State Pension Credit Bill [H.L.]

HL Deb 24 January 2002 vol 630 cc1587-646

4.9 p.m.

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

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Baroness Hollis of Heigham.)

On Question, Motion agreed to.

House in Committee accordingly.

[The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Serota) in the Chair.]

Clause 1 [Entitlement]:

Baroness Greengross moved Amendment No. 1: Page 1, line 4, at end insert— (1A) State pension credit shall be publicised to the general public under the title "state pension credit" unless or until an alternative title is shown to be more appropriate or effective. The noble Baroness said: The first amendment we consider to this important Bill concerns its title. It is important that we do so. On Second Reading even the Minister appeared not to be convinced by the title, nor was the noble Baroness, Lady Barker, among others. It is important that we get the title right as it could affect take-up for example. We have the bitter experience of the precursors to the state pension credit to learn from—all were rather badly named.

To call extra help for a pensioner "supplementary benefit" is never likely to instil the feeling that it is a right rather than a handout. A similar situation has applied to income support from 1988. That is a benefit also paid to all low income groups, most of whom are likely to be in a completely different situation from that of a retired and sometimes very elderly person.

Therefore, I personally welcomed the principle of breaking the link between income support for those aged over 60 and those aged under 60 when the minimum income guarantee was introduced in 1998. However, the name did not constitute much of a move forward, particularly as it was neither a guarantee nor a minimum income if one had savings over £3,000. The Minister may recall that at the time Age Concern supported a case to the parliamentary ombudsman on that very point; that is, that the name "MIG" is misleading. Apart from anything else, it reminds everyone of the cold war, which is unfortunate.

I know that some, including many of my former colleagues at Age Concern, are worried by the term "credit" in the Bill's title. They feel strongly that it might be taken to mean a loan or a debt. I do not share that view as I believe that people get used to new things and new names if they are introduced well and thoughtfully, as we have seen with the introduction of the euro. The notion of a tax credit, money not paid in tax or a form of "tax back" is, I think, better understood than it used to be.

It might be better to call the state pension credit the state pension premium or the state pension addition, but that is a matter for debate. However, my main concern at the moment is that we seem to have two names for it. The Bill is titled the "State Pension Credit Bill", yet in all the promotional material that I have seen from the Minister's department the provision is called just the "pension credit". The dropping of the word "state" is unfortunate as the provision is a state benefit. My amendment seeks to restore the word "state" in the name presented to the general public so that people will not become muddled and think that the provision has something to do with private pensions or some other scheme. In addition, my amendment would give the Government the flexibility to rename the state pension credit if it is shown, through research or experience, to be unfortunately or unsuccessfully named.

The amendment is, of course, a probing one to determine what research or thought was carried out as regards the naming of the measure. I should like to know if any such research was done. I beg to move.

4.15 p.m.

Lord Higgins

At the beginning of our proceedings I must once again declare an interest as a chairman of an occupational pension scheme. I have considerable sympathy with the points made by the noble Baroness, Lady Greengross. It seems to me that to some extent the Bill's title is rather like that of the Holy Roman Empire which was neither holy, Roman nor an empire.

Baroness Hollis of Heigham

It survived for a long time.

Lord Higgins

The noble Baroness reminds me that it survived for a long time. That may be so. We must hope that suitable provision for the elderly also survives for a long time. However, I do not know why the title includes the word "state". I disagree with the noble Baroness, Lady Greengross, on that point as it seems to me a rather unnecessary complication. As she rightly pointed out, most of the promotional literature refers to the pension credit rather than to the state pension credit.

Before the end of our proceedings, we shall obviously need to reach a decision on the proposal. However, in announcing the Committee stage of the Bill, the Deputy Chairman requested that the title of the Bill be deferred. Perhaps at that stage we could reach a common consensus on the matter.

There are serious issues involved here. As the noble Baroness rightly pointed out, the word "credit" can lead to confusion. The provision is not a credit. All it means is that the Exchequer will take rather less of people's money than was formerly the case. To that extent, to call the provision a credit is a little disingenuous.

I am worried about the terminology used throughout the Bill. The Bill brings together two separate propositions: the guarantee credit and the savings credit. They appear in most of the clauses that we shall debate. As regards pensioners, I ask the Minister whether it is proposed that the minimum income guarantee terminology should disappear altogether? People are used to that terminology and considerable explanation will be required to inform people that what they thought was a minimum income guarantee has not disappeared but is subsumed under a different title, part of which comprises what used to be MIG and part of which will be the savings credit.

I am also worried about the huge proliferation of terms in the Bill. We not only have the state pension credit but also the appropriate minimum guarantee, the standard minimum guarantee, the savings credit threshold and others. Those terms will greatly complicate the terminology. As one of the problems we face is whether people understand these matters—if they do not, they tend not to claim and take-up is correspondingly reduced—in the course of our proceedings we ought to see whether we can simplify these matters, particularly the title. It was helpful of the noble Baroness to raise that point.

Baroness Barker

I said on Second Reading that I was something of a neophyte in terms of pensions debates. I point out to the Minister that, just as she predicted, my reading matter over the past few months has changed dramatically. I have been immersed in a number of fascinating documents. Whether or not I would have found them fascinating before I was involved in this matter, I am not sure. Perhaps one of the most fascinating, and one to which I shall return, is Overcoming Barriers: Older People and Income Support, the Government's own research into the many reasons why older people do not claim income support.

On reading that document I was struck forcefully by the importance of the seemingly trivial amendment that we are discussing. I also said on Second Reading that I was not thrilled by the title of the Bill. I find it most unhelpful. I believe that the Minister also said that she was not terribly wedded to it either. Having read of the reasons why many older people do not claim income support, I am even less disposed towards the Bill's title. I take issue with the noble Lord, Lord Higgins, on one point that he made as regards dropping the word "state". The Government's research indicates strongly that older people are more likely to claim additional benefits the closer those benefits are linked to the state pension. One of the major barriers to people claiming benefit is their feeling, rightly or wrongly, that they are not entitled to it. However, they consider that they are entitled to the state pension.

Lord Higgins

But it is not called a state pension, is it?

Baroness Barker

The term "state pension" is widely understood by many pensioners. I thought the noble Lord talked about a state pension credit. I believe that we should consider what the noble Baroness, Lady Greengross, said in that regard. I think she would agree that we have not yet found a way correctly to identify the two elements of the new provision: the guarantee credit and the savings credit, to which the noble Lord, Lord Higgins, referred. Until such time as we do, there will be a severe problem not just for pensioners but also for all those who seek to advise them on their entitlement. Perhaps we could come up with a title that was longer but more descriptive, such as "the pension top-up" or "the pension top-up and savings allowance". That is, I agree, clumsy and inelegant but it is descriptive. That would have an effect on take-up.

Lord Hodgson of Astley Abbotts

I find myself in some sympathy with the purposes that lie behind the amendment. As my noble friend said, the Bill's nomenclature is confusing in the extreme. The savings credit threshold as defined in the Bill is extraordinarily hard to understand—I have read it many times. We have not discussed estimated rates of return, which are imputed across savings at different levels.

Wherever possible, we must try to say what we mean. There will inevitably be complications in the detail but at least the scheme's name could he clearer. I should not favour calling the arrangement a "pension credit" because it is not a pension credit. Unless one has a full state pension, one does not get a credit on part of one's pension income; one qualifies for that only if one has a full state pension. We shall discuss that later. Moreover, the arrangement should not be called a "state pension credit" because it is an incentive to save. I hope that we will find a way to use the phrase "savings incentive", because the arrangement is an attempt to encourage people, on top of their basic state pension, to have savings that will qualify for the proposal. I hope that we will consider wording that involves the phrase "savings incentive" rather than "credit", which has a different nomenclature and implication. That phrase would make the position clearer. "State pension" suggests that there is a basic idea of qualifying, "savings" suggests that there is something that one needs to do and "incentive" means that one gets some return from it.

Baroness Hollis of Heigham

Listening to this debate about the appropriate title is rather like listening to debates on reform of the House of Lords—everyone knows what they do not like but no one can agree on what they do like. We are somewhat in that position. Some suggestions do not involve titles that are easily recognisable titles to pensioners out there; they are accurate legal descriptions of the content that the scheme may involve. That is not necessary and it is not what we are dealing with.

Since the idea was first mooted, we have used the title "pension credit" from the beginning. Members of the Committee will recall that at Second Reading I explained that we had to use the prefix "state" for purely legal reasons and that we will continue to refer, in literature and so on, to "pension credit". The name has been in the public arena for sufficiently long already to have achieved a degree of acceptance and understanding. To further change it would suggest to many people out there that we have yet another different scheme and it would add to the complexity.

I accept the thrust that lies behind the proposal of the noble Baroness, Lady Greengross, which was to ensure that everything possible should be done to reduce stigma and to promote the take-up of pension credit. We do not want the name to stand in the way of that objective. She was absolutely right in that regard. I hope that she will accept my assurance that we will undertake a substantial programme of targeted publicity to achieve the dual aims of reducing stigma and promoting take-up, which we share with her. I hope to draw on her expertise and experience as we develop the matter.

It is appropriate to mention the pension service, which will come into being in April and which will focus exclusively on pensioners and those approaching pension age. It will deliver tailored services, which will mean less intrusion, less hassle and services that meet pensioners' needs in a more helpful and positive way. It is also our intention to present pension entitlements in a more holistic way. We want people to see pension credit as part of their overall pension entitlement. Current pensioners do not need to know about how one arrived at arrangements such as the five-year proposal, integrated sums of money and automaticity, although future pensioners do. The noble Lord, Lord Hodgson, was absolutely right to suggest that future pensioners need to know that such arrangements will be available to them—that is an incentive to save. Existing pensioners are where they are, as it were, and the important point is to have simplicity and transparency for them. Our literature will ensure that that is the case.

We firmly believe that such practical linking of processes—the retirement pension with the two elements, as it were; that is, the guarantee element and the savings element—into one pension payment will help pensioners to claim it. We currently do that with SERPS, the graduated pension and pension increments.

I welcome this opportunity to say that what lies behind the arrangement is what matters, not what its title is. The title "pension credit" is reasonably well established. It is not the most elegant formulation but no one can come up with a better title that keeps simplicity, as opposed to being, in effect, the Long Title of a Bill. With those assurances, I hope that the noble Baroness will withdraw her amendment.

Baroness Greengross

I thank the Minister for her explanation and sensitive approach. The matter obviously needs a little more thought to ensure that we have got it absolutely right. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Turner of Camden moved Amendment No. 2: Page 1, line 5, after "credit" insert "calculated in accordance with section 2 The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 4, 5, 6, 13, 14, 15, 21 and Clause 3 stand part.

First, I explain to the Committee that I shall be speaking to all the amendments today that stand in my name and that of my noble friend Lady Castle. Unfortunately, my noble friend has had a fall. She has been badly shaken but she is making good progress. She is not, however, well enough to come here today. I am sure that we all wish her a speedy recovery.

Secondly, I was not myself able to come to the Second Reading debate on this Bill. My noble friend the Minister will not be surprised to learn that I am not terribly happy about the general thrust of the Bill. It is true that extra money is being made available for pensioners, and that is surely to be welcomed. But it is dependent on a system of means testing and it will be extended, ultimately, to a large section of pensioners. According to the Government's own long-term projections, by the middle of this century as many as 65 per cent of pensioners could be eligible for the pension credit, with all that that implies.

One of the problems about means testing is that it is not only expensive to administer but it is often very complex. Account has to be taken of income from various sources, capital and so on. We shall debate some of those matters later. Provision has to be made for a taper, and that can be complicated as well.

When I first read the Bill, I found parts of it very confusing. If we are to have this system, could we at least make it as easy as possible to understand? It is true that there are very useful notes on clauses, but I still find parts of the Bill difficult to comprehend. I therefore sought some assistance from a specialist adviser who knows a great deal about pension provision and social security in general. As a result, the amendment that is before the Committee and those that are grouped with it were framed. It will be noted that we want to do away with Clause 3 altogether and substitute a formula that we believe secures the same objective but which is much simpler. Instead of treating the savings credit as a separate benefit, the proposed formula in this group of amendments treats it as one element in the calculation of the guaranteed credit.

If the amendments were agreed to, the terms "guaranteed credit" and "savings credit" would be redundant; there would be one benefit—the state pension credit—in the calculation of which 60 per cent of certain types of income would be disregarded. That is our aim. In place of Clause 3 there would he the much simplified wording that we have framed in Amendment No. 21.

I hope that the Minister will agree that, irrespective of her view of the actual wording, which no doubt could be improved, there is a case for simplifying the formulation. I am not alone, it appears, in regarding Clause 3 as incomprehensible. The noble Lord, Lord Higgins, has drafted what amounts to a rewrite, which we shall no doubt debate later this afternoon.

This is by no means a wrecking amendment. Despite my view, which I have already expressed, as to the philosophy that lies behind the Bill, I accept that the Bill is before us and that it is up to Members of the Committee to do what we can to make it viable and accessible. I therefore hope that the Minister will look with some favour on what I have said. I repeat that we are not out to wreck the Bill; we simply want it simplified in order to make it accessible to the people who it is intended to benefit. I beg to move.

4.30 p.m.

Lord Higgins

I am sure that the whole House will be sad to hear of the fall sustained by the noble Baroness, Lady Castle, and that we all wish her a very rapid recovery. She is certainly missed at these debates—she is one of the usual suspects who is usually involved in them. When we previously debated this Bill, the absence of the noble Baroness, Lady Turner, was noted and we wished her well. Therefore, we are particularly pleased to see that she is now back with us.

As the noble Baroness rightly pointed out, these are very complicated matters, and she has sought to put forward an alternative proposal. Of course, it is well known that both she and the noble Baroness, Lady Castle, would much prefer—as, indeed, would many outside bodies—to see the money which the Government's proposals in the Bill would cost spent on uprating the basic state pension. I could not agree more with the concerns expressed by the noble Baroness in moving the amendment with regard to the extension of means-testing. There is no doubt that the proposals in the Bill will lead to a substantial increase in means-testing.

In the context in which she proposes her amendments and in the context of the Government's own proposals, I considered it extremely helpful to have the document published by the Department for Work and Pensions on pension credit for long-term projections. That document compares the Government's proposal for pension credit reforms with the proposal for increasing the basic state pension in line with earnings. The latter would normally be advocated by the noble Baroness who moved the amendment.

The figures given in the document are quite surprising. Those which relate to the cost of pension credit reform under the Government's proposals are based on three separate scenarios. I am not clear why there are three scenarios because different assumptions are made about the pension credit on the one hand and the savings credit on the other, uprated with prices, earnings or whatever. I should have thought that by now the Government would be fairly clear about what they intend to do with regard to uprating both the savings credit and the standard credit. Perhaps the noble Baroness can enlighten us on that matter.

If that is the position, then I am not sure why the document published by the department appears to assume that various possibilities arise. I believe that at least we should be clear about the Government's intentions with regard to uprating both the credits involved. We should then be in a better position to appraise the amendments before us. However, certainly if one takes the easiest of the assumptions, then, under the Government's proposals, the cost of the new measures in the Bill would apparently be: by the year 2030, £14 billion; by 2040, £20 billion; and by 2050, £26 billion. Those compare with corresponding figures of £29 billion, £46 billion and £62 billion so far as concerns uprating the standard pension in line with earnings. Therefore, clearly the proposals which, generally speaking, the noble Baroness supports would be a great deal more expensive in the longer term. They are fairly expensive even in terms of the Government's Bill, leaving aside the question of whether it is better to spend the money in one way or the other.

The Government's document appears to contain rather strange assumptions about take-up. It assumes 67 per cent in 2004 and then, as the pension credit gradually becomes established, 100 per cent thereafter. It seems to me to be extraordinarily optimistic to assume that after 2004 the take-up of the credit proposed in the Bill will be 100 per cent. We know only too well that generally the take-up of existing benefits is far less than that figure.

