billion pounds on pension credit.

Baroness Greengross

My Lords, I thank the Minister for that explanation. The principle of simplifying the situation so that credits are coordinated as much as possible across departments is important. Perhaps more thinking on that could be done before we reach the Bill's final stages. I understand the Minister's explanation and, for the time being at any rate, beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 25 not moved.]

Baroness Noakes moved Amendment No. 26: Page 9, line 31, at end insert— ( ) A claimant may elect that income from capital may be calculated by reference to the actual income received or receivable, in which event subsections (2) to (5) above shall not apply to that income.

The noble Baroness said: My Lords, the amendment is designed to give the claimant the option to have his income from capital calculated by reference to his actual income rather than using deemed income under Clause 15(2).

I spoke in Committee about the fiction involved in the savings credit using the deemed income approach, especially with the 10 per cent rate, which we are told the Government intend to use. I am aware that many pensioner groups expressed themselves content with that approach because it means that they will not have to bother with producing income vouchers and so on. The amendment accepts that approach for those pensioners who are content to be deemed to have income but it would give an option to other pensioners who may be adversely affected by the rules.

I have done some calculations on the basis of likely actual income streams earned by pensioners at 5 per cent, which is what they could get if they invested in gilts, or at 2.5 per cent, which is what they would get if they invested in index-linked securities or roughly what they would get if they invested in equities. I have shared the detailed workings of those calculations with the Minister in advance of today.

I shall share with noble Lords the bottom line of both calculations. A pensioner who invests his money to earn 5 per cent per annum will find that for every £1,000 of capital he has over the £6,000 threshold, the pension credit system will leave him with only 19p per week. His £1,000 of capital—the extra £1,000—will

actually produce him an extra income of £50 a year but the way in which pension credit calculations work will leave him with only £10 in his pocket. That applies evenly throughout the range of capital above £6,000 up to £35,000, which is roughly where the pension credit peters out. Put another way, there is an 81 per cent withdrawal rate for income from all capital over £6,000.

However. the real horror story involves pensioners who invested their money in index-lined securities or equities that earn 2.5 per cent. If a pensioner wants to protect the real value of his capital, he has to invest in a lower annual rate of return. Working with the same example, for every £1,000 over the £6,000 threshold, he will end up with 29p less income per week than at the lower level. That again rises evenly over all capital levels from £6,000 until the savings credit runs out. By the time that the capital rises to £16,000, the pensioner will have less than £100 in his pocket because of the interaction of the two systems—deemed income versus actual income.

The big message that comes out of that analysis is that there is a major disincentive to save. Why should any rational employee want to save for retirement if the result of every extra £1,000 capital that he saves is an extra 19p a week in his pocket or—worse—if he is in equity-type investments, he will lose 29p? There will be a real sense of injustice also among those affected in the existing pensioner population those with capital of more than £6,000—when they see what the deemed income rules involve.

I said to the Minister when I passed her my calculations that I cannot believe that her department and the drafters of the Bill meant to have that effect. I look forward to hearing her response. I beg to move.

Lord Hodgson of Astley Abbotts

My Lords. I want briefly to support my noble friend. One of the difficulties with the Bill and its increased complexity is the fact that we are so rarely in touch with reality. There is "deemed" here and "deemed" there; we have 0 per cent return up to £6,000 and 10 per cent return thereafter. We agreed in Committee that none of that involves the real events that people will face out there in the real world. My noble friend's amendment therefore gives a chance to those who wish to do so to go back to the real world and assess what they are actually receiving from their savings, as opposed to the "deemed" system, elegant though it may be in terms of administrative savings; nevertheless, it means that we are some way distanced from reality. I very much support the comments of my noble friend.

6.30 p.m.

Baroness Hollis of Heigham

My Lords, Clause 15 radically reforms the treatment of capital in the pension credit income assessment. I remind noble Lords that no longer will pensioners with capital of £12,000 or more be automatically cut off from any help, as is currently the case. Savings below £6,000 will be disregarded altogether, ensuring that 85 per cent of pensioners who are entitled to pension credit will not have to tell us about their savings at all. We will also have a more realistic rate of return of 10 per cent for capital above £6,000; that is half the current assumed rate of return—that is, 20 per cent—under MIG. Putting the two arrangements together, our treatment of capital is five times more generous than under the present MIG system and the old income support system which, so to speak, we inherited.

Taken together, the £6,000 disregard and the assumed rate of return mean that the effective assumed rate of return for most pensioners will be well below 10 per cent. Pensioners will, for example, have to have capital above £12,000 to see an effective assumed income rate of more than 5 per cent. To turn the point around, 95 per cent—I believe that the figure may in fact be 94 per cent—of pensioners will have an effective assumed rate of 5 per cent or less.

