State Pension Credit Bill: Second Stage

– in the Northern Ireland Assembly at 2:00 pm on 17 September 2002.

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Photo of Nigel Dodds Nigel Dodds Opposition Whip (Commons) 2:00, 17 September 2002

I beg to move

That the Second Stage of the State Pension Credit Bill (NIA 4/02) be agreed.

The Bill will make provisions for Northern Ireland corresponding to those made for Great Britain under the State Pension Credit Act 2002, which received Royal Assent on 25 June 2002. Therefore, it is a parity measure.

As I said during the debate on accelerated passage for the Bill and during the debate on the Second Stage of the Social Security Bill, there has always been parity between Great Britain and Northern Ireland as regards social security legislation. I emphasise that that is how it should be. People in Northern Ireland pay the same National Insurance contributions and the same taxes as people elsewhere in the country, and it is right and proper that they should receive the same benefits at the same time and at the same rates. Moreover, parity legislation enables Northern Ireland to use Great Britain’s computer systems, which is much more cost-effective than setting up a separate computer system here.

Parity covers the content of legislation and the timing of its implementation. New provisions have always been introduced here at the same time as in the rest of the country, and that arrangement should continue.

Pension credit marks the end of a fundamental unfairness in the social security system. From the early days of the modern welfare state, people who made provision for themselves were penalised for their efforts. I am sure that every Member has met pensioners living on modest incomes who have often struggled to put aside money for their retirement and who feel that they have been let down. They find that they are little or no better off than people who have saved nothing. Although it is necessary to concentrate on helping the poorest pensioners, those who have saved a modest amount for their retirement should be rewarded, not penalised, for their thrift and effort. In addition, the obstacles that put people off taking their pension entitlement must be tackled. Pension credit offers a solution that provides substantial sums to help the least well-off and tapers that help for pensioners at the higher end of the income distribution. Pension credit will tackle pensioner poverty in a precise way, and it will ease the disincentive to save that has been inherent in the social security system.

The State Pension Credit Bill will provide extra help for around half of all pensioners in Northern Ireland. Some 120,000 pensioners stand to gain an average of £400 a year, while some will gain up to £1,000 a year. With pension credit, the poorest one third of pensioners will gain, on average, an extra £8·20 a week. Pension credit will add £50 million to the money that pensioners at the lower end of the income distribution are entitled to receive. By contrast, spending the same amount on increasing the basic state pension would result in a gain of only £3·20 a week, which would be £5 a week less. The least well-off pensioners will gain over two and a half times more with pension credit than if the money were spread thinly by raising everyone’s pensions.

At present, 75,000 pensioners receive a minimum income guarantee. That has increased the incomes of the poorest pensioners by at least £15 a week over and above inflation. Clause 2 sets out how the pension credit will build on that approach and lift pensioners out of poverty.

It is also necessary to ensure that it pays to save, and that is the purpose of the Bill. The pension credit will address a fundamental unfairness in the system. For the first time, we shall be able to tell people that if they save even modest amounts above the basic state pension, they will be rewarded for their efforts. It will pay to save.

The pension credit will work in two ways. First, it replaces the minimum income guarantee as the means to provide a floor below which pensioners’ incomes should not fall. In 2003, pension credit will increase single pensioners’ entitlement to a guaranteed minimum of £100 a week, or £154 for couples. Clause 2 also provides for a higher minimum income guarantee for carers and pensioners with severe disabilities: £140 for a single person, or £194 for couples. Secondly, and critically, the pension credit will provide an additional top-up to reward pensioners aged 65 or over who have saved for their retirement. Clause 3 will ensure that pensioners aged 65 or over who have a modest occupational pension or modest savings will receive more as a result of their thrift. It will give pensioners a cash addition of 60p for every £1 of their income above the level of the basic state pension, up to a maximum of £13·80 a week for a single person and £18·60 for a couple. The reward for savings ensures that those who have put something aside for their retirement will be better off for having done so.

Although pension credit may seem complicated, it is fundamentally a simple and straightforward concept. To ensure that Members have a grasp of it, and to illustrate the real gains to pensioners from the pension credit, I shall give an example of how it will work in practice. Pensioners with a full basic state pension of £77 a week will receive the maximum guaranteed credit of £23. Their total income will, therefore, be £100. As they do not have a qualifying income from savings or an occupational pension, they will not receive a savings credit. On the other hand, pensioners with the full basic state pension of £77 a week and an occupational pension of, for example, £12 will receive a guaranteed credit of £11 to bring their income up to the £100 maximum guarantee. The amount of the savings credit will be 60p for every £1 of qualifying income above the basic state pension. In that case, therefore, a pensioner will receive a savings credit of £7·20, giving him or her a total income of £107·20.

The guaranteed minimum for carers and severely disabled people would be increased. A single, severely disabled pensioner, with £77 state pension and £10 occupational pension, would receive a guaranteed credit of £53 to bring his or her income up to the £140 personal guaranteed minimum. In addition to that, he or she would also receive a savings credit of £6, giving a total income of £146.

That is fairly simple arithmetic. However, as is the case with any pension entitlement, pensioners do not have to do the calculation. What is important is that they know that they are entitled to apply. In general, pensioners will qualify if their incomes are up to approximately £135 for single people or £200 for couples.

Many pensioners think that there is a stigma attached to receiving income support. The process of reporting changes in income puts many people off claiming that support. They therefore lose out and risk poverty. To tackle pensioner poverty seriously, an income assessment must be undertaken to help claimants. There is nothing new about that.

Under the current rules, pensioners must report every change in their circumstances from week to week. However, with pension credit, they will be asked for the information only when it is needed to work out their benefit. For example, we will only need to know about their savings that are over £6,000.

The pension credit capital rules have been designed to promote saving. The current rule, which excludes pensioners with savings of £12,000 or more, will be abolished. Also, the first £6,000 will be ignored, meaning that 85% of people who claim pension credit will not need to disclose their savings. For savings above £6,000, a notional rate of income will be assumed. It will be set at 10%, which is half the current assumed rate of income in the minimum income guarantee, which stands at approximately 20%. Therefore, if a pensioner saves £10,000, the current minimum income guarantee rules assume an income of £16 a week, whereas under pension credit, only £8 a week would be assumed.

With the introduction of pension credit, the weekly means test for pensioners will be abolished from the age of 65. Most pensioners will have their awards set for long periods, normally five years at a time, which will reduce the intrusion that many of them rightly complain about. It will encourage them to claim money that is rightfully theirs, and it will help to tackle pensioner poverty.

It is expected that between half and two thirds of the pension credit group will remain on benefit for at least five years. By the time pension credit replaces the minimum income guarantee, it is estimated that 120,000 pensioners will be entitled to it.

When pensioners reach the age of 65, the majority find that their income is settled and their circumstances are stable. Therefore, there is no need to continue to impose on them the requirement to report every little change that may happen from week to week. They will be asked to report only major changes in their lives, such as the death of a spouse. However, they will be able to ask for their pension credit to be increased at any time, should their other sources of income be reduced.

Clauses 6 to 10 contain the principles of the five-year awards and the reassessment of income during that period. The Bill will provide more for the poorest pensioners and will help present and future pensioners to avoid poverty. It is a substantial reform that will benefit about half of pensioners in Northern Ireland. It helps to tackle poverty; it rewards thrift and saving; and it will benefit 120,000 pensioners by an average of £400 a year. Therefore, I commend the Bill to the Assembly.

Question put and agreed to.

Resolved:

That the Second Stage of the State Credit Pension Bill (NIA 04/02) be agreed.