The other question which arises in the context of he figures that I have just given is whether the Government's proposal is sustainable. A number of outside bodies—the Pension Provision Group, the Institute of Public Policy Research, and so on—have expressed serious doubts as to whether the Government's proposals—still less the proposals of the noble Baroness in these amendments—would be sustainable. Clearly, in one sense, anything is sustainable so long as one is prepared sufficiently to increase taxes and social security contributions. But one has to put the matter into the broad context.

In relation to that matter, perhaps I may put a particular point to the Minister—this may be an appropriate moment to do so. If we are to incur these substantial costs, can we be told what the effect is likely to be on the Government's balance sheet? At present, one deficiency in our statistics is that the future liabilities of the Government with regard to pensions are excluded from the Government's balance sheet. We have a list of assets; it is a thick book. But perhaps the most major liability does not appear. I hope that in future we can include that figure.

Finally, with regard to this group of amendments, the important point is what the effect will be on savings. We must hope that the Government's proposals will produce an increase in the savings ratio. I believe we all agree that at present it is clear that insufficient savings have been made towards pensions in order to pay an adequate standard of living for people, let us say, in the year 2040.

Therefore, I was rather depressed by an analysis carried out by the Association of British Insurers. It suggests that, under the current arrangements—that is, without the pension credit—saving £50 a month, even over a long period of time—say, 20 years—is not worth while because of the way in which MIG is withdrawn if it is a means-tested benefit. Even under the pension credit arrangements outlined in the Bill, on the same assumption of approximately £50 a month, again, saving is apparently more worth while for a short period of time than it is now. The implied rate of return would be negative over a period of 10 years because the effective rate of tax as regards the pension credit is 40 per cent.

I should appreciate the Minister's comments on this point. But, if it is the case that one will receive a negative rate of return on savings of £50 a month for 10 years, and if the situation is even worse over a longer period, then we must query whether the proposal in the Bill is appropriate. More particularly, we must query whether an alternative of the kind proposed by the noble Baroness in these amendments might not be a better way of proceeding.

Baroness Hollis of Heigham

Perhaps the noble Lord will help me on this matter. I do not understand his point. With regard to the savings credit, at present someone of the age of 77 with a retirement pension and some other modest savings below the MIG income will see those savings wiped out because they are offset against what they would have received under the minimum income guarantee. In future, they will enjoy the benefit of at least 60 per cent of that amount. Therefore, I simply do not understand the noble Lord's point about negative rates of savings. At present, there is a 100 per cent negative rate of savings between £77 and £100 so far as concerns modest second pensions.

Lord Higgins

As I mentioned, the figures that I give are based on the analysis carried out by the Association of British Insurers. The association sets out a very reasonable and, I believe, not unrealistic scenario in which someone saves £50 a month over that length of time with various assumptions about the upratings which are likely to take place and the fact that the MIG will cut in at certain points. I do not believe that that is out of line with what Mr Frank Field has suggested from time to time.

Noble Lords

Oh!

Lord Higgins

It is no good saying "Oh" about Mr Frank Field. We realise that he was supposed to think the unthinkable, and so on.

However, I believe that these are serious points both with regard to sustainability and with regard to the extent to which the Government's proposals are likely to increase savings. On the other hand, albeit for a much higher cost, perhaps something along the lines suggested by the noble Baroness in the amendments might be a better way in which to proceed.

Baroness Hollis of Heigham

Amendments Nos. 2, 3, 4, 5, 6, 14 and 15 propose a radical change to pension credit and have the effect of substantively bringing forward much of Clause 3 to Clause 2. As Members of the Committee are aware, Clause 3 introduces the savings credit and details of its calculation. Therefore, we are considering this group of amendments together with the Question whether Clause 3 stand part.

In the process, I believe that we have wandered gently over much of the territory of the Bill with which we shall deal more specifically in due course. I should like to leave some of the questions raised by the noble Lord, Lord Higgins, until we debate the amendments which relate to them rather more tightly, including the situation regarding the National Insurance Fund, and so on. I could attempt to answer them if he wishes, but these proceedings may sound more like a Second Reading debate rather than a response to the amendments. However, I can comment on some of the points, particularly the percentage of GDP.

The noble Lord rightly made the point that my noble friend's previous position on seeking uprating in line with earnings and basic state pension would have a forecast figure of something like £60 billion by 2050 and that that would be two or three times more expensive than our estimates for pension credit. I agree with him.

He also asked whether pension credit was sustainable as part of GDP. Our projections suggest that we are talking about possibly 0.6 per cent of GDP in 2020 and possibly 1.1 per cent of GDP in 2040. Compared with almost all European examples, we consider that those are realistic, sustainable and affordable percentages of GDP. I have no problems with that.

I have tried to deal with the noble Lord's point about negative rates of return. That may or may not be true for certain assumptions, but not for people who at the moment are losing modest savings against MIG. Pension credit addresses that. It may be that some of the points raised by the noble Lord will be dealt with better when we consider such things as tapers and the like. If I need to respond to other points, perhaps I may do so later.

Perhaps I may turn to the amendment of my noble friend Lady Turner.

Lord Higgins

I entirely agree that it may be better to deal with some of the points later. Nevertheless, I was puzzled about why the Government's paper made different assumptions about uprating of the guarantee credit and the pension credit, so perhaps the Minister could tell us the Government's intentions in relation to prices, earnings or whatever.

4.45 p.m.

Baroness Hollis of Heigham

I shall address that later. At the moment the Government have made it clear that our intentions, in terms of what we shall call MIG to the end of this Parliament, are to be uprated in line with earnings. We do not propose to bind future Parliaments on that. That will be determined in due course. We have given scenarios of whether RPI or earnings-related assume different rates of growth, if you like, and as a result what projections would subsequently follow, given possible permutations. On the face of it, that appeared to be a helpful way of presenting what the future liabilities, costs, responsibilities and rewards would be to the pension sector of social security. If my officials had not produced that information, the noble Lord would be pressing me for it under certain scenarios, as we have done.

Perhaps I should comment on the odd assumptions about take-up being 100 per cent from year two. I take the noble Lord's point. All the experience shows that with an income-related benefit there is normally a slow, but steady, climb to a rate of take-up which may be 90 or 95 per cent or more. We saw that with his own government's introduction of family income supplement and we have seen it with other forms of income-related benefits.

Had we put forward any other working assumption, this would have been taken, for year two, as suggesting that that is the total number of pensioners whom we believe will claim—and that would have been a step too far. We are putting in the funding in the hope that we can get as close to 100 per cent take-up as we can. I fully accept that there is no experience to suggest that we shall hit that figure. But if we did not put in the funding, or if we had exceeded it, or if we went for a figure considerably lower than that, I would be accused by the noble Lord of building in a failure to reach our proposed target. That is why we did it like that.

I shall return to the amendment of my noble friend. Her policy position is to replace pension credit with a state pension of a similar amount and earnings-related. The cost of that has already been addressed by the noble Lord, Lord Higgins. I have tried to put this point to my noble friends Lady Turner and Lady Castle. I am sorry that she is not in her place. We understand the reasons. It is worth reminding the Committee that that would not remove the need for income-related benefits for all sorts of reasons—even if we had an earnings-related increase and it had never been broken—because something like two-fifths of all of those currently claiming MIG would still need an income supplement either because they have an incomplete retirement pension, or because they need, and are entitled to, additional income-related benefits for such things as disability or ISME. Therefore, the notion that there is a choice between no means-testing, high retirement pensions, earnings-related and means-testing pension credit, and so on, is simply nonsense and is not borne out by the evidence. I know that my noble friend Lady Turner respects that information.

As was made clear at Second Reading, we are seeking to target benefit on the poorest pensioners and those nearly poor pensioners who currently see their modest savings being eaten away. We retain this dilemma that we are seeking on the one hand to ensure that the poorest pensioners, who have no savings, have a decent minimum income, which could be £100, but equally that those who have made modest provision will, for the first time, see some reward for it. That is fairness.

Pension credit brigades together the need to have a decent minimum income to address poverty on the one hand with fairness in our response to those who seek to help themselves on the other hand. That is what we are seeking to do.

The amendments of my noble friend remove reference to the pension credit from Clause 1 and substitute the references to the guarantee credit in Clause 2 with references to the state pension credit—not the basic state pension which of course is provided for under Part II of Social Security Contributions and Benefits Act 1992. Thus, the whole pension credit calculation would be within one clause and the guarantee credit and the savings credit would be replaced by one calculation covering both elements. I fully understand that the intention is that these amendments pave the way for the proposals made within Amendment No. 21, which seeks to insert a savings disregard into the calculation of the guarantee credit in Clause 2.

My noble friend is right to recognise the importance of this aspect of the pension credit. As I have said, many pensioners today are no better off for having saved, because in seeking to address the problems of poverty we have overtaken the efforts that some people have made for themselves. We do not believe that that provides the right incentive to save for the future.

The savings credit will change that. It will reward rather than penalise pensioners for their thrift by giving them a savings credit, a cash addition for every pound of income pensioners have built up during their working lives.

Under the savings credit in Clause 3, we have proposed that pensioners who are 65 and over will receive a cash addition of 60 pence for every pound of second pension and income from savings that they have above the level of the savings credit threshold. In 2003 the threshold is expected to be around £77 for a single person, and £123 for a couple.

My noble friend proposes a very similar provision for inclusion in Clause 2. That is one approach and it could work for many pensioners, but we do not believe that it is sensible.

One of the problems that my noble friend simply has not recognised is that many pensioners have additional needs such as owner-occupier housing costs, disability, or caring responsibilities. We meet those needs through increases to the standard guarantee—what we call the appropriate guarantee. In Clause 3 we have ensured that those groups still benefit, with a higher lift, so to speak, from the savings credit but that they do not benefit more or disproportionately compared with those pensioners without additional needs.

Under my noble friend's proposal, her savings disregard would continue to accrue on qualifying income above the standard minimum guarantee and in addition people would be entitled to substantial savings credit. By removing the cap, those with additional needs would cost an extra £350 million because the savings element of the pension credit would become an extension of the guarantee. Thus, cases previously on the savings credit, and therefore, not passported, would be passported to housing benefit and council tax benefit. To remove cliff-edge effects would cost an additional £800 million. In addition, this amendment would add a further £100 million to the costs because the guarantee and the savings credit would be payable to those aged 60 to 64.

My noble friend's amendment, as drafted, would add a further £1.25 billion to the costs of £2 billion of pension credit. That £3.25 billion would have to be met either from an increase in taxes or from elsewhere within the Government's wider programme and agreed spending plans. Across Government we believe that we have the correct priorities.

While we accept that my noble friend's intention is to make the scheme more generous, we do not believe that, as she has cast it, that generosity is justified. We have set the qualifying age for the savings credit at 65. I explained that the guarantee is for men and women at 60 and the savings credit for men and women at 65. We believe that all pensioners over the age of 65 should have the opportunity to receive the same level of savings reward based on their savings. It cannot be right that because an individual has additional needs, they benefit disproportionately from their savings.

In presenting the guarantee and savings credit calculations separately in the Bill, we believe that we have made clear our intent that all pensioners should have a guaranteed level of income that none should fall below. We also believe that in detailing the savings credit calculation separately at Clause 3 we are making it clear to pensioners on low and modest incomes that where they have saved there will he an identifiable reward for doing so.

I think that the amendment proposed by my noble friend would undermine those intentions and create an innate unfairness and bias towards those pensioners with additional needs including those with mortgages.

These amendments are inappropriate, extremely expensive, not well targeted and not the best way of taking forward the Bill. I hope that she will feel able to withdraw the amendment.

Baroness Turner of Camden

I thank the Minister for her comprehensive response. Although there has been some talk about basic state pension, and my attachment to the idea that it should be uprated in line with earnings, the amendments do not deal with that issue. The amendments relate to the wording of the Bill and the intentions underlying the wording. I was most anxious to ensure that the measure was comprehensible. I still believe that Clause 3 is extremely difficult to understand. We shall have another opportunity to consider the matter today; another amendment deals with that very point. However, I find aspects of the wording incomprehensible. I believe that there is an obligation upon us to ensure that primary legislation on a new and important measure such as this should be understandable.

It is not my intention to press the amendments. They were probing amendments to ascertain the Government's attitude towards my view of the comprehensibility of the provisions. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Barker moved Amendment No. 3: Page 1, line 6, leave out paragraph (a). The noble Baroness said: The amendment relates to pensioners who are living abroad. It is a similar area to that addressed in the later amendment tabled by the noble Lord, Lord Higgins, on regulations.

In moving the amendment, one has a sense of history. I understand that similar debates have been held intermittently since 1929 on the issue of pensioners who choose to live abroad.

The issue that I seek to address is often raised in the context of the state pension. I raise it in the context of the pension credit. I refer to pensioners who live abroad whose income is not uprated as it would be if they lived in this country. I do not wish to list the countries with which there are or are not reciprocal arrangements. I simply wish to raise one point. The latest figures for those pensioners who receive upratings are dated 15th January 2001. The number of pensioners who live abroad and have a state retirement pension at a frozen rate is 460,000; 378,000 pensioners have their pensions uprated annually. However, I have been unable to find figures beyond 1998 relating to where those pensioners have retired to.

Patterns of work and pensions are changing rapidly. I do not wish to focus on the common myth that pensioners living abroad are affluent, having retired to the Mediterranean and the sun. I refer to the migration of pensioners to this country. Great changes have taken place during the lifetimes of those pensioners, most notably in countries such as eastern Europe, and so on. That is the issue that I seek to address. I shall be interested to hear the Minister's response.

Baroness Hollis of Heigham

I am sorry that this amendment is not grouped with the next amendment. We tried. They are in separate groups but raise the same issue. It would have been better to take the amendments together.

Amendment No. 3 would remove the need for a person to be physically present in Great Britain in order to claim pension credit. Pension credit could be claimed, therefore, by anyone living abroad. It will not come as any surprise to the noble Baroness to know that the Government do not accept the proposal. I hope that the Committee will agree that it cannot be right that a person who might have no connection with, or affiliation to, the United Kingdom could receive pension credit, the funding for which will be provided by the taxpayers of this country. Were no residence or presence criteria attached to pension credit, the cost to the British taxpayer could be enormous, potentially running into billions of pounds.

Rather the Government intend that in order to receive pension credit a good degree of affiliation to this country will be required. Some form of residence condition is an inherent requirement in social security benefits generally. We do not believe that pension credit should be an exception to this rule.

We propose, therefore, that, first, it will be a condition of entitlement for pension credit that a person is present in Great Britain when a claim is made. In addition, such a person will be required to be habitually resident in the common travel area of the United Kingdom, Channel Islands, the Isle of Man or the Republic of Ireland. People with certain European Community rights such as workers, refugees and people granted exceptional leave to remain in the United Kingdom will not be required to demonstrate that they are habitually resident here.

As Members of the Committee will know, being habitually resident in the common travel area is a pre-requisite for a number of benefits including minimum income guarantee. In order to determine whether a person is habitually resident, a decision-making officer considers a variety of factors about the person's circumstances—for example, the length, continuity and general nature of actual residence, reasons for corning to this country and the claimant's future intentions. Indeed, when my son returned from the States, he was asked to which societies and organisations he belonged, and so on. I believe that those were perfectly proper questions to see whether someone's place of habitual residence was in this country.

During the previous Parliament, the Government undertook a review of the habitual residence test and made a number of changes to improve the efficiency and fairness of the test. Given that, and the fact that there is some similarity of purpose—I am sure the noble Baroness will recognise that—with minimum income guarantee in providing a guaranteed level of support to poorer pensioners, we believe that it is appropriate to use the habitual residence test for pension credit.

Of course, that is not to say that pension credit should cease immediately upon a person departing these shores. We intend to allow pension credit, as with minimum income guarantee, to continue in payment for periods of temporary absence from great Britain of up to four weeks. Where the claimant accompanies a family member who is a child and travelling abroad to receive medical treatment, this can be extended to eight weeks.

It is useful to get these matters on the record; that is what Committee stage is about. I hope that I have explained the position to the noble Baroness and that she will withdraw the amendment.