I am told that words such as "deemed" and so on are not part of the real world. However, the real world to me is what 95 per cent—or 94 per cent—of pensioners will experience. Moreover, 85 per cent of pensioners will not have to return detailed information on that; that will take them further away from the intrusive questioning that they disliked in the past. The next 10 per cent or so will have an effective rate of return on their total sum of something under 5 per cent. That seems to be the real, and realistic, world in which we live. It is not a question of administrative simplicity for the benefit of the department, although that should not be knocked if we want transparency; it is a question of pensioners having an assessment once every five years and finding a simple way to look after their capital as most of them will have only small amounts.

That is what we are doing and that is the real world. It is not the world of high finance in which we would go into the difference between equities, gilts, corporate bonds and so on. That is not part of the real world in which the pensioners about whom we are talking—those with incomes from savings, second pensions or whatever of a maximum of approximately £23 a week—live.

The Financial Services Authority supports our reforms. During the consultation period, it asked us to take into account the returns which pensioners can obtain from their savings. It also asked us to consider the need to avoid penalising those who have chosen to save in a pension. That is why we chose the 10 per cent rate of return. The FSA agrees that that rate would enable it to give clear advice to savers about the benefits of saving in pensions. That was the FSA's advice to us. In its professional view, a lower rate of return, including the actual rate, as the noble Baroness suggested, would tilt investment away from pensions into other savings vehicles. That cannot be right.

There are practical problems and, again, the devil is in the detail. I shall toss this point into the arena because I appreciate the amount of work that the noble Baroness has carried out on it and I found her statistics interesting. I am grateful to her for giving me prior sight of them. For actual income from capital to be taken into account, claimants would have to work out how much income their savings earned rather than simply tell the Pension Service how much they had as a capital sum. But we know from consultation that pensioners do not want to go to that trouble.

However, the situation is worse than that. The proposal would make the operation of the £6,000 disregard extremely difficult. At best, a claimant would know the total amount of income that his or her capital yielded—that is, if he had kept his books in order, worked out all the figures and calculated what was monthly, quarterly or yearly, and so on. But it is unlikely that he would know how much income a proportion of his capital generated. If he had £12,000 in capital, £6,000 would be disregarded and £6,000 would be real return.

With that in mind, I should be interested to know how the noble Baroness proposes to calculate how much of a claimant's income is attributable to savings above the £6,000 disregard. She is suggesting that pensioners and decisions-makers have to make a complex choice. I have been trying to puzzle out how one might do it without reintroducing into the five-year assessment the 40-page forms that on previous occasions your Lordships rightly scorned.

We would certainly need far more information from pensioners than we currently obtain. We could ask them to fill in the current self-assessment tax forms, as the noble Baroness and I will do when we work out our taxes, in order to determine how much of the income from capital is below £6,000, how much is above that figure and which bits are attributed to which. I suspect that it would work only if we dropped the £6,000 de minimis. But is that what the noble Baroness wants and would that, in turn, recommend itself to Age Concern?

In addition to the administrative difficulties involved, the amendment would also risk distorting the savings market. I spoke earlier about taking one form or another, but the amendment might, for example, discourage pensioners from saving in pension products and instead lead them to put their savings into low-interest investments. Obviously, there would be an incentive to go for growth over income in order to maximise one's entitlement to pension credit and to leave as much as possible to one's heirs. That might mean, for example, that pensioners would be attracted to low-income but risky high-growth products—one has only to mention emerging markets—as opposed to taking financial advice that would suggest corporate bonds, for example. Therefore, problems are involved. It is not our ambition to undermine equilibrium in the savings market or to skew incentives against pensions.

I understand that the proposed amendment may seem to provide a fairer way of proceeding. Yet, given a choice between the Government's proposed policy and Amendment No. 26, most pensioners with low and modest savings would gain more from the former. The Government's policy means that more than 90 per cent of pensioners entitled to pension credit face an effective rate of return of less than 4 per cent, and 95 per cent an effective rate of return of less than 5 per cent or thereabouts.

On the other hand, the proposed amendment would cost a substantial amount—on this occasion, £400 million; the noble Baroness is joining the ranks of the big spenders here—and would generally benefit better-off pensioners with large amounts of capital who would seek to shelter it in low-income products.

