New Clause 27
Pensions Bill
2:00 pm

David Laws (Shadow Secretary of State for Work and Pensions, Work & Pensions; Yeovil, Liberal Democrat)

I beg to move, That the clause be read a Second time.

The new clause is about the pension credit disregard. It would require the Secretary of State to bring forward a report no later than 1 April 2008 on the labour market disincentive effects of the operation of the pension credit system for people over the age of entitlement to pension credit who are in employment. The new clause is a probing amendment, to see whether the Government will respond to the recommendations of an earlier Work and Pensions Committee report on pension credit, back in the 2005-06 Session, in which the Committee repeated its previous recommendation that the Government should reconsider the treatment of earnings and pension credit, taking particular account of the number of pension credit claimants who might wish to engage in paid work. The point is that currently large numbers of people who pass the age of 60 have a pension credit entitlement. The disregard for work for those people who receive pension credit is £5 a week, but it has not been changed for quite a number of years.

An important part of the Government’s solution to low incomes in retirement seems to be a quite reasonable expectation and aspiration that people should seek to work on for longer, at ages that are traditionally associated with retirement. It seems ironic that, because of the operation of the means-tested pensions system and the pension credit, there is quite a   powerful disincentive for people in that situation to carry on working. The Select Committee recommended that the disregard, which has remained static for so long, should be reviewed. If it is not to be reviewed, it would be interesting to know whether the Government have any other ideas about how to remove the disincentives for people in those circumstances.

James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)

Given that the hon. Gentleman’s policy is to abolish pension credit, what would be the effect of that on people aged between 60 and 65 who currently receive it?

David Laws (Shadow Secretary of State for Work and Pensions, Work & Pensions; Yeovil, Liberal Democrat)

We have never said that we would abolish every element of means-testing in the entire pension system. We said that we would massively reduce the number of people on means-testing, back to below 50 per cent.

James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)

I thought that the hon. Gentleman’s leader had said that he was committed to abolishing pension credit.

David Laws (Shadow Secretary of State for Work and Pensions, Work & Pensions; Yeovil, Liberal Democrat)

The Minister might be confusing that with the state second pension, which we are committed to phasing out in the long term, respecting the existing accruals, so there is a misunderstanding. I was about to bring my comments to a conclusion, but it would be ungenerous not to give the Minister an opportunity to intervene again on me, as I have often done so on him. However, with those comments, I now hand over to him for his formal response.

James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)

I shall happily write to the hon. Gentleman about that. From memory, I think that there is a clear quote from his leader about abolishing the state second pension, and perhaps the savings credit as well. I shall be interested in the hon. Gentleman’s answer on that issue and in what he would do with the carer and disability premium in pension credit, an issue that he still has not clarified. He could tell us now if he wanted; it is our last day.

David Laws (Shadow Secretary of State for Work and Pensions, Work & Pensions; Yeovil, Liberal Democrat)

Come to my seminar.

James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)

Perhaps he will tell us on Report.

The new clause relates to state pension age equalisation. Men aged between 60 and 65 get pension credit because we have to make it available to men and women at the same age. We had to choose between the ages of 60 and 65 and we decided to go for 60.

On Tuesday, we had a good debate on the overall issue of the state pension age, but I want to correct something that I said during it. The hon. Member for Weston-super-Mare asked me to confirm whether the projected increase in life expectancy for non-manual workers, based on the DWP’s extrapolation from ONS data, meant that the gap in life expectancy between manual and non-manual workers was projected to narrow. I replied that the gap had narrowed in the past and, if extrapolated forward, would continue to narrow. I am afraid that that was completely wrong. The truth is that the life expectancy gap between manual and non-manual workers has grown in the past  few years; I was looking at the projected decrease in the life expectancy gap between people in Scotland and England.

ONS projections indicate that life expectancy for the average man in Scotland will increase more rapidly than elsewhere in the UK. Although the life expectancy gap between men in England and in Scotland increased between 1980 and 2006, it is projected to narrow between now and 2050. The figures suggest that longevity may improve more quickly among manual workers, whose life expectancy is currently below the average, although I would not wish categorically to state that that will be the case, given the absence of robust data.

Let me return to the substance of the new clause. As I said, pension credit has to be available to men and women at the same age and is therefore available to men at age 60. Clearly, the availability of the guarantee credit element of the pension credit can be perceived as a disincentive to work for men aged 60 to 64. Although unemployed men in that age group are technically of working age and are entitled to claim jobseeker’s allowance, they are also entitled to choose to claim pension credit. By so doing, they bypass the conditionality elements of jobseeker’s allowance that would require them to engage actively with the labour market.

The income that such men receive is less than what they would earn from working full time, by as much as £46 per week for those working 30 hours per week at the minimum wage. However, the pension credit system enables men over 60, some of whom may face considerable barriers to work, to withdraw from the labour market. As I said, pension credit is available for men at age 60 because of the provisions on equal treatment with women in the State Pension Credit Act 2002. That Act links the qualifying age for the guarantee element of pension credit to women’s state pension age, so by 2020 pension credit will no longer be available to working-age men and its labour market disincentive effect will have been nullified.

The Government’s policies for increasing the labour market participation of older workers centre on increasing the choice and opportunities for individuals to work and plan for retirement. In line with that approach, pension credit is one of the qualifying benefits for the new deal 50-plus. So although pension credit claimants are not required to search for work, they are free to do so and are eligible for extra support through Jobcentre Plus.

The hon. Member for Yeovil raises an important issue: extending working lives is an important goal. If we succeed in increasing the employment of older workers by 1 million, we will also increase GDP significantly and reduce poverty. I understand the valid reasons behind his amendment. I shall be happy to come back to the House if there are further developments, although I do not think that a full report would be justified at this stage. As we have said before, we are constantly considering our policies on extending working lives. If the hon. Member for Yeovil or the Conservative Front Bench have any suggestions, we would be happy to look at them. With that, I urge him to withdraw the motion.

David Laws (Shadow Secretary of State for Work and Pensions, Work & Pensions; Yeovil, Liberal Democrat)

I am not sure whether to be encouraged by those comments. My new clause was valid and I was raising important points—it all sounded quite exciting  and unexpected. I was anticipating the normal knockabout stuff. We heard a degree of discomfort from the Minister. He said that this slightly anomalous situation will be extinguished in the fullness of time by the women’s pension age equalising with the male pension age; in the meantime we are left with the slightly odd situation where the Government are trying to encourage people into employment but allowing them to take the pension credit from age 60 and, through the operation of the means-tested benefit system, creating a disincentive to their taking employment.

The Minister is clearly in some discomfort as a result of the tension between the reality and Government policy. He did not say anything about the possibility of increasing the disregard, unless I missed that. It does not look as if he wants to intervene on me now to clarify that. I will simply have to accept that the door was not slammed completely in my face. I will have to pretend that it was a triumph and I will return to this at a later stage. I beg to ask leave to withdraw the motion.