Baroness Barker

I thank the Minister for her reply. When the noble Baroness referred to absences for between four and eight weeks I thought we were in danger of straying into hospital downrating since it will now be increasingly possible to go to a hospital abroad. Perhaps the Government are ahead of us on these matters.

The Minister's response was as I predicted. Perhaps I may repeat that patterns of pensioners' lives are changing and there is a case for further research and updating on this issue. Were these pensioners—they are not affluent but are returning home—to remain resident in this country, they would fall into the category covered by the pension credit. Those people may have been in this country for a long time. Nevertheless, I have listened to what the Minister said. The noble Baroness is well versed and has long-standing experience in these matters. She graciously spent time explaining those matters to us. However, I think that the matter needs to be aired periodically. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 4 to 6 not moved.]

5 p.m.

Lord Higgins moved Amendment No. 7: Page 1, line 20, leave out paragraph (a). The noble Lord said: In moving Amendment No. 7 I shall speak also to Amendments Nos. 8 and 9. Perhaps I should explain that I was in no way responsible for the de-grouping of the previous amendment with this one. I was not in favour of that. The amendment seemed to fall naturally into this group. I presumed that there had been representations from somewhere else.

Baroness Hollis of Heigham

The noble Baroness, Lady Barker, wants to intervene.

Baroness Barker

I rise to point out that I do not think that the amendments were ever grouped together. They were not de-grouped by me.

Lord Higgins

Therefore, if they were not grouped together in the first place, it is the Government's responsibility.

I shall not go into the arguments which were put forward on the previous amendment by the Liberal Democrats because it had not occurred to me that those issues would be raised. There is a history of problems faced by those abroad who do not have their national insurance pension uprating. That is very well understood. However, I have never heard anyone say that those overseas should get what was MIG and is now the standard credit or that they should receive relief for their pension savings. They would probably be as astonished as anyone else if that were to happen.

I turn to Amendments Nos. 7, 8 and 9. This is the first stage in the Bill where the dreaded expression "regulations" appears. Perhaps it would be helpful just to say a word or two about that. Many of those outside have complained at great length about it being extremely difficult to know what the Bill does because vast tracts of it will be taken up by regulations. Having said that, the Select Committee on Delegated Powers and Regulatory Reform gave the Government a fairly clean bill of health concerning whether the regulatory powers should be dealt with by positive or negative resolution. It made two caveats—for example, Clause 15. By and large it has not expressed concern. None the less, it is important to seek to establish during the course of debate what the Government's intentions are.

In that context, the noble Baroness said at Second Reading that she would try to provide us with drafts of the various regulations, of which this is the first to appear on the face of the Bill. I realise, and understand, that she has had considerable difficulty in fulfilling that undertaking. None the less, she has managed to get some commentary—I think that would be the right way of putting it—on the various regulations. That only alas—my fault not hers—reached me earlier this morning. I am grateful for it. No doubt between now and Report that will be circulated to others participating in these debates, and we can all take advantage of it.

One basic point of principle is that it is entirely appropriate to make regulations where the particular element of the Bill will be variable in the future. We clearly cannot go through primary legislation every time there is some major change in rates or whatever. On the other hand, if it is a matter which can be put on the face of the Bill, it should be. In a number of instances that may be the case. For example, the regulations make provision for the circumstances in which a person is to be treated as being or not being in Great Britain. That is not something which varies over time. The Government should know the circumstances in which they will treat a person as being or not being in Great Britain.

Baroness Hollis of Heigham

The noble Lord will know that the precise terms of what counts as "habitual residence" were changed by the court case of Swaddling. That encouraged the Government to progress with their review of the habitual residence test. It did indeed change. As a result, all the guidance that had to go out and so on had to be perfectly properly changed. These things are not as fixed and non-variable as the noble Lord suggests. He seemed to be suggesting that the only regulations ever needed were those that dealt with numbers, which might have to change. Everything else would remain constant. No, that cannot be true. Forms of income, of annuity and all those kinds of things change every time different models come through.

The Government, without troubling the House continually with primary legislation, need to be able to have the flexibility to bring these matters forward with regulations, which, none the less, will remain properly scrutinised by your Lordships' House.

Lord Higgins

I was not suggesting that this applied only in cases of numbers. That is not my position. The noble Baroness is fortunate in having a court case which led to her having to change the question of who is or is not in Great Britain. If that had not arisen, she would find it more difficult to make her point. But I take and accept her point.

Amendment No. 8 concerns regulations which provide for whether someone should continue to be entitled to a pension credit if they are temporarily absent from Great Britain. Perhaps the noble Baroness can give us some indication as to how long someone has to be absent and so on. In that regard there probably are some helpful court cases and other financial legislation relating to whether someone is habitually resident and so on. No doubt the noble Baroness can confirm that matter.

The other point is the question of whether or not someone is in Great Britain. Perhaps the Minister can make clear for us what the situation is with regard to Northern Ireland. In particular, if someone visits Northern Ireland, are they said to be inside or outside Great Britain? These are all fairly clear-cut points compared with some of the complexities elsewhere in the Bill. It would be helpful to have the Government's view on that issue and whether it would not be better to deal with it on a United Kingdom rather than on a Great Britain basis. I beg to move.

Baroness Hollis of Heigham

The noble Lord has described his amendments with his usual clarity. They all concern the residence and presence conditions that need to be satisfied in order to qualify for pension credit. Amendment No. 7 removes the provision allowing additional residence conditions beyond mere physical presence in Great Britain to be a prerequisite for receipt of pension credit. Amendment No. 8 limits entitlement to pension credit only to periods of presence in Great Britain. Amendment No. 9 has the effect of preventing payments of pension credit during periods of temporary absence from Great Britain—namely, England, Scotland, Wales—while the person remained in the United Kingdom. As the noble Lord said, that is the Northern Ireland amendment.

Amendment No. 7 as tabled has the effect of requiring a person to be physically present only in Great Britain in order to be able to claim pension credit. It is the mirror opposite of the amendment moved by the noble Baroness, Lady Barker. The argument remains the same. We believe that it is appropriate to have the habitual residence test, which is a stronger test than merely being physically present. I can elaborate on that matter if that does not answer the noble Lord's point.

Amendment No. 8 has the effect of removing possible entitlement to pension credit for periods of temporary absence from Great Britain. As I said to the noble Baroness, we are permitting that to be continued for four weeks where someone is away and eight weeks when accompanying a family member on a trip associated with illness and the like. I hope that point is covered.

Amendment No, 9 has the effect that pensioners who normally live in England, Scotland or Wales but who go to Northern Ireland for a short time—perhaps to visit relatives—would have to give up their pension credit while away and to claim it back again when they came home. That is the import of this probing amendment.

Our intention is to mirror the current rules which apply to income support. Although it is a basic condition that people are in Great Britain in order to qualify for pension credit, payment can continue for up to four weeks if they are temporarily out of the country, whether in Northern Ireland or anywhere else in the world. That goes back to the previous amendment, Amendment No. 8. Exceptionally, if the person is accompanying a child for medical treatment abroad, payment can continue for up to eight weeks. These rules allow pensioners to take short holidays without any disruption to their income. Of course, the intention is that there will be an equivalent pension credit scheme in Northern Ireland. People visiting the Province could, I suppose, claim under that scheme while they were there and reclaim under the Great Britain scheme on their return. However, I do riot believe that to be an appropriate way of handling the situation.

The problem worsens if we compare the position of people visiting Northern Ireland temporarily to those travelling anywhere else. For example, a pensioner going to Spain or to the United States on holiday for up to four weeks would hold on to his pension credit during that temporary absence from the UK, but his neighbour visiting Northern Ireland for the same length of time would have to give it up because he or she would not be in Great Britain, though still in the UK. Therefore, the visitor to Northern Ireland would be placed into a worse position than that of the pensioner taking up temporary residence abroad on a four-week holiday. I hope that I have adequately explained the possible effect of the noble Lord's amendments. Accordingly, I urge him not to pursue them.

Lord Higgins

In the light of that explanation, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 8 and 9 not moved.]

Baroness Turner of Camden moved Amendment No. 10: Page 2, line 1, leave out from "means" to end of line 4 and insert "the age of 60 The noble Baroness said: In moving this amendment, I shall speak also to Amendment No. 54, which is also tabled in my name and that of my noble friend. There are also other amendments included in this group. I begin with Amendment No. 10. Under Clause 1(6), the qualifying age for the guarantee credit will rise from 60 to 65 between 2010 and 2020 in line with women's pension age, as was mentioned earlier. The effect of this amendment would be to keep the qualifying age at 60 on the grounds that many people have to retire at that age, often with very small occupational pensions. The MIG is now payable at 60 to both men and women, despite the fact that men's state pension age is 65.

Amendment No. 54 proposes the deletion of paragraph (c) in subsection (3) of Clause 6. Under that paragraph it is the Secretary of State's duty to fix an assessed income period—normally five years—only where the claimant or his or her partner is aged 65 or over. For those under 65 the weekly means test would continue. In the case of a woman retiring at age 60, there is no reason why the First five-year assessment period should not begin at once. In the case of a man under 65, the initial assessed income period should be shorter than five years, but this is provided for elsewhere. Therefore, it does not seem necessary to limit the effect of Clause 6 to those aged 65 or over. That is what the amendment seeks to remove. Moreover, if the five-year assessment is intended to encourage take-up, it will be much less effective if claimants have to be told that it will not apply for the first five years. I beg to move.

Lord Hodgson of Astley Abbotts

I have two amendments in this group—Amendments Nos. 24 and 26—to which I should like briefly to speak. When I spoke previously, I omitted to declare two interests. I am chairman of the trustees of an occupational pension fund and a director of a mutual building society, which gives me a peripheral involvement in the matters now under discussion.

I approach the subject from a slightly different angle from the noble Baroness, Lady Turner. It seems to me that we must make every possible effort to simplify the proceedings, the arrangements, and the nomenclature in the Bill. As the noble Baroness pointed out, the guarantee credit is available at one age while the savings credit is available at another. Changes will take place in the pensionable age for women—though, admittedly, eight years away from where we are now. However, in primary legislation, eight years is but the blinking of an eye. I hope that we shall be able to change the reference to specific ages on the face of the Bill to the phrase, the qualifying age". This would enable us to be more flexible in the future and not have a series of anomalies that may serve to confuse, and, indeed, lead to idiosyncrasies, inequities, and unfairness after the Bill reaches the statute book.

5.15 p.m.

Baroness Barker

I shall speak to Amendments Nos. 11 and 24. This group of amendments deals with the issue of equalisation of the savings credit—that is, equalisation of payment to men and women at the age of 60. The matter was aired on Second Reading. On that occasion, the Minister spoke at length about the difficulties and the complexities involved. She also outlined the fact that we are in a transitional period up until the year 2010, and then, again, up to the year 2020, for raising the basic pensionable age. So, until we reach the year 2010, we shall have a difference between men and women in this respect; namely, the pensionable ages of 60 or 65.

As the Bill stands, the guarantee credit will be payable at the age of 60, but the pension credit will be payable from 65. This means that women pensioners between the ages of 60 and 64 will not be eligible for the savings credit. I take a slightly different approach to the issue from some noble Lords. I am sure that the Minister will respond by saying that because of the current situation—the situation that we shall continue to be in until such time as there is equalisation at age 65—there will always be anomalies and inequities and it is a question of which anomalies and inequities we are willing to accept.

The Government have framed the legislation specifically to avoid inequities between men and women. So payments will be made to both men and women at the age of 65. I believe that my amendments would achieve the same aim. They would not create an inequity between men and women. However, they would make the savings credit available to women aged 60 to 64. There are many reasons behind that proposal. We have the Government setting precedents of equalisation at the age of 60 for MIG, winter fuel payments, free prescription charges, and also for concessionary transport.

In the age group of 60 to 64, we know that there are many women who fall into the low-income bracket, and these measures are designed to meet that situation. Equally, we know that, overall, women pensioners tend to be poorer than their male counterparts. One of the arguments that I am sure the Minister will deploy is: why should men aged 60 to 65 receive this benefit when so many of them may well be in work? If that is so, I would respond by saying that they would presumably be in income brackets that would take them above the level of the award.

There is one further reason for considering the question of equalisation. I have in mind the impact on housing benefit and council tax benefit. The age differences in assessment will create a level of complexity in the calculations of those benefits. With the current proposal to start the savings credit at age 65, rather than 60, this will mean that housing benefit will be calculated in three different ways, depending on whether someone is aged: first, under 60; secondly, 60 to 64; or, thirdly, 65 and over. Bearing in mind all the other complexities of the Bill, it seems to me that this is a matter that we should seek to avoid.

It is often possible in Committee to lose sight of the overall purposes of a Bill as one gets sucked ever more into the detail. We should remind ourselves that the stated intention of the savings credit is to encourage people to save. For those reasons, I do not believe that it is right for women aged 60 to 64 to be omitted from the provision.

Baroness Noakes

A number of speakers have talked about simplification being important in this highly complex Bill setting up the new pension credit. In particular, I support those Members of the Committee who are supporting Amendments Nos. 24 and 26 for reducing the savings credit age to the woman's pensionable age. That not only produces simplification across the whole Bill, but it also deals with the difficult issue of women retiring at the age of 60 who may be in low income groups not having sufficient additional income. Help the Aged has calculated that if women were deprived of their ability to claim the savings credit until the age of 65, they would potentially lose out on nearly £3,600 over that period which is a lot of money for women who perhaps do not have much in the way of additional resources. Similarly, men would be affected if they had retired early, perhaps against their own wishes, and they may need the protection of the savings credit.

A really important point here and elsewhere throughout the Bill is what kind of message we are sending out as regards savings. It seems to me that in this case we are saying that perhaps potential pensioners need to accumulate some capital because they will certainly need to draw it down between the ages of 60 and 65 in order to survive. That does not seem to me to be supporting an attitudinal change to saving which I believe is one of the Government's aims in this matter.

However, we do not live in an ideal world and everything that we might want to do is not necessarily affordable. Can the Minister say what additional public expenditure would be required, if the amendment were accepted, to reduce the savings credit age to the pensionable age rather than 65? I look forward to the Minister's comments.

Baroness Greengross

I support the point which has been raised that women pensioners between the ages of 60 and 65 hearing about the savings credit and knowing that they are excluded from it are going to feel pretty bad because there is nothing that they can do about it. I believe I remember at Second Reading the Minister saying that there was nothing that the Government could do about the age difference. It looked as though it might be a legal point which was then being brought forward. I imagine that it was connected with all men receiving the benefit at the age of 60 also; but I am not sure. I should be very grateful if that point could be clarified.

The other point I want to raise briefly is my concern about how the Government will inform those affected by this change. In principle I understand that the age must be increased because of rising longevity, changing work patterns and so forth which can justify this provision. But people have to know because this measure will seriously impact on their future planning. They need to begin planning now and it is very important that they do. We have the lessons from inherited SERPS to use as a model. We do not want another failure to inform people of a looming change in policy which will affect them very greatly.

Baroness Hollis of Heigham

There are a number of amendments which seek to make changes to the various provisions for age limits in pension credit and I propose to deal with them together.

I should have said earlier to the noble Lord, Lord Higgins, in particular and to the noble Baroness, Lady Barker, how much I have appreciated the fact that they were able to table so many of their amendments early which allowed us to do more detailed research work on them. Sometimes one of our difficulties is that what is intended in the amendment is not what it states. I found myself in the dilemma of trying to answer the words on the page—which are not the words spoken to. I suspect that that may also be the case as regards my noble friend's Amendment No. 54, which has an import in a different clause from that which she intended. I am in some dilemma as to whether I should make a speech which is irrelevant to the debate, but relevant to the amendment. But let me see how people's eyes glaze.