The noble Baroness said that current rates of return are lower than the notional 10 per cent. Of course, they are. But the cross-over point at which notional income exceeds real income is around the £10,000 to £12,000 figure. Above that amount, which, as the noble Baroness will recognise, is the cross-over point, it is surely not unreasonable to expect pensioners to treat their capital as well as the income from it as a resource for them to draw on. There may well be less to leave as an inheritance, but it is not the job of pension credit to ask taxpayers who may not have much capital to fund the incomes of pensioners so that they can leave fairly substantial capital assets—£50,000 plus for a couple, for example, on the noble Baroness's figures—to their children. That is not our job.

Our aim has been to find a fair assumed rate of return on capital which does not undermine the balance between different savings vehicles on the market and to operate it in a way which reduces intrusion into pensioners' lives. We do not want to encourage pensioners to enter into the complexity of determining what is £6,000 exempt, what is not, and going for low income and possibly a more speculative return in order to shelter their capital for future generations. The clause, as drafted, achieves our ambitions. In the light of what I have said, I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Noakes

My Lords, I thank the Minister for that comprehensive reply. Perhaps I may pick up one or two points. As she said, there are practical issues in relation to how the figures are calculated. I am not fazed by that; there are several routes by which one may do so. Given that we would be dealing with people who had opted to have their income assessed on the basis of producing all the vouchers or all the statements of capital, I do not believe that it would take much ingenuity to devise a practical way of dealing with the issue. It would not be difficult to do so if people wanted to follow that route.

The Minister spoke a great deal about the vast majority of pensioners having lower capital levels. I am sure that that is a true statement now. I wonder what current pensioners will think when they see the workings of the savings credit and realise that for every £1,000 they save, even if their money is simply on a good deposit rate and earning 5 per cent, they will end up with only 19p a week more in their pocket. Indeed, the Government may well be seeking to deprive pensioners of their capital by, in effect, incentivising them to run down their capital.

I am particularly concerned about a point that I raised earlier; that is, the incentive to future generations to save if they see that in these terms relatively high levels of capital—not necessarily relatively high levels overall—produce that type of effect. I understand that this is a simple approach, but I do not believe that it is fair to those who have capital above £6,000. I am sure that, if the department wanted to deal with the issue in a way that provided more incentives for savings in the longer term, it could very easily do so. However, I shall consider further what the Minister said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 27: Page 9, line 33, leave out paragraph (a).

The noble Baroness said: My Lords, Amendment No. 27 deletes paragraph (a) from Clause 15(6). Paragraph (a) allows the Government to prevent a claimant from deliberately depriving himself of his income or capital, thereby gaining a pension credit advantage. I have no problems with the concept of I hat and I can see that there will be circumstances in which the department will want notionally to reverse transactions. However, I tabled the amendment because I believe that we should be able to see exactly what mischief is intended to be dealt with.

In Committee the Minister gave a number of examples where the powers would or would not be used. I believe that basically she said that it was all right to spend money but that it was not all right to give it away. The noble Baroness may wish to look back at what she said in Committee, but that is the only principle that I can extract from what she said. I did not find it a very robust principle. I imagine that in practice the department would want to see how money was spent—that is, whether in the department's view it was something frivolous that would be set aside.

During discussion on the previous amendment, I talked about the low incentives relating to capital above £6,000 and whether that would incentivise spending. Will the department use the power to prevent a pensioner who decides that holding capital for 19p a week is not a particularly good thing spending his or her money on a holiday or expensive car?

If this were a Finance Bill—a hypothetical situation in your Lordships' House—dealing with tax avoidance, your Lordships would not accept such a power unless precisely the kind of avoidance were specified. The House is invited to accept a broad power without any general principles or a robust statement of the mischief with which the measure seeks to deal. Why is this advanced power being given to the Government without any statement on the circumstances in which it will be used? I beg to move.

Baroness Hollis of Heigham

My Lords, my hope was that I had assuaged the noble Baroness in Committee but obviously I failed— and may do so today. The Government must have effective provisions to protect the new scheme against manipulation. The power will enable the Secretary of State to introduce, subject to parliamentary scrutiny, regulations that will give protection similar to that provided in other income-related benefit regulations. That is nothing particularly new. All income-related benefits must be protected against maximising entitlement. Past experience has shown that some people try to take advantage of schemes that do not sufficiently deter abuse.

If the amendment were agreed, money would be given to persons who had deliberately altered their circumstances to take advantage of a pension credit scheme, and the Secretary of State would have no means of preventing or curbing such abuses. In this amendment, the noble Baroness is not so much spending money as being on the side of persons who would otherwise be fraudulent. I am sure that she would not wish that either.

Baroness Noakes

My Lords, the amendment is about pensioners being able to spend as they choose. I am not talking about fraud on the system.

Baroness Hollis of Heigham

My Lords, if one deliberately deprives oneself of capital to be eligible for an income-related benefit, in my view that is fraudulent.

