Danny Alexander (Shadow Minister and Disability Spokesperson, Work & Pensions; Inverness, Nairn, Badenoch & Strathspey, Liberal Democrat)

I beg to move amendment No. 204, in clause 3, page 3, line 30, leave out paragraph (b).

I will be relatively brief. I am grateful to the Association of British Insurers for drawing to my attention a potential problem with subsection (3)(b). The ABI is concerned that, unless action is taken to amend the provision, many thousands of people with long-term health problems could be at risk of seeing the income from their former employment dramatically reduced.

As the Committee will know, income protection insurance provides people on long-term sickness absence, for example, with a regular monthly payment to keep their overall income at just below the level that it would have been had they been in receipt of wages. In setting the premiums that people pay for such insurance, the insurance industry currently takes the levels of incapacity benefit into account. That is because a person whose employment has not been terminated and who receives incapacity benefit and payments under income protection insurance purchased for them by their employer, does not have their incapacity benefit reduced by the amount of their income protection insurance. However, there is concern that the way in which the clause is drafted will mean that that insurance will be taken into account. That could raise premiums, discourage people from taking out income protection insurance and, in particular, discourage employers from taking out such insurance on behalf of their staff. I hope that the Minister can offer some reassurance on that point.

Jim Murphy (Minister of State (Work), Department for Work and Pensions; Renfrewshire East, Labour)

Thank you, Mr. Hood, for chairing our short proceedings this morning. From talking to hon. Members on both sides of the Committee, I know that there is an eagerness to make progress and to reach the later clauses that contain much of the substance of the Bill. I shall therefore take some encouragement from the hon. Gentleman and seek to be relatively brief in this response and, where possible, in others this morning.

I hope that I can reassure the hon. Gentleman on the point that he has raised. As he knows, the amendment would change the definition of “pension payment” by  removing the reference to insurance payments that would be deducted from contributory employment and support allowance. The current legislation on IB allows certain insurance payments to be deducted, and the Bill allows for regulations setting out which insurance payments will be deducted from contributory benefit.

The regulations under the existing provision draw a distinction between payments that are made under insurance in respect of long-term ill health or disability, which are made while the person is still employed and are, therefore, equivalent to a form of sick pay, and payments that are made after employment has ended, which are more like a pension payment. Only the second type of payment will be deducted, and I hope that I can reassure the ABI on that through the hon. Gentleman. We shall not seek to deduct insurance payments funded by the employer and paid to an employee whose employment has not come to an end.

Before the rule was introduced into incapacity benefit, the principle was discussed with the ABI, which agreed that it was sensible, and we intend to bring the rule forward into the new benefit. The regulations under the clause will have exactly the same effect as the current rules, and we do not intend to extend the provision to other types of insurance payments or to payments made while a person is still in employment. With that, I hope that the hon. Gentleman will consider withdrawing the amendment.

Danny Alexander (Shadow Minister and Disability Spokesperson, Work & Pensions; Inverness, Nairn, Badenoch & Strathspey, Liberal Democrat)

I am grateful for that response and I beg to ask leave to withdraw the amendment.

Tim Boswell (Shadow Minister, Work & Pensions; Daventry, Conservative)

Good morning, Mr. Hood. I need not detain the Committee long on this issue, but I just want to pause on one aspect on which I have not tabled an amendment. In a sense, it follows on from the exchanges that we have just had about the definition of what are and what are not pension payments. You would certainly not thank me for extending the debate to cover wider issues, such as the set-off of pension payments and entitlements that former employees may receive before they reach retirement age and whether those should be partially stopped for incapacity benefit. On the other hand, as our earlier exchange indicated, there are concerns about what constitutes a pension payment.

Again, I do not need to give the Committee an elegant essay on the changing definitions. I happen to be an avid listener to Classic FM when I am in the car and it has a number of advertisements that talk about annuities. Clearly that word has modified from its 16th century origins as annual payments to repay money that had been lent to the king. [Interruption.]