A number of amendments seek to make changes to the various provisions for age limits and pension credit and I shall deal with them together. Members of the Committee have made clear this evening that the minimum age for pension credit as a whole and for the guarantee credit in particular, is defined in the Bill as the "qualifying age". This is currently age 60, but will rise with state pension age for women from 2010. The minimum age for the savings credit element of pension credit is set at age 65, as is the minimum age for pensioners for whom an assessed income period can be set. Therefore, I want to return to the issue that was explored at Second Reading as to why the age is 60 for some and 65 for others and why we cannot change the age from 65 to 60. My best estimate is that the cost of bringing the age to 60 would be in the order of £200 million depending on how one "nets off" for other additional savings elsewhere. That is the kind of ballpark figure we are talking about.

Perhaps I may begin with Amendment No. 11. It replaces the current wording used to define the qualifying age with a rather more concise form of words. It does not question the approach taken; namely, that the qualifying age for state pension credit should in future rise in line with equalising state pension age. As this starts in only eight years' time, it is clearly sensible that we should make provision now in primary legislation, as the noble Lord said, because it is the blink of an eye for pension credit to fall into line with this particular change.

However, the laudably concise form of words in this amendment introduces a rather less welcome ambiguity. If we say that in the case of a man the qualifying age will be a woman's pensionable age, we might then ask, "Which woman's pensionable age?" because pensionable age will be different for women born on different dates because the state pension age for women will start rising in 2010. The brief wording used in the amendment does not cover that issue whereas the current wording is rather longer for a good reason; namely, to ensure that there is no legal doubt that the reference is to a woman who is the same age as the man. I am sorry to have to go into that, but sometimes it is worth spelling out why what looks like a crisp solution ties us in legal knots, as this matter does.

I now turn to Amendment No. 10. The effect of this amendment is to set the minimum qualifying age for the guarantee credit element of pension credit at the age of 60, rather than allow the minimum qualifying age to rise in line with state pension age for women from 2010. This means a perpetuity amendment.

The Bill before the House creates a new benefit for pensioners. It is sensible to consider not only the present legal ages, but also those for the foreseeable future. That is why we are doing this. It was accepted in 1993 by the then Conservative government that the unequal state pension age—of 60 for women and 65 for men—was unfair. The resolution of this unfairness—to equalise both at 65—was debated and agreed by Parliament. The Pensions Act 1995, on which my noble friend and I worked closely, set out how that should be achieved. To allow people adequate time to make plans and provisions for their retirement, the women's state pension age will be gradually increased from 2010 so that by 2020 both men and women will reach state pension age at 65. Given that, it must be sensible to build that presumption into pension credit. That clearly raises issues about how we treat women meanwhile.

I now turn to Amendments Nos. 24 and 26 which seek instead to handle the matter the other way, which is not to treat women for the savings element as though they were coming into it at the age of 65, but to bring the savings credit element back to the age of 60, bringing it into line with the minimum age for the guarantee element. The minimum age for both elements of pension credit would then rise in line with state pension age for women beginning in 2010. On the surface that may seem a sensible and generous simplification. But there are compelling reasons why we have chosen to set the minimum age for men and women at 65 for the savings credit element.

As I hope that I explained at Second Reading, 65 is the only reasonable choice. It ensures equal treatment for men and women. We have had particular regard—a point raised by the noble Baroness, Lady Greengross—to ensure that the provisions of the Bill are compatible with the European Convention on Human Rights and with Community law. Therefore, men and women have to be treated equally to that effect during the transitional period.

Amendment No. 24 would thwart us in that respect as it would have the effect of adding to the unfairness which already exists because the state pension age has not yet been equalised. Perhaps I may explain. The 1995 Act sets out how the unfairness of having different pension ages for men and women would be resolved starting in 2010. But in the mean time we have to take care not to introduce new inequalities. That is a darned sight more difficult than it sounds: there are no easy solutions.

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. To do that we have to look at what provision, including state provision, people have made for their retirement. So the amount of savings credit payable depends on existing state help such as the basic state pension and SERPS as well as, for instance, occupational and personal pensions and savings. If the savings credit was payable to people aged 60 to 64, even though it started at 60, men and women would still have different outcomes simply because of the unequal nature of the existing state help that they receive. Depending on the exact circumstances, a man could receive either more or less savings credit than a woman in the same situation.

I am happy to try to give the House a worked example. Even if people look glazed now, it may help them when they come to read Hansard. An example was included for my elucidation that I shall share with the House. Let me go through it; I shall try to go slowly.

A 63 year-old woman has a full basic state pension of £77 per week and a £10 a week occupational pension. A 63 year-old man has no basic state pension, due to the difference in state pension age, and a £10 a week occupational credit. If the savings credit were available to 60 to 64 year-olds, the woman in this example would be entitled to £6 per week and the man to nothing, because he did not receive retirement pension.

If we take the same two people, but this time both having occupational pensions of £100 per week, rather than £10 a week, the effect is quite different. If the savings credit were available to them, the man would be entitled to £13.80 savings credit per week—because he received no retirement pension—and the woman would be entitled to nothing, because her pension would float her off pension credit altogether. That would clearly be unfair. To avoid that unfairness, it was decided to make the savings credit available from age 65, the first point at which men and women are treated equally under existing state pension provision. That also fits with the long-term intention to equalise state pension age at 65.

Your Lordships may well ask—I am sure that the noble Lord, Lord Higgins, has got this far, because he has tabled amendments on these lines—"Why must the savings credit build on existing state provision? Why can we not simply reward people's efforts to save for their retirement whatever form that provision may take? We would then avoid the problem of the inequality in state pension age". But that will not work either. If the savings credit were paid at age 60 to reward all types of provision, it would have to reward the basic state pension. But as that is not paid to men until 65, men would be at a disadvantage.

So I suspect that your Lordships would next say, "Why do you not deem him to have the state retirement pension"—we shall return to "deeming" on many occasions—"and then reward the additional provision that people have made?". But that would unfairly reward those who had not contributed to the basic state pension above those who had contributed throughout their working lives. Think of all those women who have only partial state pension because they have not paid the whole contribution.

Again, an example may be helpful. Jack is 63—perhaps we ought to move on to Frank, given that he is much beloved by the Opposition. Jack is 63 years-old and has no basic state pension as he has not yet reached state pension age for men. Before pension credit, his only income is £23 a week from an occupational pension. Jack will therefore receive £77 guarantee credit to top him up to the single persons guarantee level of £100. If he was deemed to have a full basic retirement pension of £77 when calculating the savings credit, all his £23 income from his occupational pension would be rewarded. So Jack would get a further £13.80 a week on top of the £77 guarantee credit. So his total weekly income—that is, his deemed retirement pension, his top up to MIG and his £23 of occupational pension, would be £113.80.

Jack's next-door neighbour Frank—we now come to Frank—is also 63 years-old and therefore cannot get state retirement pension either. His only income also comes from an occupational pension. But he has managed to save a bit more and gets £24 a week£1 more than Jack. What would Frank get? Frank would get £76 guarantee credit to top up his £24 weekly income up to the guarantee level of £100. If he was deemed to have the full basic retirement pension of £77 when calculating his entitlement to savings credit, £23 of his £24 occupational pension would be rewarded at 60p in the pound, giving him £13.80. But his extra £1 would mean that that maximum level of savings credit was reduced by 40 pence, giving Frank an overall savings credit of £13.40.

So Frank's total weekly income, including his £24 of occupational pension, would be £113.40. I am sure that your Lordships have followed me this far. So despite Frank having an extra £1 of occupational pension compared to Jack, Frank would be 40p a week worse off. That is the result of the complexities of deeming. Perhaps another way to put this is that it results in a more than 100 per cent marginal deduction rate. So it will not have paid to save.

Those are only some of the difficulties; I could go on. However, as I flagged it up, it is also worth raising the difficulties associated with SERPS.

5.30 p.m.

Lord Hodgson of Astley Abbotts

In the example given by the noble Baroness—in that blizzard of statistics—she mentioned the impact on married couples. Is not one of the difficulties that in the Bill—although admittedly this is not covered by the amendment—men and women have been linked together again, whereas hitherto they have been separated for taxation purposes? Is not that the cause of the difficulty that we face, and does that not meet the point that I was trying to make?

Baroness Hollis of Heigham

That is helpful, but entirely irrelevant, if I may say so. We are dealing here with men, whether or not they are married to someone of the same age, a woman under the age of 60 or a woman over the age of 65 is irrelevant. We are dealing for these purposes with single men aged between 60 and 65. I was seeking to take your Lordships through the argument that we should treat them at the age of 60 as though they were women and thus entitled to savings credit.

The issue of the age of the man's partner is indeed an extra complexity, which would make it even harder to deliver the policy intent of the amendments, but the argument does not hinge on that. Separating out and treating what is actually a household assessment as though it were a disaggregated tax assessment would not improve the situation, because the man would still be between 60 and 65 and, for the purpose of the pension credit, we should have to deem a full retirement pension that he cannot have by law. That is what produces the anomalies that I have been describing. The issue of marriage makes the situation more complex, but does not alter the basic, fundamental flaw of what seems a generous proposal.

That is before I come to SERPS, which makes the position even more exotic. Women may have some SERPS in payment at age 60. Men do not receive that until 65. Again, there is no easy solution. We cannot simply ignore SERPS, because some people will have contracted out of SERPS, and it would be unfair to treat those who have contracted out of SERPS differently from those who have not. Another point is that men continue to expect to build up provision for their retirement until age 65, and this will become increasingly the case for women.

Given all that, I hope that I have persuaded your Lordships that we cannot equalise at 60 the savings credit that is built on a retirement pension that men cannot receive and have never received until 65. That would be true even if women's pension age was never going to rise. The fact that it is to rise to meet that of men seems to me to render the proposed process foolish. The difference with MIG is that that is about poverty. It has always been available from the age of 60. It is a form of income top-up. The savings credit, which has to deem the full retirement pension to come into play, cannot be paid to men under the age of 65 because they do not have a retirement pension. To deem it as if they had would produce some of the anomalies that I have tried to describe.

Behind the amendments is an understandable concern, which I share with the noble Baroness, Lady Barker, that women do not lose out overall, compared to men and compared to the current position, in the pension provision provided by the Government by the state second pension, stakeholder pensions and the Bill's provisions. The noble Baroness is absolutely right to bring such issues to our attention. My noble friend Lady Turner would of course join her in that.

Women tend to have lower incomes in retirement than men and they live longer, so they are more likely to see a relative decline in their pension income over their retirement. Pension credit will therefore be of particular help to women—as is the state second pension. More than half of pensioner households entitled to pension credit will he single women. About a further third will be men and women in a couple. In other words, pension credit will primarily help women and older women, for the reasons that I have just described.

Finally, Amendment No. 54 would extend assessed income periods to cover pensioners aged 60 to 64, as well as those aged 65 and over. I do not think that my noble friend Lady Turner of Camden really addressed that point in moving the amendment. She may not have envisaged the impact of the amendment. I am willing to speak to the draft that I have here, which addresses the purpose of Amendment No. 54, even though my noble friend did not speak in that way. I am in my noble friend's hands: if she would like me to do it, I am willing to do so. She may prefer me to sit down at this stage, for I have taken up a lot of the Committee's time, and we can return to the issue under another group of amendments, perhaps that relating to assessed income periods. I am happy to indicate to my noble friend which clause that will be under.

I hope that I have addressed the Committee's concerns. I recognise that it is an honourable problem, but I hope that I have persuaded the Committee that there is no solution, given that men's retirement age is 65. If we deem it, we will end up with marginal deduction rates, which would introduce further inequalities. Given that and the fact that women's retirement age is creeping up to that of men, we think that we have come up with the best solution, which is to treat men and women equally at the point of their poverty, which is 60. When it comes to the credit, which requires a full RP to get the full benefit it must be at 65, if we are not to introduce further inequalities.

That was a long explanation. I hope that some of the worked examples will make it clearer—if I have not made any mistakes in citing them—when your Lordships read this before Report. I hope that the amendment can be withdrawn.

Earl Russell

The Minister has given us a brilliant demonstration of why the demanded simplification of social security law can never be as simple as it looks. Does she accept the principle expressed by my noble friend Lady Barker that there is here no solution without anomaly? Is she attempting to offer us an anomaly-free solution, or is she—in the words once used by Lord Whitelaw—investigating alternative anomalies?

Baroness Hollis of Heigham

I shall give the Committee a bit of biography. In an interview for an internal Department for Work and Pensions staff magazine, I was asked what I thought to be the biggest problem in social security. I am sure that the person interviewing me expected me to say, "The Treasury". Heaven forbid—I would not dream of saying that the Treasury was the biggest problem in social security.

What I actually said echoes the noble Earl's point. I said that the hardest issues were those in which there were conflicting or competing good things. All that one can do is go for an optimum solution, not a maximum solution. The noble Earl is absolutely right. No one—certainly not I—would wish to disadvantage women at any point, but to deal with the issue in this way would produce worse anomalies than that which the amendment seeks to address.

We have come up with a decent solution, equalising at 60 men and women who are especially poor and equalising men and women with regard to rewarding their savings at 65. That is the decent solution, although I accept much of what the noble Earl said.

Baroness Turner of Camden

I was going to ask the Minister about the comment that she made about the difficulties relating to the position of women and the desire that women should not be disadvantaged in the way suggested by the noble Baroness, Lady Barker. Will the Minister give the matter further consideration, or does she think that it is an anomaly that cannot be addressed?

Baroness Hollis of Heigham

Yes, I do. I am not the Minister responsible for that portfolio issue, but I have spent many hours going through it, to see whether there were other ways of addressing the issue. I am persuaded that this is the most decent solution that we can come up with.

That does not stop your Lordships revisiting the issue. My noble friend may wish to press the amendment to a vote, but I beg the Committee not to make amendments that simply make the situation worse because of the unintended consequences of the read-across. With social security, it is not, as the noble Earl, Lord Russell, said, about simplicity, it is about read-across. It is like yellow lines on the road—one never knows where the cars are going to back up, for they do not always back up at the end of the yellow lines. That is what would happen here.

My noble friend Lady Turner of Camden has hit the end of the road on this matter. Obviously, if there are any particular points to pursue, I will be happy to correspond with her. If she wishes to revisit the issue at a later stage, she is, of course, free to do so. We have done the best that we can. I hope that when noble Lords read the proceedings in Committee over their cornflakes, they will agree that the issue should be put to bed.

5.45 p.m.

Baroness Turner of Camden

I thank the Minister for her detailed response to the amendments. Of course, I still feel that 60 would be a better age, especially in view of the fact that so many people—especially men—now have to retire much earlier than 65, because of industrial situations. Often, they do so on inadequate pensions.

I accept, however, that it is an extremely difficult issue and that has been illustrated by the Minister's response. Of course, I would like the opportunity to consider in more detail the numerous examples of difficulties that she gave. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 11 not moved.]

Clause 1 agreed to.

Clause 2 [Guarantee credit]:

Baroness Turner of Camden moved Amendment No. 12: Page 2, line 8, leave out "does not exceed" and insert "is less than The noble Baroness said: This is a simple amendment. We want to leave out the words "does not exceed" and insert "is less than". The amendment would mean that the Bill would read: has income which is less than the appropriate minimum guarantee". That would be clearer. It has no policy implications and is a simple change. It is a question of whether the Minister wishes to accept it. I beg to move.

Baroness Hollis of Heigham

I hope that when my noble friend has heard my reply, she, too, will not wish me to accept it. The amendment would have unintended consequences that she has, perhaps, not foreseen.

The amendment would amend the provision in subsection (1)(b) so that it would provide that a pensioner would be entitled to pension credit only if their income were less than the appropriate minimum guarantee. As drafted, the condition would be satisfied if their income were equal to the appropriate minimum guarantee.

I can see why my noble friend might have thought that the amendment was necessary. On the face of it, if a person's income were equal to the appropriate minimum, they would not need a payment to bring their income up to the prescribed level. However, the subsection has been drafted deliberately and benevolently in its current form. It is the Government's policy that a person with income equal to their appropriate minimum guarantee will also be entitled to automatic qualification—passporting—to a range of other benefits provided by other departments and the devolved Administrations, including free dental treatment, the full value of an optical voucher, free wigs and fabric supports, full refunds of reasonable travel costs to hospital for NHS treatment, assisted prison visits, Legal Aid, court fee exemption and grants from the Home Energy Efficiency Scheme.