Baroness Noakes

My Lords

Baroness Hollis of Heigham: My Lords, we are not in Committee.

Baroness Noakes

My Lords, before the Minister sits down, there are principles and issues to be considered here. Is the Minister saying that whenever people spend their money, that is fraudulent?

Baroness Hollis of Heigham

My Lords, just now the noble Baroness accused me of saying that it was okay to spend money but not okay to give it away. She might wish to reconsider her line. I had hoped that the memorandum sent to the Delegated Powers and Regulatory Reform Committee and the further memorandum provided in Committee would have reassured the noble Baroness. There is nothing sinister about our intentions. The regulations are designed to deter people from manipulating their circumstances and to ensure that they do not gain from such actions. It is important that pensioners know that if people behave unreasonably, they will not gain. The noble Baroness would not want to hear that somebody down the street was receiving pension credit because she had done X, Y or Z.

It is certainly not a question of saying that spending money is okay but giving it away is not. I have never said so because that would be a silly line to draw. The question is of deliberate deprivation of capital to manipulate one's financial arrangements, to maximise entitlement to an income-related benefit. The test—which is well-established in case law for other income-related benefits—is ultimately one of reasonableness.

It is entirely reasonable to pay off one's mortgage; have major repair work undertaken on one's home; replace one's car; or have a once-in-a-lifetime holiday. It is not reasonable to give away one's capital or house—for example, to one's child—so that that capital asset would not be taken into account in respect of being taken into local authority care. Neither would it be reasonable to have one's pension paid to a third party, to maximise one's entitlement to an income-related benefit. The noble Baroness knows as I do that those would be improper ways of obtaining entitlement to an income-related benefit.

If anyone wishes to spend their money on a car or holiday, paying off their mortgage or house repairs, that is fine. We are concerned to check self-deprivation of capital to maximise entitlement. The distinction is not between spending capital and giving it away but between reasonable expenditure and deliberate self-deprivation of capital to manipulate entitlement. There is a wealth of case history to establish that line.

The noble Baroness said that there was a comparison to be drawn with the tax system. One can give away only £7,000 in any one year before it becomes subject to tax. The read-across that the noble Baroness suggested is not appropriate.

Baroness Noakes: Oh!

Baroness Hollis of Heigham

My Lords, the noble Baroness looks baffled. She said that the tax system has clear rules on what one can and cannot do. Under the tax system, one can give away only the first £7,000. Anything thereafter falls within the regime.

Baroness Noakes

My Lords, I was not referring to that particular rule. My general proposition was that the many anti-avoidance provisions throughout the tax system are always on the face of legislation—and are fully debated by Parliament before they are enacted.

6.45 p.m.

Baroness Hollis of Heigham

My Lords, the regulations will be available for your Lordships to scrutinise in due course under the negative or affirmative resolution procedure. The distinction to be made is between reasonable expenditure—we know what that is—and unreasonable manipulation and deprivation of capital. There is long-established case law.

The House is making heavy weather of something that is well established in social security principles. If anything, the pension credits scheme will err on the side of supporting pensioners in anything that they reasonably want to do—if only because of the five-year period. We will not come back and say, "Four and a half years ago, you unreasonably bought a new car." We will not be doing it that way, which is different from day-to-day income-related benefits. I suspect that pensioners will have a much more relaxed regime than people enjoying other income-related benefits. Nonetheless, one has to protect against a person having their pension paid to another member of the family, to maximise their benefits. The provision is one of the few protections against fraud and I am surprised that the noble Baroness is pursuing her proposal with such vigour.

Baroness Noakes

My Lords, we shall have to agree to differ. I shall think about the matter but still see no reason why the principles on which the department seeks to exercise its powers should not be laid before the House for debate. The Minister has explained today but that is not in the Bill—which would allow almost anything, without restraint. I shall carefully read the Minister's remarks and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes: moved Amendment No. 28: Page 9, line 36, leave out paragraphs (c) and (d).

The noble Baroness said: My Lords, Clause 15(6)(c) allows the Government to treat a pensioner's income as capital and paragraph (d) allows capital to be treated as income. The Minister believes that the same argument used against Amendment No. 27 applies here but I suggest that the Government do not need such powers. In Committee, the Minister said that such provisions were commonplace in social security legislation from time immemorial—so I am challenging a well-settled orthodoxy.

In Committee, the Minister stated that Clause 15(6)(c) would be used, when a payment that is regularly received, or is made in relation to a particular period, should not be treated as income; for example, a pensioner may have loaned a relative some money which he or she is repaying monthly by instalments. Although it would be regular monthly income, it clearly would be in respect of capital and, therefore, we would want it treated as such".".—[Official Report, 29/1/02; col. 192.]

