Clause 15 - Income and Capital
State Pension Credit Bill [Lords]
5:45 pm
Professor Steve Webb (Northavon, Liberal Democrat)
I beg to move amendment No. 38, in page 9, line 22, at end insert—
'(3A) In the case of income from earnings, the amount of qualifying income shall be increased by an amount to be prescribed in regulations, for the purpose of entitlement to savings credit.'.
We now come by means of amendment No. 38 to provoke and prompt discussion about the treatment of earnings which, for reasons that the Committee understands, we were not able to do at an earlier stage. The amendment is an attempt to think about how we might approach the issue of encouraging people, particularly those who have just passed the age of 60 or 65, to stay on in or do paid work for as long as possible. I will say a little more about the specifics of amendment No. 38 and what we were trying to do by it—it might have some eccentric consequences. The Select Committee on Work and Pensions raised the
issue of the treatment of earnings, and it would be helpful to hear the Government's thinking on it.
The Select Committee was concerned that the opportunity was being missed to encourage people to do paid work for longer. We are not talking about forcing people to work full-time until they drop but about flexible retirement and enabling people to work past the traditional fixed pension ages. The Government's policy is that that is a good thing. It is demonstrated by discussions on flexible retirement and the Cabinet Office report on winning the generation game. In general, the Government are encouraging people who are willing to work longer, and I support that goal.
The question is whether the Bill is doing enough or whether it is a missed opportunity. In a specific way, amendment No. 38 tries to help and encourage people to work, but let me explain the difficulty in trying to use the pension credit for that purpose. There are two components: the guarantee credit and the savings credit. To some extent, they work in opposite directions because, as in the case of income support, a pound is lost under the guarantee credit for every pound earned beyond the disregard. That remains the case in the Bill. Nothing has happened in the guarantee credit element to encourage earnings, unless there are plans for changes to disregards in regulations, but we are not aware of any.
Can we use the savings credit to reward earnings? The question is whether the Government have done so. Earnings are to be treated in the same way as private pensions, although the Select Committee report said that the disregard on earnings that applies to the guarantee credit will also apply to the savings credit. I hope that the Minister will correct me if I am wrong on that, but it is the way that the Select Committee wrote it up. If I earn £15, only £10 will be taken into account for the guarantee credit, and only £10 will be taken into account for the savings credit. That is my reading of what the Select Committee said. I do not know whether it is right.
Obviously, the problem is that the savings credit rewards pensions but rewards earnings up to a maximum amount. If the pension is £77 and the minimum income guarantee is £100, earnings up to £23—or £23 after a disregard—are rewarded in full up to the 60 per cent. maximum and then the reward starts to fall away down to zero at £135 of total income.
The amendment is trying to achieve for people with very small earnings an increased reward under the savings credit for slightly higher earnings. To give a simple example, someone with a basic pension of £77 and earnings of £10 will get a reward under the savings credit for the £10, leaving aside the disregard. The amendment would add an amount, set in regulations, to the £10 to increase the sort of thing that the savings credit rewards. That is what we were trying to do. I am not 100 per cent. convinced that we have achieved it, but that is where we were coming from. Very small amounts of earnings would be topped up through the savings credit. By regulation we would add, fake or deem some earnings to give more savings credit and thus reward very small amounts of earnings.
Obviously, that would only apply up to £23 a week, including whatever reward we gave to people. Beyond that point, giving them something under amendment No. 38 would actually reduce the savings credit, so I would be the first to admit that it simply probes the earnings issue and that it may have some peculiar consequences that we might not want.
The simplest way to reward earnings is to take them out of the savings credit altogether and just have a socking great disregard on the guarantee credit element. I am straying ever so slightly, but for reasons that I hope are apparent. One way of rewarding earnings is to use the mechanism of the savings credit but, arguably, the simpler way would be to forget counting earnings for savings credit and simply have a socking great disregard such as the Select Committee recommended, of, for example, £40 a week. People would receive up to £40 extra for working.
When the Secretary of State gave evidence to the Select Committee, he was asked about earnings and said that he did not foresee any changes. I do not wish to pursue the issue at length at this stage, but I wish to mention that this is an opportunity for the Government to deliver on their agenda of encouraging people to work a bit longer and to have a phased, not a cliff-edge, retirement by giving them a reward such as some pension from the Government. Amendment No. 38 is one way in which we can reward them; disregards are another, and those will achieve something through the Bill that fits in with a Government agenda that I, and I suspect the Conservatives, happen to share. If we do nothing, we may miss an opportunity. We have not heard enough from the Government on that.