I am sure that the Committee will agree that those are important and necessary benefits. No one would wish to see them withdrawn, which is why we want to leave the wording as it is. I hope that, on that basis, my noble friend will persuade me not to accept her amendment.

Baroness Turner of Camden

I thank the Minister for that response. Of course, no one wants to disadvantage people or to affect passporting to benefits. In the circumstances, I accept what the Minister said, and, having made the point, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 13 to 16 not moved.]

Baroness Noakes moved Amendment No. 17: Page 2, line 21, leave out "or unmarried The noble Baroness said: In moving Amendment No. 17, I shall also speak to Amendments Nos. 25 and 101.

The Bill covers a scheme of pension credits that has a set of payments for single people and higher amounts for married couples. That reflects the way in which the pensions system works. However, the Bill also treats an unmarried couple as if they were a married couple. In that circumstance, two people—I shall come to the definition of married couple in a moment—have all of their income and capital aggregated for the purposes of calculating the pension credit. Of course, the pension credit for couples is not double that for a single person. Thus if two people who are not in fact married are deemed to be a married couple for the purposes of the pension credit, they will suffer from being allocated a lower limit than that for two individuals.

The definition such as it is can be found in Clause 17. An "unmarried couple" is defined as, a man and a woman who are not married to each other but are living together as husband and wife otherwise than in prescribed circumstances". Same-sex relationships are therefore not included, whether they are a same-sex couple, or merely those who choose to spend their lives together such as, for example, two sisters. I assume that a brother and a sister would never be deemed to be an unmarried couple because that would have to be based on a presumption of incest. But if a man and woman choose to live together, they could immediately suffer the penalty of a lower joint pension credit limit.

Clause 17 defines a "married couple" as, members of the same household". Regulations are in place to determine that. However, the same clarity is not in place for unmarried couples. It appears from the definition that the Secretary of State can prescribe the circumstances in which a man and woman are not to be treated as an unmarried couple, but I cannot find any guidance as regards when they will be treated as a unmarried couple. Does this mean that the pension service will make up the rules as it goes along? Will it inquire into the intimate details of such relationships? What will happen if an unmarried couple do not believe that they should be treated, in effect, as living together as husband and wife, especially if there are no rules to guide the service?

This is an intrusive part of the Bill. I know that many nobles Lords resent the extension of means testing implicit in these new credits, but this is an additional intrusion into the most personal aspects of older people's lives, according them no dignity in retirement. For that reason, Amendments Nos. 17 and 25 seek to remove the concept of an unmarried couple being treated as if they are married.

Perhaps I may turn briefly to Amendment No. 101, which seeks to remove the ability of the Secretary of State to prescribe when a man and a woman are not to be treated as living as man and wife. I know that we will return to the theme of regulation many times during the course of our deliberations in Committee. Why does the Secretary of State need a power to determine who is not to be treated as living together as man and wife? Furthermore, is that the best way of determining how an unmarried couple are to be determined? The Secretary of State appears to have no powers to determine how they are to be treated as an unmarried couple. That seems perverse. I beg to move.

Earl Russell

I think that the noble Baroness, Lady Noakes, has opened a rather bigger can of worms than she realises. It has been perfectly clear in social security law since—I think I am right in saying—1946 that it is based not on the ceremony of marriage, but on the household unit. The central point of social security is that it is designed to relieve need. We do not wear our wedding rings around our stomachs, and so we feel a great deal of need to sustain ourselves against hunger. That is the case whether or not we are married. If the basic purpose of social service is to sustain against need, then it must be done as it has always been done ever since the welfare state was set up—through the household unit.

That principle runs right through the warp and woof of the whole of social security law. To make it apply to the whole of social security law except with regard to the pension credit would be to create a degree of complexity of the kind which we have spent a good deal of the afternoon saying that we would rather like to avoid. This is one element of social security law that is absolutely clear.

For my part, I am reminded of a story about Arthur Balfour and the young lady at a dinner party. Halfway through the dinner, the young lady turned to Arthur Balfour and said, "I am in an awfully embarrassing position and I do not know what to do about it. The gentleman sitting next to me has put his hand on my knee and I cannot make him take it away". Arthur Balfour responded by saying, "How long has it been there?". "Since the fish". "Well then", said Balfour, "I'd let it stay there".

On Amendment No. 101, I am going to surprise the Minister considerably by defending the existence of a regulation-making power. We are now in the age of the global economy, as we are in the age of the two-career marriage. I shall take one actual example, that of an individual person—my colleague Professor Natalie Zemon Davies, whose work I am sure is even better known to the Minister than it is to me. She worked at the University of California at Berkeley, but decided to move to Princeton in order to be closer to her husband in Toronto. There was absolutely no doubt that this was a genuine marriage in every possible way, but because they had two careers, they ended up living several thousand miles apart. They thought that reducing that distance to a few hundred miles was a genuine advantage, and one which held great attraction for them.

Is that the kind of circumstance which under the Bill might very well have been prescribed? If it cannot be prescribed, how are we to deal with two-career marriages? I think in particular of the freedom of movement of labour within the European Union, which is likely to make that kind of situation occur a good deal more frequently.

I hope that the noble Baroness, Lady Noakes, will not feel the need to press these amendments because they will create a great deal more complexity than they seek to be rid of.

Baroness Hollis of Heigham

2: I agree with much of what has been said by the noble Earl, Lord Russell. In any income-related benefit, the usual assessment is made of the household; that is, where there is financial interdependence based on a long-term—or in some cases even a temporary—relationship of sufficient stability that the two people concerned can be treated for these purposes as a couple.

The effect of Amendment No. 17 would be to limit the rate of pension credit payable to couples only to those who are lawfully married. An unmarried couple would therefore be entitled only to the lower rate of pension credit payable to single people. However, they would not be able to claim pension credit separately because that is precluded by subsection (1) of Clause 4. Thus they would be worse off and, as was pointed out by the noble Earl, Lord Russell, that would not be reasonable.

I do not see why the noble Baroness should think that unmarried couples have fewer domestic needs and requirements than married couples. Across income-related benefits there exists a long-standing principle of equal access for married and unmarried couples. I see no reason to abandon that principle for the purposes of the pension credit.

Amendment No. 25 would simply impose a claiming restriction on unmarried couples. Where one member of an unmarried couple was under 65, entitlement to the savings credit could be established only if the partner who was over 65 made the claim. In the case of married couples, provided that one of them was over 65, either one could make the claim.

As drafted, the clause provides for equal access to the savings credit for married and unmarried couples in the same way as for the guarantee credit, which again follows the well established principles for income-related benefits. I do not believe that the introduction of pension credit should be used to overturn the basic assumptions on which social security is based; that is, what comprises a "household" for the purpose of such assessments.

This does not concern whether we do or do not regard marriage as an inferior, superior or equal state; it is about the basic building blocks of social security legislation. I do not think that this Bill should be used to try to overturn such principles. Again, even if the amendment were accepted in principle, the read-across to all other areas of social security would be devastating.

I turn now to Amendment No. 101, at which point I was pleased to note that the noble Earl has discovered a new-found faith in the power of regulation. I shall seek advice about the particular case he mentioned, but certainly the power to prescribe circumstances is a legacy from earlier schemes. Analogies can be found with the example described by the noble Earl. The last time that it was used was in supplementary benefit before 1988, when it allowed for a brief "tiding-over" payment for children in some cases when a couple first started living together and otherwise all benefit would have stopped immediately.

To date, we have not had to use that flexibility and we may not have to use it in the future; but I can conceive of a situation such as that detailed by the noble Earl. With two generous incomes, in practical terms such a couple would be unlikely to come within the framework of the pension credit. However, I can conceive of a situation where one or the other might have caring responsibilities, such as looking after an elderly relative. I shall need to check on the technical accuracy of this, but I can conceive of situations where this might arise and where we might be glad of such flexibility. Were we to use it, however, the result would be only to the advantage of the individuals concerned as they would receive more as two single people than as a couple. The majority of pensioners claiming pension credit will also be claiming housing benefit or council tax benefit. Were there to be a need to use this flexibility, we want to be able to do the same as regards pension credit.

The procedures here are simple, standard and well defined. Given that, I hope that the noble Baroness will understand and accept that it would be profoundly unwise to change the basic building block of income-related—and therefore household-based—assessment.

6 p.m.

Baroness Noakes

The Minister said that it would be unfair because they would not have an entitlement to married allowance, the higher allowance. But one can look at it the other way. If two individuals had a full entitlement before being deemed to be husband and wife, they would lose by being deemed to be a part of a unit. So it depends on which way one looks at it. With increasing numbers of women having their own entitlement to a state pension—the numbers have been increasing and are forecast to continue increasing—that situation will continue.

The noble Earl may be pleased to hear that I tabled these amendments in the full knowledge that the household unit was the building block of social security legislation. However, we are dealing with something which is more akin to pensions, and I do not believe that the household unit is the building block of pensions legislation. We are seeking to create a credit with which pensioners will feel comfortable and which aligns with their experience of the pension system, not something which makes them feel that they are being dragged into the benefits system, with all its problems of uptake. I am sure that we will refer to that subject later.

Perhaps I may put a more detailed question to the Minister about how we define an unmarried couple. The noble Baroness referred to a household unit but, as I read the Bill, there is no reference to a household unit for an unmarried couple. Indeed, the definition in Clause 17 simply states that "unmarried couple" means: a man and a woman who are not married to each other but are living together as husband and wife otherwise than in prescribed circumstances". I cannot find how circumstances will be prescribed and how people will know whether or not they are likely to fall foul of the test.

The household unit is not referred to in relation to an unmarried couple but is referred to in relation to a married couple in Clause 17. I am a little unclear as to how this will work in practice.

Baroness Hollis of Heigham

I shall do my best to explain. As to the noble Baroness's first point, it is not the case that if two single people came together as an unmarried couple they would, as a result, receive two single payments and therefore benefit. That is specifically excluded by Clause 4(1) and cannot happen. If they were to benefit in that way, it could be argued that we were privileging the state of non-marriage over the state of marriage—and I am sure that that would not be exactly acceptable to the noble Baroness either.

There is a difference between a same sex relationship couple where there are two single people—and remain so for both the privileges and burdens of social security—and an unmarried heterosexual couple, who are, indeed, treated under the Bill as though they are a couple, with all the financial responsibilities they have towards each other for social security purposes.

As I said, it is well-established—it goes back to 1948—as to what counts as a common law wife, to use the old phrase, or a co-habiting couple. Factors taken into account include the stability of the relationship, financial support, whether they have children, whether they publicly acknowledge the relationship.

For example, this is absolutely core to the issue of whether a lone parent who has a live-out boyfriend is entitled to claim credit and social security benefits as a lone parent as opposed to one of a couple. This is well established in social security law. As I said, the factors can include whether they share a common household, the length of the relationship, whether they have children and whether they operate as a couple.

If the noble Baroness wishes me to send her further information, I shall be happy to do so. But it is a common basis of all social security that where a heterosexual couple share a home in this way they are treated exactly the same for social security purposes whether they are or are not married. I am a little surprised that the noble Baroness would seek to change that. As pension credit and the guarantee element are income related it is reasonable—it has always been the basis of social security—that an income-related benefit should reflect the circumstances of the family, of the household, and that is what the Bill seeks to do.

If I can help the noble Baroness further by writing to her, I shall be happy to do so. But, as I said, what counts as a co-habiting couple is well established in social security legislation.

Baroness Noakes

It is not established in relation to a household unit. There are specific provisions—indeed, there is a regulation-making power—for who is or is not a part of a household unit for a married couple, but there is no similar provision in relation to an unmarried couple. Therefore an unmarried couple would not know where to look in the regulations.

Baroness Hollis of Heigham

They are treated exactly the same. If I need to qualify that, I shall write to the noble Baroness. In social security law, so far as it concerns income-related benefits, married and unmarried couples are treated in an identical way.

Baroness Noakes

I thank the noble Baroness. I look forward to hearing from her further. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Turner of Camden moved Amendment No. 18: Page 2, line 23, at end insert— () The Secretary of State shall in each tax year review the amounts prescribed as the standard minimum guarantee for the purpose of determining whether those amounts have retained their value in relation to the general level of earnings in Great Britain, estimated in such manner as he thinks fit. () If on any such review the Secretary of State concludes that the prescribed amounts have not retained their value in relation to the general level of earnings, he shall prescribe such higher amounts as he thinks necessary to restore their value. The noble Baroness said: The amendment seeks to make provision for the Secretary of State to review the amounts prescribed as the standard minimum guarantee in relation to the general level of earnings in Great Britain. If he believes that the prescribed amounts have not retained their value, he can then prescribe such higher amounts as he believes necessary to restore their value.

The Government have said that the minimum guarantee will rise in line with earnings during this Parliament—I emphasise, "during this Parliament". The objective of the amendment is to put this into legislation as a statutory requirement.

The Government have frequently said—and I agree—that pensioners should be able to participate and share in a general rise in the level of prosperity in the community as a whole. One of the ways in which that can be done—and probably the best way—is to link these amounts to rises in the general level of earnings.

The amendment is grouped with Amendment No. 23, which covers much the same ground. In my view, that is also a very good amendment. I wait to hear whether the Minister will respond to either amendment in a helpful and satisfactory way. I beg to move.

Baroness Barker

I speak to Amendment No. 23, which, as the noble Baroness, Lady Turner said, is grouped with Amendment No. 18. There is a subtle distinction between the amendments. Unlike the noble Baroness's amendment, the amendment standing in my name and that of my colleague does not seek necessarily to restore the link with earnings but refers to prices or earnings.

I bring the amendment forward for two reasons. First, to build on the current government practice of making an annual statement about uprating in November. I wish to see this on the face of the Bill in order to return to one of the principles behind the whole of the pension credit scheme—that is, to encourage people to make provision for their future. Knowing how to make the correct provision for one's future involves an understanding of what one's likely position will be in time to come.

This relates particularly to the standard minimum guarantee; specifically it does not relate to the other parts of the pension credit. As we have noted throughout much of what the Minister has said on this and other occasions, the Government are moving more towards targeted benefits rather than universal benefits, and therefore the question of uprating becomes more and more important. There is far less possibility of making an assumption about uprating. That is one of the reasons why the Government choose to go down that particular route.

If the scheme is to work in terms of the objectives set by the Government, it is important for people to have some understanding and certainty about how it will work for them in the future, so that they can plan appropriately. That is the reason for our amendment. I, too, await the Minister's response.

Lord Hodgson of Astley Abbotts

I do not want to introduce a discordant note into our proceedings, but I find some aspects of Amendment No. 23 quite concerning. We all want to see pensioners have a comfortable old age and a share in prosperity. However, if I read the amendment aright, it seems to have forgotten the other half of the social security system; namely, those in work, who are contributing to that system through tax and national insurance payments.

If the uprating is to take place according to whichever is the higher—prices or earnings—then, over a long period of time, arithmetically it could become easier to be in receipt of a pension than to be in work. If I have read the amendment correctly, each year the pension is bound to rise at least in line with the rise in earnings; and if inflation is higher, it will increase according to the rate of inflation. So gradually the gap will narrow. We must be very careful—

Baroness Hollis of Heigham

Will the noble Lord help the Committee by telling us when prices have exceeded earnings—which is essential to his argument?

Lord Hodgson of Astley Abbotts

Prices have exceeded earnings in the past, and they could do so again. There have been times when the rate of inflation has exceeded the rise in earnings. Therefore, there can be a situation in which it would be advantageous to be in receipt of a pension. It is perfectly fair to have a situation where the amount rises by the rate of one or the other, but over a period of time to be able to opt only for the one that is most favourable seems to lay the burden against those in work. Instead, one should take either earnings or prices, but not choose whichever is the most advantageous. If I have understood the amendment correctly, it seems to give cause for concern.

Lord Higgins

When we discussed uprating earlier, the noble Baroness suggested that we should defer the discussion until later in the Bill. I believe that she said that the undertaking by the Government on the minimum income guarantee—presumably now the standard minimum income guarantee—would go up "for this Parliament". That seemed an odd qualification. Everything is "for this Parliament", so why is it necessary to make that qualification?