I do not know of any tax, trust or company law that regards repayment of a loan as income—and all have to grapple with the distinction between income and capital. All would come up with the answer that a loan repayment is capital. If it is relevant, accountancy would come to the same conclusion. My proposition, therefore, is that the Government do not need a power to say that it is capital because it already is capital. In Committee, the Minister gave no examples of how paragraph (d) would be used. Paragraph (d) states: capital is to be treated as income".

I wonder whether there is any example of where something treated in the real world as capital should really be treated as income in the Department, for Work and Pensions' world. I beg to move.

Baroness Hollis of Heigham

My Lords, Amendment No. 28 seeks to remove paragraphs (c) and (d) from Clause 15(6). We had a fairly long discussion on what we used to call "Humpty Dumpty" clauses. Perhaps I may remind your Lordships of the purpose of the subsections.

Paragraph (c) contains the power to prescribe in regulation the circumstances in which income is to be treated as capital. Paragraph (d) does the reverse. Your Lordships, led by the noble Baroness, were exercised in Committee as to the circumstances in which the department might exercise those powers. I obviously cannot say what powers future governments may use. However, I can describe what this Government propose to do with them.

The powers already exist within income support and social security legislation and each use is detailed. There is no intention to do anything other than what is set out in the Income Support (General) Regulations. I can assure your Lordships that the Government simply intend to carry forward those provisions. There are no secret or sinister uses. I understand that the noble Baroness is drawing on her considerable experience in tax law. However, tax law has a different history from social security legislation. It is based on individual assessment, and so forth. We are rooting these provisions in terms of social security legislation and carrying forward provisions that are well known and well understood for income-related benefits.

The provisions are there so that we can deal with the strange situations people sometimes find themselves in. The powers are rarely used within income support and will probably rarely be used within pension credit. However, that does not mean that they are superfluous. I was pressed for an example of where income could be treated as capital. I refer to payments for discharged prisoners. The payment can be around £90 and is given to prisoners on discharge. It is ignored as income from income support. That enables the ex-prisoner to be entitled to income support immediately upon discharge. If we do not have that clause in similar legislation, that prisoner might be denied one or, more probably, two weeks' income support, which I am sure that your Lordships would not want.

Further examples—

Baroness Noakes

My Lords, is the noble Baroness saying that that, treated as capital, should be disregarded?

Baroness Hollis of Heigham

No, my Lords. I am saying that we are treating it in that situation as capital where it is actually a form of income. If we did not, that person would not be able to receive income support because that £90 would be effectively a week, or indeed two weeks, treatment of income. Otherwise, that person would lose entitlement to income support. I am surprised that the noble Baroness is baffled by that. It seems to me to be fairly straightforward.

Baroness Noakes

My Lords, I have no problem with that being disregarded. Indeed, there is a power in paragraph (b) to disregard. What I am querying is when income would be treated as capital.

Baroness Hollis of Heigham

My Lords, I shall come on to when capital should be treated as income and when income should be treated as capital. I shall give further examples of where what may appear to be income would be treated as capital, which is what I understand the noble Baroness to he querying.

Similar circumstances would be if a younger partner were to receive an advance of earnings or a loan from an employer, or interest accruing on a building society account. Paragraph( d) contains the power to prescribe in regulations the circumstances in which capital is to be treated as income. As I said in Committee, it is intended that regulations made under this power will provide for the treatment as income of a payment that has the nature of an income although it could, as a result of general law, be viewed as a capital holding; for example, it is paid regularly or in relation to a period.

We envisage that this power will be used less frequently than the power to treat income as capital. The most frequent use of this power will include regular payments from an annuity. We will ignore the value of the right to receive an annuity and take only the actual payments from it. A further use would be receipt of a tax refund paid to a younger partner on return to work after a trade dispute, and so forth.

The uses to which these powers are put will be fair and transparent.

Earl Russell

My Lords, I thank the Minister for giving way. I think I have heard the Minister more times than I have had hot dinners defend the regulation-making power on the ground of the Government's intention. I often find her persuasive when she does so. However, does she understand that the House must concern itself not only with the present intention of the present Government but with the extent of the power being created? Therefore, will the Minister direct her mind to the point made by the noble Baroness, Lady Noakes; that is, that these powers are rather widely drafted for the intention ascribed to them.

Baroness Hollis of Heigham

My Lords, the noble Earl, Lord Russell, has been dealing with social security for many years. Perhaps I may ask him whether in his experience he has not accepted the need for such a provision in almost every Bill dealing with an income-related benefit that he has done from the Opposition Benches and I have done from the Opposition Benches.