Jimmy Hood (Lanark & Hamilton East, Labour)

Order. I may as well remind hon. Members that I will not tolerate any comments from a sedentary position.

Tim Boswell (Shadow Minister, Work & Pensions; Daventry, Conservative)

I am grateful, Mr. Hood. I promise that I will not try the patience of the Committee. I am merely making the point that words and definitions change over time. Like “annuity”, the word “pension”  has changed. If we were having this debate in the 18th century it would be regarded as a somewhat derogatory term because it would be money that the sovereign of the day often paid to people, to use the modern jargon, of working age whom he wished to reward for services rendered. It had nothing at all to do with their retirement. I appreciate that that does not happen now and I would not wish to suggest that we return to that former approach. Nor would I wish to suggest to the Committee that the Department has failed to consult both on the coverage of the disallowances for incapacity benefit, or on these benefits.

Mr. Murphyindicated assent.

Tim Boswell (Shadow Minister, Work & Pensions; Daventry, Conservative)

I see the Minister nodding. But my keen eye, which perhaps should have led me to an amendment, leads me to subsection (3)(c):

“such other payments as may be prescribed”.

That is a wonderful catch-all for authorities to say that they are going to disallow in any case where they think it appropriate. I do not argue with the principle of that. I doubt whether even the present Government—but I will not inflame them—would wish to introduce arbitrary provisions without consultation. It would be useful if Ministers could indicate more or less whether there is any precedent in mind. I have a specific point to mention in this connection.

Subsection (1) refers to “pension payments”, “PPF periodic payments” and

“payments of a prescribed description”,

which we have already debated. There is clearly within the envelope of this some distinction between pension payments and those paid by the Pension Protection Fund in compensation for the absence of a pension. There is also a financial assistance scheme, which is separate from the Pension Protection Fund and is not specified in the clause. I certainly do not wish to pick on the financial assistance scheme or its victims—I regard many of them as victims—who have lost pensions. The common view of the Committee would be that most of them have suffered enough. I am simply concerned about the equity between PPF recipients and FAS recipients. I am anxious to ensure that neither category is treated unfairly.

This may be a class with no members. There may be nobody who would be sufficiently affluent, because of the limited amounts that the FAS has paid out, to suffer in one of these ways. The answer could be—the Minister and his officials may be sharper on this than I am—that no FAS payment would be paid out until after the statutory retirement age. I highlight that as an example of the importance of being fair within the categories. We will not arguethe overall issue about disallowance. We simply want to ensure that the Bill is fit for purpose. Perhaps the Minister would like to reflect on that if he cannot answer it now.

Jim Murphy (Minister of State (Work), Department for Work and Pensions; Renfrewshire East, Labour)

I wonder whether, in an attempt to make some progress this morning, I can respond relatively briefly to the detailed points that the hon. Gentleman raises. As he knows, these rules replicate what currently happens under incapacity benefit. Throughout the consultation process, the Green Paper and the build-up to the publication of the Bill there was  no significant concern about how the present rules operate, apart from the matter raised in the amendment, which we have already dealt with. We will continue to consult on any future changes.

I have sought reassurances and I can allay the hon. Gentleman’s concerns in respect of the Bill’s ability to take account of changes in the pensions market, in the nature of working life, in Government schemes and in what is available in the private sector. That flexibility is contained in clause 3(2)(b) and (3)(b). I assure the hon. Gentleman that in drafting those subsections it was our intention to give the Bill the flexibility to respond to the evolution of the pensions market. Of course, if, in Committee or on Report, he wishes to identify proposals that he does not think have sufficient flexibility, we shall be happy to discuss them with him.

In respect of payments from the financial assistance scheme, we take account only of those payments made over the pensionable age, which I think covers the hon. Gentleman’s very fair point.

I have responded to questions this morning rather than reiterating the excellently crafted speech earlier.