On a further point, it would be helpful to know what is the Government's proposal on uprating the pensions element of the pension credit.

Baroness Hollis of Heigham

Forgive me. I do not understand the noble Lord's point.

Lord Higgins

Will the Government adjust whatever arrangements are made for the pension credit element of the state pension credit to allow for inflation or for earnings?

Baroness Greengross

I support the noble Lord, Lord Higgins. Some form of uprating or attention to the pension credit is needed annually. Over the years, I have seen a great many benefits and concessions withering on the vine because of inflation or earnings growth. This is not a great issue at present, because we have low inflation and low earnings growth. But it could be bad policy-making if the provision is not reviewed annually just to make sure that matters are not going wrong. For example, the capital limits for support in nursing homes were unchanged for almost 10 years, yet that coincided with a period of high inflation during the early 1990s. Some attention to this point is needed.

6.15 p.m.

Baroness Hollis of Heigham

The effect of Amendments Nos. 18 and 23 would be to place in primary legislation a commitment for all future governments to increase the guarantee element—previously the MIG—of the pension credit by at least the increase in earnings. Amendment No. 23 specifies that it should be increased according to whichever is the greater, prices or earnings.

It is unusual for prices to rise more than earnings. We have been scratching our heads. So far as I recall, during the four years when pensions were related to earnings—between 1977 and 1981—in only one year, or possibly two, did prices exceed earnings. Those are the only two years that I can recall since 1970, possibly since 1960, that that has been the case. The scenario envisaged by the noble Lord—I do not deny that it is possible; in any particular year there may well be lags—is of a gradual invasion of wage rates by a pension which overtakes because it is artificially boosted. On that scenario, it would take about 277 years, give or take a year or two, for that to be extrapolated over time. I hope that he will take that point.

The Bill as drafted applies to pension credit the existing legislative provision for uprating that applies to MIG. Under Section 150(2)(b) of the Social Security Administration Act 1992, the Secretary of State is committed in each tax year to review the level of the guarantees credit and to increase it if, he considers it appropriate, having regard to the national economic situation and any other matters which he considers relevant". These amendments ask us to set that provision aside and to make a future commitment. I do not believe that it is wise, sensible or appropriate so to do. As I said earlier—and the noble Lord, Lord Higgins, was right to pick me up on this point—we are not willing as a government to bind future governments. It is not only a matter of "cannot"; we are not willing, on the face of the Bill—which is what the amendment would do—to bind future governments, of whatever persuasion, to an uprating which they may believe cannot be justified in the prevailing economic situation. I do not think that anyone should be asking governments to do that on the face of the Bill.

The amendments may also reflect concern—this is the point about the annual uprating—that omitting the value of the guarantee credit from the face of the Bill undermines the proper processes of parliamentary scrutiny. I hope that the Committee will be reassured to hear that the regulation setting the amount of the guarantee credit and the order which uprates that amount annually will continue, so far as this Parliament is concerned, to be subject to affirmative resolution.

I hope, therefore, that the Committee will accept that we cannot, on the face of the Bill, bind a future government to the "numbers" part. I hope that Members of the Committee will agree that we are producing adequate parliamentary scrutiny. In the light of that, I hope that the amendments will subsequently be withdrawn.

Lord Higgins

Before the noble Baroness sits down, what is the position as regards uprating the pension credit element? Will adjustments be made?

Baroness Hollis of Heigham

Pension credit is made up of the guarantee and the savings element.

Lord Higgins

I am referring to the savings element.

Baroness Hollis of Heigham

I could not work out whether the noble Lord was referring to the retirement pension element. Any uprating of the savings element will be decided by the Chancellor at the appropriate time.

Baroness Turner of Camden

Before my noble friend sits down, does that affect the decision that the Government have already made to ensure that the MIG—which, of course, is also a promise to pensioners—would also be uprated in line with the earnings index? I know that the MIG will disappear with this legislation, but there was a commitment—which pensioners took very seriously—that the MIG would be uprated in line with the earnings index.

Baroness Hollis of Heigham

I can reassure my noble friend that we shall be doing that, at least for the life of this Parliament.

Baroness Turner of Camden

I thank my noble friend for her response, and also for her response to Amendment No. 18. I prefer our amendment to Amendment No. 23, although I said that it was a very good amendment. I specifically wanted a link with the earnings index. It still seems to me that that is the way in which pensioners can be assured of the income that they will have in retirement, permitting them to have some share in the rising prosperity of the community.

Nevertheless, I understand that the Government are unwilling to commit themselves to that in legislation, despite the promises that have been made to deal with the matter outside a legislative commitment. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 19: Page 2, line 24, leave out subsection (6). The noble Lord said: I shall speak also to Amendment No. 35. The two amendments are concerned with a combination of drafting and comprehension. It has always been the case that parliamentary draftsmen have been extremely well paid, but also frequently seem to suffer from a mental breakdown.

The two subsections concerned—one relating to guarantee credit and the other relating to savings credit—are totally incomprehensible. Perhaps the noble Baroness could explain them. I beg to move.

Baroness Hollis of Heigham

Amendments Nos. 19 and 35 would remove the regulatory powers designed to enable the Secretary of State to prescribe a lower amount in place of the standard minimum guarantee that would be payable to the claimant and additionally, when appropriate, to set the amount of standard minimum guarantee at nil. Furthermore, they would remove entitlement to the savings reward for whose guarantee credit had been adjusted following a period in hospital. I wonder whether I need to go beyond that.

Lord Higgins

That is what the two subsections say, but what on earth do they mean?

Baroness Hollis of Heigham

What they say is what they mean. I am baffled by the noble Lord's question.

Lord Higgins

I do not think that they are comprehensible. It would be helpful if the Minister could give us some indication of the purport of the two subsections. I do not think that anyone reading them could readily understand them. An explanation, no doubt as a result of the draftsman briefing the Minister, would be helpful.

Baroness Hollis of Heigham

I have given the noble Lord the description that I am content with. I shall happily write to him further if that would be helpful.

Lord Higgins

The noble Baroness's description is almost exactly what the two subsections say. For the record, I shall read them out. Clause 2(6) states: Regulations may provide that, in prescribed cases, subsection (3) shall have effect with the substitution for the reference in paragraph (a) to the standard minimum guarantee of a reference to a prescribed amount". What are those two prescribed amounts? That might give us some idea of what is going on. Clause 3(5) states: Where, by virtue of regulations under section 2(6), the claimant's appropriate minimum guarantee does not include the standard minimum guarantee, regulations may provide that the definition of 'amount B' in subsection (4) shall have effect with the substitution for the reference in paragraph (a) to the appropriate minimum guarantee of a reference to a prescribed higher amount". What is that intended to achieve?

Baroness Hollis of Heigham

I had thought that the noble Lord understood exactly what those provisions were intended to achieve. The £100 a week minimum income guarantee—the retirement pension plus the top-up—is the standard minimum income on which anybody over the age of 60 is entitled to live, taking into account flows of income from capital and the rest. However, the Secretary of State has the power to reduce that standard minimum if, as a result of him taking no action, there would be double provision. That might be the case, for example, if someone was in hospital, in prison or in a convent where there was full care. The Secretary of State will be able to ensure that such people are paid less than the standard minimum of £100 if provision for their support is being made in other ways. In my innocence, I had assumed that the noble Lord was getting at that point. The Secretary of State will be able to prescribe an amount lower than the standard minimum guarantee—currently £100—to be payable to the pensioner claimant. Additionally, when appropriate, he will be able to set the amount of standard minimum guarantee at nil if, for example, the pensioner is in prison. What could be simpler?

Lord Higgins

I can think of very little that is more complicated. Perhaps we should have a quick show of hands.

That is at least a bit of progress. I shall have to consider what the noble Baroness has said. Does it apply to both Clause 6 and Clause 5?

Baroness Hollis of Heigham

We are dealing with Clauses 2 and 3. It might be helpful if we could stay with the current clauses.

Lord Higgins

The amendments cover two separate clauses. Does the noble Baroness's explanation apply to each of them?

Baroness Hollis of Heigham

The amendments cover Clauses 2 and 3. What I have said applies to both.

Lord Higgins

I shall study carefully what the Minister has said, as, I imagine, will other people. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 20 and 21 not moved.]

Clause 2 agreed to.

Lord Higgins moved Amendment No. 22: After Clause 2, 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 Lord said: The amendment is concerned with the 40 per cent withdrawal rate, which is a matter of great importance. Our understanding is that the Government do not intend that the effective withdrawal rate shall be greater than 40 per cent. It seemed appropriate to put that on the face of the Bill. That is better than the 100 per cent withdrawal rate that people in the relevant income bands suffer at present, but they will still not get the full benefit of their savings.

That relates back to our earlier debate on the name of the Bill and whether the provision is a pension credit or merely a relief from taxation. People at that relatively low level of income will pay at the equivalent rate to which someone on an income of nearly £34,000 would be subject. There is a strong case for ensuring that that is put on the face of the Bill.

There is also considerable interaction with housing benefit and council tax benefit. The noble Baroness will remember that I raised the point on Second Reading, when she was kind enough to assure me that the Government would take steps to deal with it. The withdrawal rate that would apply if they took no action could be 85 per cent or more for those benefits. That is a very serious matter. However, it is not clear precisely how the Government propose to make arrangements that will ensure that those receiving housing benefit and council tax benefit do not suffer such high withdrawal rates.

It would be particularly helpful if the noble Baroness could give us some idea of the impact of the proposals on those drawing housing benefit and council tax benefit. In particular, am I right in thinking that the Government are dropping any idea of reforming the situation with regard to housing benefit? We have had frequent discussions on that subject. Will central government or local authorities be responsible for ensuring that people with those benefits do not suffer a higher withdrawal rate? I beg to move.

6.30 p.m.

Baroness Hollis of Heigham

As the noble Lord, Lord Higgins, raised two perhaps unrelated points, I am not sure how best to reply. His first point was that no one drawing the state pension credit should suffer a benefit withdrawal rate greater than 40 per cent. In his comments, he seemed to be asking for a commitment that the taper on pension credit itself would not be greater than 40 per cent. Leaving aside issues such as the 60 to 64 age group, as the Government intend to do, he also drew some analogies with the tax system. I should be happy to debate those analogies with him if time allows. However, it is certainly our intention that that should be the taper on the pension credit itself.

The interaction which the noble Lord rightly identified between the pension credit, housing benefit and council tax benefit withdrawal tapers is an extremely complicated issue. Perhaps it would assist him if I tried to spell out that interaction. If he wishes, I could follow up the points later, undoubtedly turning something simple into something complex.

Amendment No. 22 would have the effect of ensuring that no pension credit recipient suffered a marginal deduction rate of more than 40 per cent. Although that is fine as far as the pension credit is concerned, if the 40 per cent were to apply to all the benefits that pensioners enjoy—as the noble Lord, in his second point, seemed to suggest it should, although he was talking about 80 per cent—the total cost would be about £17.5 billion. As I am sure that that is not what the noble Lord intended, I shall make a disjuncture between the two parts of his remarks—first, that the pension credit was due to be tapered off at 40 per cent; and, secondly, the effect on MDRs given the interaction between the taper with other tapered, means-tested benefits.

Currently, pensioners with incomes below the minimum income guarantee level—which, in 2003, will be £100 as the guarantee element of the savings credit—suffer a marginal deduction rate of 100 per cent. For every pound of extra income, they lose one pound of minimum income guarantee, to take them up to the threshold level at which we think we can reasonably expect them to live. Consequently, everything they have put into their savings effort is wasted.

Above the minimum income guarantee level, currently, those who receive both housing benefit and council tax benefit experience a marginal deduction rate of 85 per cent: 65p in the pound for housing benefit and 20p for council tax benefit. To reduce that rate to 40 per cent—which is the figure we thought the noble Lord, Lord Higgins, might be indicating in the amendment—we would have to pay housing benefit and council tax benefit to people even further up the income scale, at a much greater cost to the taxpayer. The change would affect 2 million people.

The pension credit improves the situation considerably. The 100 per cent withdrawal rate will be experienced by only one third of those eligible for the guarantee credit. The other two thirds—in fact, all recipients over 65—will have incomes between the savings credit threshold and the guarantee credit. They will therefore be on the savings credit and, as the noble Lord said, face withdrawal rates of 40 per cent, which is an improvement on the current situation. Currently, if they had an income of between £77 and £100, they would be facing a 100 per cent rate. They are therefore going from 100 per cent to 40 per cent. Those on the 40 per cent withdrawal rate could therefore gain up to £13.80 per week if single and £18.60 if a couple. We have also been careful to protect the gains for pensioners who receive help through the housing benefit and council tax benefit systems. As the noble Lord acknowledged, we have also increased the allowable amounts.

However, single pensioners who are on pension credit, receive housing benefit and council tax benefit and are in the £100-£135 income range will be subject to the interplay of the withdrawal of pension credit and the tapering of housing benefit and council tax benefit. As I said in my letter to the noble Lord, the net effect is a marginal deduction rate of 91 per cent. However—and this is the key issue—68 per cent of pensioners are owner occupiers. On my calculations, only 8 per cent of pensioners on the pension credit will experience that taper. Most pensioners are not on housing benefit, although some who are owner occupiers are on council tax benefit. As I said, however, 68 per cent of pensioners are owner occupiers, and others live with their family. Although others have income higher than the pension credit, they are still entitled to housing benefit because they have higher rents.

Therefore, the first group of pensioners, with 100 per cent deduction between RP and income guarantee, will have a deduction of only 40 per cent and be better off. Single pensioners with an income between £100 and £135 will have a 91 per cent rate if they receive housing benefit and council tax benefit. However, only about 8 per cent of the total pensioner population fall into that group. Thereafter, people will be subject only to the housing benefit and council tax benefit tapers, bringing them back down again to the 85 per cent rate as they lose the pension credit.

The key point is that, although there are higher marginal deduction rates, they apply to much higher housing benefit so that there are no cash losers. I believe that everyone is better off as a result of our proposals. Although some will suffer a 91 per cent deduction rate, they will be £7 to £8 or so better off than they would have been under the old system with an 85 per cent deduction rate but without the pension credit.

I hope that my remarks are helping the noble Lord, Lord Higgins. Our changes in the MDRs are better for those with incomes under £100. Although the percentage rates are worse for those on between £100 and £135 if they are receiving housing benefit and council tax benefit, as I said, that affects only 8 per cent of the pensioner population. The situation remains the same for those on more than £135. If single pensioners in that group exhaust the pension credit, they move back on to the old housing benefit and council tax benefit tapers.

Those on between £100 and £135 comprise the pressured group. Nevertheless, although they are subject to higher MDRs because of the new benefit being considered in the tapers, their absolute cash income will still be higher. In other words, they will be much better off—at least £11 per week—as a result of our proposals.

Amendment No. 22 would certainly cost about nine times as much as our pension credit proposals, unless we scaled back the minimum income guarantee dramatically. I am sure that the noble Lord was not intending that, but seeking to probe the effect of the MDRs. Although the MDRs seem to become worse for the small hinge group comprising those on £100 to £135, in cash terms they will be at least £11 per week better off. Pensioners will therefore see a net improvement in their situation. I do not think that many of them will be bothered about the precise taper. We are not talking about work incentives under which people lose an amount for every pound they earn. Pensioners are on a fixed income and will be better off. I think that they will be most impressed by that fact.

It is helpful to try to have a go at a technically complex subject—the interplay of tapers in two or three different benefits. In the light of my comments, however, I hope that the noble Lord will withdraw his amendment. If he would like to write to me to follow up the points or seek clarification, I shall do my best to be helpful. It is a very technical set of issues.

Lord Higgins

I am most grateful to the noble Baroness. The issues are so much clearer when she makes it up as she goes along than it is when, as with the previous amendment, she reads out the official brief. I am lost with admiration that she is able to do that on her feet. I shall study very carefully the points that she has made.