The first time this arose I was filled with the same I shall not say "synthetic anger"; I do not mean to be discourteous in any way to the noble Baroness—shock, horror and intellectual dismay at such a "Humpty Dumpty" form of words. On further scrutiny I have been persuaded how wise and benevolent such provisions are. I hope, as a result of the Bill, that the noble Baroness will share my perceptions on that. We need these powers. Otherwise, junior staff in departments could easily treat income as capital when that is inappropriate and capital as income when that is inappropriate. All the ways I have suggested are ways of handling the matter which will be to the benefit of the person concerned—unless alternatively there is a deliberate intent to defraud—and therefore will increase entitlement to a benefit, which would not otherwise be the case.

I can keep trying to produce more and more examples for the noble Baroness. However, in all the income-related social security legislation which I have ever dealt with, clauses were needed to this effect to prevent manipulation or to prevent what would be unfair treatment of a resource.

Baroness Noakes

My Lords, I thank the noble Baroness for that reply. I believe we are at cross-purposes. I was trying to suggest that she simply did not need the powers. I know that she says she has had them all the time in social security legislation. That does not mean that she needs them. I was not drawing simply on tax law. I do not believe that there is any branch of the law which would have treated the loan in the way she has suggested. I believe we were discussing proper guidance to her officials down the line rather than any power which may be needed to treat something in one way or another.

All the examples she gave of how she would use paragraphs (c) and (d) seem to me to be either capable of being dealt with by general law or by disregard. I do not think she gave a single example of where she would treat income as capital; capital being something on which she would then calculate the deemed income. She told me about things she would not take into account. I fully understand that that is the purpose of paragraph (b). However, to change its nature into the reverse is something else.

I hope that the noble Baroness might reflect further on the subject. However, I shall not press the point today. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 [Regulations and Orders]:

The Deputy Speaker

My Lords, before calling Amendment No. 29, I must inform the House that if that amendment is agreed to. I cannot call Amendment No. 29A.

7 p.m.

Lord Higgins moved Amendment No. 29 Page 13, line 30, at end insert—

1. "(e) section 9(5),
2. (f) section 15,
3. (g) section 16, or
4. (h) section 17(2)"

The noble Lord said: My Lords, after many hours of amendments of unbelievable complexity, we come to a simple amendment. In moving Amendment No. 29 I shall speak also to Amendment No. 29A. These amendments are concerned with the extent to which the provisions of various clauses in the Bill, which will be clarified—if that is the right expression—by statutory instrument, shall be subject to affirmative rather than negative resolution.

As is normally the case, the Select Committee on Delegated Powers and Regulatory Reform produced a helpful report which, on the whole, gave the department a pretty clean bill of health. However, having said that, attached to the report was a list of the various statutory instruments which were going to he covered. The list of delegated powers runs to three-and-a-half pages of small print. Therefore, it is right that we should probe exactly what the Government seek to do. In earlier debates in Committee and, indeed, before that, the Minister kindly said that she would provide the House with draft statutory instruments. I very well understand why that has been difficult for her to fulfil. Perhaps the noble Baroness can give some indication as to whether they are likely to arrive either before Third Reading, or certainly before the matter goes to another place.

Having said that, various points arise. The first part of the amendment is concerned with Section 9(5). which deals with the assumed income period. I am not clear why it is necessary to deal with that by statutory instrument rather than on the face of the Bill. Why do the Government need powers to vary that particular period, which we have already discussed at very considerable length? It has been explained very clearly from the Government Benches why the period has been set.

For the moment, I defer the question of how we should treat Clause 15 and turn to Clause 16, which relates to the retirement pension income provisions. Again, I am not clear why it is not possible to put that on the face of the Bill. What is of greater puzzlement is Clause 17(2) which will be concerned with whether an individual is a member of a household, or not—or even whether someone is severely disabled. Again, that is something we could have on the face of the Bill. We could discuss the provision, amend it, and, if necessary. vote on it rather than have it dealt with by statutory instrument.

I turn to Clause 15, which is now the subject of Amendment No. 29A. It was felt that it might be necessary to vote on this matter. I hope that that will not be so and that the Minister can give a sympathetic response. I would like explanations about the earlier Clauses 9(5), 16 and 17(2). I ask for an undertaking as regards Clause 15 because it is of very considerable importance. Those who have been sitting through the debates will well know that it is a question of how a person's capital and income should affect the state pension credit. I have referred to the Select Committee. It recognised that this clause leaves much to regulation and that some of it may be controversial. It cites particular items that the committee believes may be controversial. I shall not burden the House by going through them in detail.

It is our view that this power should be subject to the affirmative resolution procedure at least on the first occasion when it will be exercised. The debate on the previous amendment seemed to give cause for some controversy as to whether the anti-avoidance provisions for social security purposes were appropriately dealt with anyway by statutory instrument. Some controversy also emerged on that subject.

One realises of course that there are differences between social security law and tax law. None the less, as regards anti-avoidance there is some case for adopting the same approach whatever the historical precedence may be, especially as matters which were previously regarded as social security business have, to a very large extent, fallen into the clutches of the Treasury. Can the noble Baroness give an example where anti-avoidance provisions in tax law have been introduced by statutory instrument? I believe that I am right in saying that that is not the case. In social security law, we have to consider whether it is appropriate for anti-avoidance provisions to be dealt with by statutory instrument rather than on the face of the Bill, where they can be discussed in detail, amended and, if necessary, voted on.

I trust that we shall be given explanations on Clauses 9(5), 16 and 17(2). Given what I believe on both sides of the House has been grave concern as regards how the definition of a person's capital income will operate in practice as regards the state pension credit, I very much hope that the Government will accept— on the first occasion, at any rate, when these matters are clarified and we have something in front of us in black and white—that we can have an undertaking that such provisions will be subject to affirmative resolution. I leave on one side the Government's proposals for House of Lords' reform which might inhibit us in this respect. That is a matter on which I have not so far expressed a public opinion, but I might be tempted to do so. Be that as it may, I hope that we can have an undertaking from the noble Baroness as regards the statutory instruments under Clause 15. I beg to move.

Baroness Hollis of Heigham

My Lords, I am grateful to the noble Baroness, Lady Barker, for allowing me to intervene at this point. Amendment No. 29A is defective, as drafted. As a result, it will have to be re-examined. I am relaxed as to whether or not these matters are dealt with by affirmative powers. The Delegated Powers and Regulatory Reform Committee was happy with our proposals as they stood. If noble Lords believe it is appropriate on the first occasion to have these issues treated by affirmative powers, I shall be very happy to take this matter back and produce a government amendment to that effect on Third Reading.

Lord Higgins

My Lords, I have accepted many times before fain Macleod's remark that "You don't shoot Santa Claus", and I do not do so on this occasion. I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 29A not moved.]

Schedule 1 [Administration]:

Lord Higgins moved Amendment No. 30: Page 15, line 11, leave out "etc

The noble Lord said: My Lords, we come finally to a matter which is not of enormous importance. In the schedule which this amendment seeks to amend there is a reference to national insurance numbers. When, at the Minister's invitation, we had the pleasure of discussing this matter with officials, there was some suggestion that there was no reference to national insurance numbers in the Bill. However, they are mentioned in paragraph 2 of Schedule 1, which reads as follows: In section I (which makes entitlement dependent on the making of a claim and production etc of national insurance numbers and other evidence, and limits backdating to 12 months etc)", and so forth.

I have two queries on that. The expression "etc." seems to me rather odd in primary legislation. I am not absolutely clear whether that particular "etc." is in Section 1 of the legislation referred to or whether it is simply shorthand where the draftsman got so bored with the whole thing that he could not bear to spell it out. Perhaps the noble Baroness can tell us that it is an expression which is frequently used in social security legislation if not in tax law, and what is the reason.

More specifically, it seems strange to refer to legislation dealing with national insurance numbers when an answer that the noble Baroness gave me in March 2001 points out that there are very considerable doubts about national insurance numbers. It was pointed out that the data cleansing project had removed 182,000 national insurance numbers during the past financial year, which was more than in the whole of the previous Parliament. Having said that, the answer continued to the effect that the du to cleansing project will be stopped on 31st March.

The problem is that this schedule appears to perpetuate the idea that entitlement will be dependent on the making of a claim and the production of a national insurance number, but the department admits that a national insurance number tells one remarkably little about anything because there are a huge number that are either inaccurate, duplicated or fraudulent. In terms of assessing entitlement, has not the time come to say that there should be some better indication? Whether in the future that may be replaced by identity cards is not a matter we need go into this evening. Perhaps the noble Baroness can clarify the vexed question of the use of "etc" and, more particularly, whether it is really appropriate to continue to rely on national insurance numbers when, quite clearly, they are defective. I beg to move.

Earl Russell

My Lords, if I were to be given one of those word association tests and offered the word "etc.", I do not believe that the first word that would come back would be precision. On one famous occasion in 1640 the convocation of Canterbury required people to take an oath to the government of the Church, by archbishops, bishops, deans, "etc.". Many people believed, or effected to believe, that "etc." meant the Pope.