How do the proposals tie in with local authorities, for example? Do they have to be informed of the changes?

Baroness Hollis of Heigham

Yes.

Lord Higgins

In previous discussions on housing benefit, I do not think that Members on either side of the House have shown enormous confidence in their ability to handle this type of complex problem.

Baroness Hollis of Heigham

2: The noble Lord is correct. Local authorities will have to identify the new applicable amounts for pensioners. However, given the current state of computerisation, we are not worried about that. We should also remember that probably most pensioners who will be affected live in social housing. Consequently, their rent is paid after housing benefit has been deducted at source. Anyone on the basic guarantee does not pay any rent at all. The situation is not comparable with that in the private sector, where giros have to be sent to pay private landlords. As the noble Lord will be aware, in local authorities, housing benefit is not paid to pensioners who are on MIG. They do not pay rent at all, rather than being charged full rent and then being sent a cheque to pay it. There could be an issue, I suppose, that the payments to private, non-social landlords might get hooked up in the current problems that some local authorities have with their administration. That certainly will not affect pensioners in social housing, which will be the large majority as far as I am aware, although I will check the figures. We will obviously have to watch that. However, it is my understanding that this is one of the simpler tasks. After all, housing benefit changes with uprating anyway.

Lord Higgins

I am grateful to the noble Baroness for that explanation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 23 not moved.]

Clause 3 [Savings credit]:

[Amendments Nos. 24 to 26 not moved.]

The Deputy Chairman of Committees (Lord Skelmersdale)

In calling Amendment No. 27, I have to inform the Committee that if it is agreed to, I cannot call Amendments Nos. 28 to 45 inclusive, by reason of preemption.

Baroness Noakes moved Amendment No. 27: Page 3, line 3, leave out subsections (2) to (8) and insert—

1. "(2) A claimant has satisfied the second condition for eligibility under section 1(2)(c)(ii) if a savings credit would be payable under any of the following provisions of this section.
2. (3) If an eligible claimant has qualifying income in excess of the standard minimum guarantee, and has income in excess of the appropriate minimum guarantee, the available savings credit shall equal the maximum savings credit less the clawback amount.
3. (4) If an eligible claimant has qualifying income in excess of the standard minimum guarantee, and income which does not exceed the appropriate minimum guarantee, the available savings credit shall equal the maximum savings credit.
4. (5) If an eligible claimant has qualifying income which does not exceed the standard minimum guarantee, the available savings credit shall equal the prescribed percentage of the amount by which the claimant's qualifying income exceeds the savings credit threshold.
5. (6) The eligibility of any claimant under this section is subject always to sections 4 and 12.
6. (7) The Secretary of State shall make regulations prescribing the operation of this section, and, notwithstanding any other provision of this Act, this section shall not take effect at any time when no such regulations are in force.
7. (8) For the purposes of this section—

appropriate minimum guarantee" has the meaning given in section 2 in respect of any given claimant, save where regulations issued under that section prescribe an appropriate minimum guarantee for any claimant which is less then the standard minimum guarantee, in which case for the purpose of this section the appropriate minimum guarantee for a given claimant shall be the standard minimum guarantee; clawback amount" is the amount equal to the clawback percentage of the amount by which the claimant's income exceeds the appropriate minimum guarantee for the claimant, and the clawback percentage shall be the difference between 100 per cent. and the prescribed percentage; maximum savings credit" is the amount equal to the prescribed percentage of the difference between the standard minimum guarantee and the savings credit threshold, save that regulations may prescribe descriptions of persons for whom the maximum savings credit shall be nil (and who therefore shall receive no savings credit); prescribed percentage" is such percentage, not to exceed 100 per cent., as may be prescribed for the purposes of this section; qualifying income" in respect of any claimant is his income less any items of income prescribed in regulations as falling to be excluded in respect of any claimant satisfying any prescribed criteria; savings credit threshold" is such amount as may be prescribed in regulations for the purposes of this section, such amount not to exceed the standard minimum guarantee; and standard minimum guarantee" has the meaning given in section 2 in respect of a given claimant. The noble Baroness said: The purpose of Amendment No. 27 is to try to put some clarity into this Bill. It tries to rewrite Clause 3; not to change its substance, but to try to express the savings credit in more direct language. I know that myself, the noble Baroness, Lady Turner, and a number of others who looked at Clause 3 found it incomprehensible when they first read it; and incomprehensible when they read it a second and third time. This is a modest attempt to try to re-express Clause 3. It is put forward with some humility, not in the belief that it is perfect. It is intended to see whether there is a possibility of finding a clearer way of expressing what should be a relatively simple concept.

If we look at how this relatively simple concept of the tax credit is turned into law, we can see that it has many complicated elements—it has amounts A subtracted from amounts B; it has definitions of all of those amounts; it has two definitions of "income"—income and qualifying income. If we work through it, we could find that to reach the savings credit we have to pass through an obstacle course involving eight different concepts and two different measures of income. That is just to reach the basic level.

There are also more complications. The clawback operates by reference to appropriate minimum guarantee under Clause 2, which assumes that it is a higher amount than the standard minimum guarantee. But that will not always be the case. Occasionally it can be lower under the powers in Clause 2(6).

If we then have something that is lower and put that into the formula that is in the existing clause, that would not work. We therefore have to have a further power in subsection (5) to rewrite amount B. My noble friend Lord Higgins has already said that he does not understand what it is trying to do. It tries to do something extremely complicated.

As I said a moment ago, I do not put forward this amendment in the belief that it is perfect. It is to see whether there is scope for simplification. If so, I am sure that it could be improved upon. The amendment tries to distil the Government's intentions into three simple cases and then set out in subsections (3), (4) and (5) what savings credit follows from those simple cases. In the new subsection (8) it also gives what are, we hope, clearer, more direct definitions than are found in the existing Clause 3. I hope that the redraft commends itself to the Minister and I look forward to her comments. I beg to move.

6.45 p.m.

Baroness Hollis of Heigham

I hope I am not giving out any secrets when I say that when I was discussing this amendment with my officials they thought this was a very good try. They were mightily impressed. It will not work for all sorts of reasons, which the noble Baroness would expect me to say but which I happen to believe is true. But jolly good points for effort, if I may say so, and that is not in the least meant to be patronising. It was an impressive piece of work.

Perhaps it might be sensible to stand back a bit and, before discussing the detail of the amendment, give an overview of how Clause 3 works as it is presented in the Bill. It is complicated, as the noble Baroness rightly said. We have tried to present the calculations as simply as possible with reference to a single calculation. To put it simply, this is the amount by which "amount A" exceeds "amount B".

This works in two ways, depending on where a pensioner's income falls in relation to the standard minimum guarantee. First, as the noble Baroness and I am sure other noble Lords are aware, if a single pensioner has income below £100 he will receive 60p a week for every £1 of savings he has over £77. This builds to a maximum of £13.80 a week for someone whose weekly income from pensions and savings is £100.

Secondly, if a single pensioner has income above £100 the savings credit starts to reduce, although it is worth stating that under our proposal a pensioner's overall income will always increase as their pre-pension credit income rises. Where income is over £100, the savings credit will be reduced by 40p for every £1 of original income. The savings credit runs out at £135 a week.

That is the basic structure with which I am sure everybody is comfortable. Exactly the same principles apply to the savings calculation for couples. If we now turn to the noble Baroness's redraft, it seeks to do much the same thing but by reference to individual calculations. Because of that we welcome the chance to discuss it. But it cannot work. The new subsection (5) makes no reference to income which does not exceed the appropriate minimum guarantee. It needs to if the calculation is to work.

The amendment does not include a calculation for those pensioners with qualifying income which does not exceed the standard minimum guarantee and income which does not exceed the appropriate minimum guarantee. I am sure that is not the noble Baroness's intention, but the amendment cannot work without those changes.

In addition, as I interpret it—although I may misunderstand here—the amendment provides for hospital downrating to be considered under the proposed subsection (8) and the definition of the "appropriate minimum guarantee". The definition put forward would have the effect of excluding pensioners with a downrated pension guarantee credit, because they were in hospital, from benefiting from the savings credit at all. Again, I am sure that is not the noble Baroness's intention. Our intention is that those who are in hospital should be rewarded for their thrift through the savings credit as with any other pensioner, whatever may happen to the retirement pension—given the little debate that the noble Lord. Lord Higgins, and I had about the brilliant, transparent clarity of our drafting.

I could go on. But I hope that the noble Baroness will accept that, though this is a gallant effort, her version as drafted will not work for the reasons I have given. I could go on in more technical detail. The noble Baroness is more than welcome to have another go next time. I know that this Bill is extremely technically complicated with words like "standard minimum", "guaranteed qualifying minimum" and all the rest of it. The point is that the pensioners who need to benefit from this and whom we seek to encourage to take up this new entitlement do not read this stuff. But if we do not have it drawn in ways that immaculately satisfy the parliamentary draftsmen, it leaves the possibility of judicial review in cases that neither the noble Baroness nor I could possibly intend. That is why the wording is often as onerous as it is.

That is not to say that there cannot sometimes he improvements. It may be that with a consolidating Act five or 10 years down the line, the legislation may be consolidated and improved in the process. But I am pretty loath to disturb technical reading. What is important is that we ensure that our descriptions in speeches in this place, the literature that goes out, the briefing to our staff and the briefing to bodies like Age Concern, Help the Aged and citizens advice bureaux are impeccable.

Some time ago I was challenged by the noble and learned Lord, Lord Brightman, about the wording of a provision. He produced three or four lines which could be interpreted as saying, "If you get into work, tell us", but we had to couch it in different ways because of the meanings of "work", "occupation", "earnings" and the like. Given that, I congratulate the noble Baroness on the rewrite. I could not have done it. It is impressive. But it does not work as it stands. I honestly think that it is not worth investing energy in that territory, desirable though it may be, unless one is absolutely sure that it is going to be robust enough to stand up to the sort of scrutiny I detailed.

We have been at the receiving end of human rights cases and so on that have been brought as a result of our flawed amendments. At the end of the Committee stage I shall ask the Committee's indulgence as regards an amendment which seeks to correct drafting on which we slipped up in a previous Bill. As I say, I congratulate the noble Baroness but I suggest that she withdraws the amendment.

Baroness Noakes

I thank the noble Baroness for her compliment but I am not surprised at her overall message. However, the amendment is a genuine attempt to illustrate the fact that the Bill is drafted in an extremely complex way. I fully take the point that pensioners will not study what will be the State Pension Credit Act 2002 in their local libraries, but their advisers could study it. It took me an extremely long time even to understand how the parts of the calculations hung together. I found eight concepts of two versions of income.

I am disappointed that the department has not made a greater effort to express these concepts more directly. Parliamentary draftsmen often have their own ways of expressing concepts, especially financial ones, as lawyers, typically, are not particularly good at expressing money concepts. I had hoped that the departmental staff would seek ways to express concepts simply. The Minister referred to Clause 18 in the context of correcting an earlier mistake. I submit that that mistake was made because no one understood exactly what the draftsmen were doing. More direct drafting is a laudable aim but now is not the time to start a campaign for simpler drafting. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees

In calling Amendment No. 28, I inform the Committee that if it is agreed to I cannot call Amendment No. 29.

Lord Hodgson of Astley Abbotts moved Amendment No. 28: Page 3, line 4, leave out paragraph (a). The noble Lord said: In moving Amendment No. 28, I wish to speak also to Amendments Nos. 30 and 41. I refer in these amendments to the important issue of the position as regards the state pension credit for those who are not entitled to a full basic state pension but who, for one reason or another, have income from another pension or, indeed, from savings. Before I discuss the detail, I wish to check a few matters with the Minister.

As I understand it, under the proposal savings are assessed at a 10 per cent rate over the £6,000 basic tax free capital sum. In that case, with a maximum payment per individual of £717.60 a year, a 10 per cent assessment means that the maximum capital that person can have is £7,176, plus the £6,000 tax free sum; that is, £13,176 in total. For a married couple the relevant sum is £15,672. If one has a 10 per cent assumed savings rate for any amount over £6,000, and the maximum one can be paid as a savings credit is £717.60, applying a multiplier of 10 to the £717 gives one £7,176 a rid a total of £13,000. Perhaps the Minister can tell me whether my assumptions and/or my arithmetic are faulty in a moment.

I turn to the specifics of the amendments. As I understand it, under the provisions before us, an individual must attain the level of the savings credit threshold to be eligible for the savings credit. The savings credit threshold is to be defined—although I think that it is not yet set—as the level of the basic state pension. But, if a person does not have a full basic state pension, he or she has first to use up any secondary income to get up to the basic state pension level before being eligible for the savings credit.

I accept that there is a strong argument—it is a powerful argument—that you should get what you paid for. If you have chosen to save in some other way, why should the state offer you an additional credit? However, the critical word is "chosen". Many people who do not get a full basic state pension do so because they have broken work records. In many cases that has not occurred through choice. For example, it may have occurred due to long periods of unemployment. There may be other cases of a more voluntary nature, for example, women who have chosen to take a career break to bring up children—indeed, that is something we probably should encourage and certainly should not discourage—or men who have worked abroad. As the noble Earl, Lord Russell, pointed out earlier, the latter case is increasingly likely to occur with the free movement of labour through the European Union. Therefore, I submit that although the argument of "what you pay is what you get" is a powerful one. I do not find it all-powerful.

I hope that the Committee will forgive me if I give two practical examples which I hope will illuminate the issue. First, I refer to the issue as it affects two women, one of whom is a single woman aged 65 who has never worked, has relied on state benefits all her life and has no savings. She will receive the guarantee credit of £100 a week. I refer to a widow also aged 65 who worked for a few years prior to getting married. She may be eligible for a part state pension of, say, £35 a week. In addition, she may be in receipt of income from her late husband's occupational pension, for which he saved, and other benefits at a level of £42 a week. The state pension at £35 a week and the other income combine to provide her with a total income of £77 a week. She will receive no credit for her late husband's saving, nor for her eligibility for a small state pension. Instead, she will merely receive the guarantee credit bringing her up to £100 a week—exactly the same position as the woman who has never worked and has relied on state benefits her entire life.

Secondly, I refer to an employed man in his fifties, perhaps with a chequered work history, who is coming up to retirement and is considering what his future pension entitlement should be. He realises, of course, that because he has a broken employment record, perhaps through no fault of his own, he is entitled to only a part state pension. He is potentially able to save a small amount in the few years before he retires in order to provide him with some further income. However, if the noble Baroness or I were his financial adviser, we would have to say, "You should not use your money to build up a pension because it will be removed from you and you will get no guarantee from it. You can aim instead for the minimum guarantee", and need make no savings. No benefit will accrue to him from any savings.

On Second Reading the Minister was robust about the matter and said that what you pay is what you get. However, I refer to married women in particular who have perhaps sacrificed their careers in part to bring up children and who will be disadvantaged by the proposals as they currently stand. The issue deserves further reflection because of women who have taken a career break, people who have been unemployed through no fault of their own and perhaps people who have chosen, or have been able or have been forced, to work abroad for a period of their working lives. I beg to move.

Baroness Turner of Camden

Two amendments in my name have been grouped with Amendment No. 29; that is, Amendments Nos. 42 and 43. My amendments are in effect an attempt to probe the Government's intentions regarding the uprating of the threshold which has already been alluded to. As the noble Baroness knows, initially the savings credit threshold will be the basic pension rate. If it remains tied to the basic pension and rises in line with prices while the minimum guarantee rises in line with earnings, the cost of the savings credit is likely to rise steeply. The effect of our amendments is to try to ensure that the threshold remains at the level of the basic pension in future years. What are the Government's intentions in that regard? There could be difficulties in future.

7 p.m.

Baroness Greengross

I rise to support Amendment No. 28, which was moved by the noble Lord, Lord Hodgson. I am particularly concerned about its effect on women. I accept that the amendment may not yet be fully or correctly drafted and that it may not benefit those with a partial state pension record. However, that is its intent, as the noble Lord explained. With regard to the state pension credit, I accept that it would not be right to put those with a partial state pension record on exactly the same footing as those with a full state pension record. That point was made by the Minister at Second Reading. She said: it seems to me that someone who has made the full national insurance contribution all their working life should not be treated in the same way as someone who has not".—[Official Report, 18/12/01; col. 189.] But, by the same token, it seems strange that no account whatever is taken of savings that are made by those on a partial state pension. If anything, those savings are likely to be even more important to those people than to someone who has the full pension.

That no account is taken of such savings is a great disincentive to such people to save. That point was well put by the National Federation of Post Office and BT Pensioners, which said, a considerable number of retired people do not receive a full state pension and will still be penalised for having an occupational pension". Many such people will be its members—former employees of the Post Office or BT.

The ABI made the same point: failure to award the state pension credit to those with less than the full basic state pension but who have some private savings for retirement could act as a disincentive to save, particularly amongst women who are most likely to fall into this category of saver". As a result of my concern, I tabled a number of Written Questions to see if I could find out how many people—especially women—were not going to benefit from the state pension record because of their incomplete contribution record. That information has not yet reached me, but I hope that the Minister can provide some further information tonight.

In my view, we should be aiming to reward people in that group for thrift just as much as those who are fortunate enough to have been able to end up with a full state pension and a small amount of private pension. Could the Minister ask her officials to come up with a formula that will allow those with a partial state pension to be eligible for the state pension credit at the same proportion as their state pension? For example, if I received two-thirds of the state pension, I would be entitled to two-thirds of the state pension credit. I suspect that that might complicate a matter that is already very complicated, as we have discussed, but I believe that it would be right to do.

Lord Higgins

In our exchanges on earlier amendments, the Minister remarked that sometimes it is not immediately clear whether the debate that takes place relates to the amendments. I have to confess that I did not challenge the grouping of the amendments but my Amendment No. 40, which appears further down the groupings list, probably should have appeared in the group that we are currently considering. The amendments that appear in the name of the noble Baroness, Lady Turner, are on a somewhat separate point.

I take the important point made by my noble friend Lord Hodgson of Astley Abbotts about those who do not have the full national insurance pension because they have a deficient contribution record. As he rightly said, in some cases that may be virtually their own decision. In other cases, it happens for inadvertent reasons or, for example, because in an earlier period a person acted as a carer.

I have a long history on the subject of deficient contributions. It was the matter on which I made my maiden speech in another place in 1964. A subsequent filibuster by Mr Richard Crossman and others on a Friday prevented my Private Member's Bill on the subject from being heard. However, that was what we did when we came to office in 1970. My history on this matter goes back rather a long way.

The people with whom I was concerned had no option. They were not allowed to contribute when the national insurance scheme started and were thereby deprived of the national insurance pension. None the less, people now have deficient contributions. An answer to my honourable friend in another place, Mr Willetts, suggested that getting on for 3 million people are in that position. Several outside bodies have expressed concern about the way in which such people will fail to benefit from the Bill.

As the Bill is currently drafted, those people will not get the savings reward that the pensions credit will provide. Under current proposals, less than a full entitlement to a basic state pension will mean that the first part of a pensioner's personal savings will be used to bring it up to that level. As I understand it, it will not then attract the additional savings credit. Age Concern, I believe—perhaps it was another body—gave an example. If a pensioner has an incomplete contribution history and receives a basic state pension of only £67 but has £10 from a personal pension, he will receive the guaranteed income—perhaps the minimum income guarantee element of £100—but no credit for his savings. Failure to award the pensions credit to those with less than a full basic state pension but who have some private savings for retirement could act as a disincentive to save.

It seems to me that, subject to being persuaded otherwise, those people are being unfairly treated. As a result of not having paid a full contribution, they do not get the full basic state pension and may be penalised in a number of other respects with regard to passported benefits and so on. I am not clear why they should be penalised on top of that—or underneath it, depending on one's point of view—because of their lack of a contribution record if they have some small savings. I should have thought that there is an argument for saying that if they have some small savings, they should get the benefit of the savings element of the state pension credit system.

That issue is of considerable interest. The noble Baroness, Lady Greengross, referred to some outside interests that have made representations. It would be helpful if the Minister commented on the matter. I will not comment on the amendments that appear in the name of the noble Baroness, Lady Turner, which appear to involve a separate point.

Baroness Barker

We are at the heart of the most complex part of the Bill. I echo the comments of the noble Lord, Lord Higgins, about not knowing exactly what debates on amendments will be about.

From these Benches, I add my support to the proposals that would alleviate the position of people with partial contribution records and who therefore will not receive the full state pension. Will the Minister confirm that about 80 per cent of pensioners do not receive the full amount? I look forward with interest to the Minister's comments. Will she deal with the extent to which capital limits will cover some of the people to whom the noble Lord, Lord Higgins, referred?

Baroness Hollis of Heigham

Fortunately, this is Committee stage. Many questions have been raised, and Members of the Committee will be able to come back to me on those that I do not answer. I shall go into some of the straightforward questions. I do not need to talk about the purpose of the savings credit and so on.

The noble Lord, Lord Hodgson, made, I believe, three points: first, the return on capital; secondly, what happens to people with broken work records; and, thirdly, in particular, what happens to women in that situation. That gender point was also picked up by the noble Baroness, Lady Greengross, and my noble friend Lady Turner. With regard to the return on capital, I am not surprised that I looked mystified. Alas, I shall ask my officials to recheck the calculations. I am sure that the noble Lord's building society makes the calculations very accurately, but I am not sure that he did so this evening.

I believe that the noble Lord said that, if it came out of a savings flow, the maximum pension credit of £13.80 multiplied by 52 would generate an income of £717. The capital required to generate that, including the £6,000 disregard, would be £19,800. That assumes that no second pension is available. In fact, capital of up to approximately £60,000 can be held and still give a small entitlement to tax credit.

At Second Reading I told your Lordships that a single person could have savings of over £35,000 and still receive pension credit. A couple could have savings of £45,000 and still receive pension credit. I said that savings were treated five times more generously than MIG. If the noble Lord wishes me to do so, I shall be happy to ask my officials to write to him more fully about the basis of some of his calculations.

I have sympathy for the other points that he raised concerning people with broken work records, and so on. The noble Lord gave, in particular, the example of women who are affected because they have had caring responsibilities or have been unable to work because of sickness or disability. Indeed, in some cases, the issue of broken work records may also apply to men who have unemployment records but none the less seek work.

Of course, the noble Lord will be aware that in such a situation a person is covered by national insurance credit, which can count as qualifying years for the purpose of the basic retirement pension. Therefore, provided that a person can claim that type of "good cause", he will be entitled to the credit. He can claim the equivalent of another benefit because of home responsibilities. He may have been caring, have suffered disability or been unable to work because of unemployment. Conventionally one is covered for that type of break from work by a credit to national insurance which builds into the retirement pension. A person who has a broken record tends to be a dependent wife who has not been in the labour market and does not have those caring responsibilities.

A widow will receive a pension based on her husband's contributions. Therefore, even if she were to have no such contributions in her own right, she would take over those of her husband. She would be protected.

I believe that that covers most of the groups about which the noble Lord is properly concerned. However, there is an additional point. Women are likely to have a reduced entitlement in their right. I apologise if there has been a delay in getting the information to the noble Baroness. My understanding is that 92 per cent of men and 83 per cent of women receive the full basic state pension. I could give the numbers behind that if the noble Baroness wished, but obviously those who do not receive the basic state pension have incomplete pension records.

That leads me to the substance of this matter. How do we allow for those who have proper—I do not want to sound moralistic about this—good and acceptable reasons for not being in the labour market for the reasons mentioned? The question is whether people who have been out of the labour market—perhaps they have been abroad—possibly during different tax regimes, should be treated in exactly the same way as people who have worked all their lives here, paying the national insurance credit, and so on.

The amendment of the noble Lord, Lord Hodgson, proposes that the savings credit will be payable at a flat rate of the maximum, which is currently around £13.80 for single pensioners and £18.60 for pensioner couples, until the total income exceeds the pensioner's appropriate minimum income guarantee. For pensioners whose total income exceeds the appropriate minimum income guarantee, the maximum savings credit will be reduced by 40 per cent of that extra income over the appropriate guarantee until it tapers out.

That would be equivalent—this is the push of the amendment—to increasing the minimum guarantee level for all pensioners over the age of 65 by the maximum savings credit as well as awarding the savings credit to pensioners with incomes above the guarantee level. This matter refers back to our earlier debates on the subject.

These proposals come at a considerable price. The cost of the amendments, together with the consequential housing benefit and council tax benefit changes, would be approximately £2 billion a year. The number of pensioners entitled would not increase, and the additional spending would go to those already projected to benefit from the pension credit proposals. Potentially, the effect would be to reward equally those who have saved nothing and those who have saved. In practice, that means that those who have saved but whose income is still below the level of the guarantee will lose their savings income pound for pound in the pension credit calculation. They will see no additional reward over their neighbour for their hard work and thrift and for the savings that they have built up over their working lives.

Pensioners consider that to be unfair; I also consider it to be unfair. The pensioner guarantee would treat in the same way those with incomplete retirement pension records and those with complete retirement pension records but with no additional income. They would be taken to a threshold of £100. I believe that that is right and proper.

However, when it comes to the savings 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 the level up to that of the retirement pension before eating into the £77 to £100 figure. I believe that that is right. It is a proper reflection of the difference in the situation of someone who has contributed fully to his retirement pension, allowing for groups which have caring responsibilities, and so on, and those who do not.

As a result, given that the pension credit savings element hinges on the full retirement element, I consider it to be right that we treat people differently when they do or do not have a complete retirement pension. We treat them differently not in relation to the guarantee element, which relates to their poverty—in that case we treat them the same—but in relation to their savings, which relates to their own activity. We treat them differently because they have acquired the right to be treated differently by virtue of their savings. That is the Government's position.

Perhaps I should sit down at this point. If noble Lords, including my noble friend, believe that I have not addressed any issues, I shall seek to answer them. However, it may be that I have answered all points in the course of the general discussion.

7.15 p.m.

Lord Higgins

First, perhaps I may take up a specific point made by the noble Baroness in relation to carers having their contributions record made up. I believe that that is the way that she expressed it. Would that be true of a person who spent years as a carer before the introduction of the invalid care allowance and home responsibilities protection in 1978?

Baroness Hollis of Heigham

I shall write to the noble Lord on that point. The benefits changed and ICA came in quite late. I shall need to check that precisely as I do not want to mislead the noble Lord. Obviously, when we discussed the state second pension, we built that in so that for every year of caring a person would receive a year of pension. Therefore, if one completed 40 years of caring, one would receive a £40 pension. Currently that is not the case. However, perhaps I may check how far back those records go. Certainly the noble Lord is right that we are covered following the introduction of ICA and also following the introduction of the appropriate benefits. I shall check on that point and write to the noble Lord.

Lord Higgins

I am most grateful. This point had been raised with me by an outside body which is obviously fairly expert on the matter. By now, the people concerned must be fairly old and are probably very few in number. Therefore, I am content for the noble Baroness to make absolutely sure that that is so.

Perhaps I may return to the main point which I believed she was making, although I shall need to read carefully exactly what she said. I tabled a Written Question which she kindly answered in time for today's debate. I am concerned that the Written Answer that I received today refers to a "pay-as-you-go" principle. Nevertheless, in regard to individuals there is a distinction. What proportion of the state pension would a pensioner receive if the calculation were carried out on an actuarial basis as a result of his contributions?

One would have great difficulty convincing anyone who receives the basic state pension that the following is so: if, over the years, they had simply invested their contributions, the answer is that they would receive nowhere near the basic state pension. A big element of the basic state pension is not covered by contributions. It is at least arguable that those with deficient contribution records are at least entitled to some part of that compared with those who have paid full contributions.

Another point I was seeking to make is that I do not understand why someone who suffers because he does not have a full contribution record and so receives a lower state pension should not be entitled to have at least some recognition of the fact that he has a small amount of savings. As I understand it, under the Bill as drafted, he does not have that because his small savings are not compensated for in any way. They are used to bring up the pension to the levels that the Minister has mentioned. I am not clear why it is that those who have a deficient contribution record should not receive something from the Government because they have a small amount of savings, if those who have a full contribution record benefit when they have a small amount of savings.

Baroness Hollis of Heigham

This is not exactly a theological argument, but it touches on a wider debate about the relationship between national insurance and the taxation system. The noble Lord knows perfectly well that although funds go into the national insurance scheme, the state retirement pension is a funded "pay-as-you-go" scheme, as opposed to a money purchase scheme, and in that sense it is funded by today's taxpayers. In turn, the pensioners have funded a previous generation of pensioners.

This matter would depend upon age, gender, work records and the like, as to what actuarial proportion would apply. That is where we are, and the noble Lord knows that as a result the national insurance contributions are levied from an employer and an employee with the availability of a Treasury contribution, if necessary, to make good what GAD forecast is required to have a national insurance fund in balance. That flow of money effectively comes in from different generations of people. Perhaps the noble Lord will accept that description. If we go beyond that we shall be in the realms of theology, if not heresy.

Lord Higgins

I understand all that, but that is not the point that I was making. Is it not the case that those drawing a pension now would receive that pension if all they had done was paid their contributions and received the actuarial result of those contributions?

Baroness Hollis of Heigham

That is true. The basic retirement state pension is the same level irrespective of whether one has been a non-taxpayer or a taxpayer or whatever the level of national insurance contribution one has paid. Technically, some people may have over-funded their pension and others may have under-funded it. There is a cross-pooling effect, across each generation as well as between generations. I do not see anything wrong with that. One may be able to do the sums suggested by the noble Lord, but I do not see that that matters because society pools money for old age.

I return to the second of the noble Lord's questions. If Frank has a retirement pension of £77 and a private occupational pension of £30, he should be in the same financial position as Roy who has a retirement pension of £50 and an occupational pension of £30. That is basically what the noble Lord is saying. One has a full RP of £77 and the other has an RP from incomplete contributions of only £50 and they both have occupational pensions of £30. The result is that under the pension credit Frank's pension will go up from £77 to £100 because his £30 will take him past that, and it is 60p in the pound thereafter. Is it right that Roy's pension should also go up to £100? His retirement pension record is incomplete but he is poor, and therefore he needs to go up to £100, which is the fulcrum point, and he will still enjoy a proportion of the savings credit in exactly the same way as Frank.

The noble Lord is saying that what is currently MIG should carry the strain between where Roy is with his retirement pension, however modest that may be—£10 worth, £50 worth or £77 worth up to 100—and whatever else he may have; he will still receive a savings credit. That is what the noble Lord suggests and I do not believe that that is right. He is saying that such a person should be rewarded twice over, once with a M1G element, a guarantee element that takes him up to £100 with possibly £20, or £30 or £50 of retirement pension—far more than the first person—and on top of that that he should enjoy his savings credit. Those two people with different retirement pension contributions records would end up receiving the same income. That cannot be right. That is not fair to the person who has worked hard, paid the contributions and saved in other forms—through an occupational pension or through savings.

I do not know whether that helps the noble Lord. We may have to agree to disagree on that. That would be the consequence under his case of someone with an incomplete retirement pension record who would receive all the £100 deemed through the MIG element and would enjoy a savings credit on top. I do not believe that it is right to deal with those two people in the same way. I hope in the light of that explanation that the noble Lord will feel able to withdraw the amendment.

Lord Hodgson of Astley Abbotts

I am grateful to the Minister for the full attention that she has paid to this amendment. The counter argument from my noble friend Lord Higgins is whether someone should receive no benefit at all—it is not a matter of full benefit—from having some state retirement pension. I look forward to receiving from the Minister's department the capital calculations. In any way that I try to work this out I cannot work it up to £35,000 or £60,000 to be eligible under the proposals now before the Committee.

I am grateful to the Minister for having dealt with some of the cases. I did not hear much about women who take a career break to care for children, but these were probing amendments designed to discover the position of the Government. We have had much juice out of the orange. I may want to see whether I can extract some more juice on another occasion, but for the time being I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bassam of Brighton

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.