One London preacher maintained that "etc." was the curled lock of Antichrist. I do not need to express agreement with that preacher to say that the Government might be wise to choose a word a little more precisely defined.

Baroness Hollis of Heigham

My Lords, let me take the amendments together. The amendments do not actually have any effect on the Bill. They change only the wording of a cross-reference in paragraph 2 of Schedule 1 and do not have a legislative effect. However, let not that get in our way when debating a substantive amendment.

Paragraph 2 of Schedule 1 adds pension credit to the benefits to which the provisions of Section 1 of the Social Security Administration Act 1992 apply, as I am sure your Lordships are aware. Those provisions include making entitlement to benefit dependent upon a person making a claim and supplying a valid national insurance number, or the information necessary to trace or allocate a number.

Your Lordships will understand why we need to apply those provisions to pension credit. The gateway has to be secure; it is generous and we must check against any bogus claims. We must ensure that the person making the claim is who he says he is. Part of that process involves tracing a valid national insurance number, or allocating one if, exceptionally, the pensioner does not have one.

I am sure that the noble Lord, Lord Higgins, recognises the argument. I suspect that the reason why he has tabled the amendments is not to exclude pension credit from the provision for Section 1, but possibly to have a debate on national insurance numbers. However, he disappoints me as I believe he really wants a debate about "etc.".

The noble Lord, Lord Higgins, has suggested that "etc." in the cross-reference to Section 1 of the Social Security Administration Act 1992 is unhelpful. In fact, the "etc." is there with the intention of being helpful to the reader. It indicates that Section 1 of that Act does not make entitlement entirely dependent upon the production of a national insurance number. The claimant could also establish entitlement by providing information which would enable the department to trace his number, or, if necessary, allocate one.

Therefore, I hope that the noble Lord, Lord Higgins, will accept that the "etc." adds to, rather than detracts from, the drafting of paragraph 2 and will feel able to withdraw his Amendment No. 30.

The noble Lord then discussed national insurance numbers and the question of ID cards. I accept that there is a question concerning the security of access to the system, through NINOs. We have 83 million national insurance records. Of those, 48 million are for the adult population of the United Kingdom. There are 13.5 million for people who have died but for one reason or another the account has to be kept open—for example, a surviving partner of a deceased spouse.

There are 12.5 million numbers that are not national insurance numbers but are child reference numbers given to children where a claim for child benefit is made and a further 2 million numbers for people who live abroad but are claiming benefits. The remaining 7 million include, for example, people from other countries who are working here, or who have worked in Britain, and UK citizens working abroad. That is the reason for the 83 million national insurance numbers.

There are issues of security—I do not challenge that for a moment. We discussed those extensively during the passage of the fraud Act. If your Lordships will agree, and unless there is an attempt to persuade me otherwise, I honestly do not believe that the last amendment of the day, on Report stage of a Bill concerning pension credit, is the right amendment on which to hook a major debate about the security of the national insurance system.

I suppose I could be tempted but I am not sure that the noble Lord who tempted me would he exactly popular with the rest of your Lordships. I hope that that information, particularly about the weight carried by "etc.", which I hope will commend itself to your Lordships as a most useful word, will enable the noble Lord to withdraw his amendment and bring the Report stage to a close.

Lord Higgins

My Lords, two days ago I received a letter from a lady in North Yorkshire saying she had been watching our proceedings on television. She made a number of points that she wanted me to take into account. I hope that anyone who has just turned on their television for the last five minutes will bear in mind the fact that for more than the past four hours we have been debating intensively a number of unbelievably complex amendments, with the object of carrying out our rightful function of seeking to improve the legislation.

Therefore, I believe that a couple of minutes of demob happy exchange, stimulated by the noble Earl, Lord Russell, can he excused. I do not wish to press the amendments to a vote. It could prove a rather nasty shock were I to do so. I thank my noble friends—rather prematurely because we still have Third Reading—and noble Lords on the Benches opposite for an extremely helpful series of debates. I hope that we can clarify a number of points and return, if need be, to them later.

I particularly thank the noble Baroness who has been present the entire time, as is normally the case. She is always extraordinarily helpful and assiduous. Our task is to make the legislation better: she has certainly contributed to that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 31 not moved.]

Lord Davies of Coity

My Lords, before the noble Lord, Lord Glenarthur, rises, perhaps I may remind the House that as the Unstarred Question is now the concluding business, the 12-minute limit on speeches is now extended to 15 minutes. That is not compulsory; noble Lords may wish to express themselves in less time.