Clause 9 - Duration of assessed income period

State Pension Credit Bill [Lords] – in a Public Bill Committee at 12:15 pm on 23rd April 2002.

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Photo of James Clappison James Clappison Shadow Spokesperson (Treasury) 12:15 pm, 23rd April 2002

I beg to move amendment No. 32, in page 6, line 29, leave out subsection (2).

We understand that the assessed income period will usually be five years, but the period could be shorter if it is considered that the claimant's income at the time of the claim and over the following 12 months is unlikely to be typical. Presumably, that covers cases in which there is reason to believe that the claimant's income will increase at some point beyond the 12 months. It would be useful to hear from the Minister on that point. Will he also tell us if he can add anything on the circumstances in which the assessed period will be set for less than five years? How will those considering the claim know that the claimant's income at the time of the claim and in the following 12 months is unlikely to be typical? That is an interesting question, and we would be grateful for any reflections that the Minister might have on that. Will he also tell us what happens if an assessed income period is not specified at all, which seems to be a possibility contemplated in the clause?

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

The hon. Gentleman has highlighted an important question. I am not sure how often the powers in the clause are likely to be used. One can imagine a circumstance in which the initial claim for

pension credit was made when someone reached state pension age—although I note that the assessed income periods do not start until five years before the claimant is 65—when one could perhaps know that one was going to retire, as opposed to draw state pension, within three months. In other words, it could be apparent that someone's circumstances were likely to change in the near future, so that to set a five-yearly award based on the situation at the time of the first claim would give rise to an almost immediate change. I notice that the clause raises yet another exception to the principle of people having contact with the authorities every five years. Throughout our debates, we are finding more and more exceptions to that principle.

I hope that the Minister will give us some idea about the scope of the subsection that the amendment would withdraw, because if the power is to be used widely, we must ask whether there will really be five-yearly means testing or something quite different.

The other question in the back of my mind is: if the process of picking up changes is as straightforward as we have been told this morning—if people will receive an annual letter, and if fluctuations in earnings are not a problem because they will be reported—why do we need a separate bit of the Bill to deal with cases in which a five-yearly assessment is inappropriate because the situation is atypical? We have just discussed a raft of procedures for dealing with changes in circumstances, which are supposed to be simple and not onerous, so why do we need a separate regime for people whose circumstances, we are fairly sure, will change?

Photo of Julian Brazier Julian Brazier Opposition Whip (Commons) 12:30 pm, 23rd April 2002

I congratulate my hon. Friend the Member for Hertsmere on the depth of his probing amendment. My point follows directly—for the second time this morning—from the question asked by the hon. Member for Northavon. In fact, it makes the point that I thought he was about to make. I do not understand why we need the subsection when changes in circumstances are addressed in so many other places.

How will likely changes in circumstances during the first part of the five years be thrown up? Specifically—to revert to something that we discussed earlier, but which is also relevant here—does the Minister envisage the Department entering into correspondence with everyone's pension funds and their other sources of income when they first retire? Someone who has reached 65 may have one occupational pension from one source and a self-funded annuity from another part of his working life, because every year, circumstances become more complicated for the typical pensioner, as people's career patterns depart from the tradition of working in one industry all their lives. If the Minister does not envisage the Department writing to all a pensioner's main income sources when he retires, why is there a separate provision in the Bill alongside all the existing measures designed to pick up substantial changes in income?

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

The Government have a strategy of encouraging all pensioners to take up their

entitlement. Research has shown that pensioners are currently put off claiming their entitlement because of the intrusive nature of the MIG claims process, so in this clause we are taking steps to reduce the barriers. We have already reduced the MIG claim form from 40 to 10 pages. In devising pension credit, we are determined to make further significant improvements. We have therefore introduced the proposals for an assessed income period.

I think that we have all accepted the introduction of the five-year period, and our debates on clauses 6, 7 and 8 have reflected that. We are confident that the changes will help pensioners who have settled and regular income that is not subject to frequent changes, and to do so in an unintrusive way. The assessed income period dramatically reduces the number of changes that a pensioner needs to report; it effectively removes the weekly means test that Opposition Members keep banging on about. [Interruption.] I am not saying that in a derogatory sense. I have been banging on about the five-year term. The assessed income period will take a significant step towards removing the reasons why pensioners do not claim their entitlements, thereby encouraging them to claim what is rightfully theirs and, in turn, helping to reduce pensioner poverty.

Clause 9 contains the provisions that govern the length of the assessed income period; indeed, it is at the heart of our proposals to abolish the weekly means test. For the vast majority of pensioners aged 65 and over, the assessed income period should last for five years. During that period, pensioners will not be required to report any increases in their retirement provision—that is, non-state retirement pensions, income from annuity contracts or income from capital. Under the MIG rules, however, pensioners must report any changes, however small, to the first two items and to capital over £6,000. With pension credit, pensioners will no longer have to endure the continuous requirement to report changes, or annual inquiries into their financial affairs. That is a radical step, which will make it easier for pensioners to claim their entitlement.

Amendment No. 32 seeks to remove subsection (2), and with it the Secretary of State's power to set an assessed income period of less than five years—or not to set one at all. It would mean that all pensioners over 65 would have a five-year assessed income period. However, we realise that some pensioners' retirement provisions may not be finalised when they claim pension credit, particularly if they do so as they approach pension age. Some may expect an endowment policy to mature; others may find that their occupational pensions have not been finalised. Some pensioners' incomes may always be subject to wide fluctuations—for instance, the erratic payment of foreign pensions. Some of us regularly receive letters from pensioners who worked for other Governments in the old empire days, or for other countries in the Commonwealth and elsewhere, about the erratic nature of their payments, and we have to be able to intervene in a positive way.

Subsection (2) provides that when consideration is given to setting an assessed income period, if the income is not likely to be typical of the next 12 months, a shorter assessed income period may be set. Indeed, one may not be set at all. That is all about assisting pensioners, and it works like this. As people near retirement, as part of the assessment for the basic state pension and for pension credit, they are asked specifically whether there will be any other significant item of income during the next 12 months. Gentleman A or woman B may say, ''I have an endowment policy coming up in the next three or four months.'' Surely it is reasonable to set the assessment period and then to reassess. However, it should be remembered that pensioners will be asked if their level of income is likely to remain the same for the next 12 months; if it remains the same, the assessment will commence from that point for five years. As in the previous debate—the virtuous circles debate—the net effect will remain the same, and they will not lose.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

In the circumstances that the Minister describes, will it be an offence not to report an anticipated major change in income? If I knew that I was going to receive an endowment payment in six months' time, I would rather not tell the Department and have an assessment made for five years, knowing that when it did happen I could then say that it could not affect my entitlement for five years. However, it is fraudulent to fail to report something that is known to be coming down the track. I realise that one cannot always know with certainty when one is going to draw down such moneys, and one may not have known at the time of the claim. Are we about to open that can of worms?

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

It is not a can of worms. On the previous amendment, we said that fraud among pensioners was extremely low and would remain so, and that pensioners themselves were committed to opposing fraud. If, with pension credit or anything else, someone deliberately and with absolute knowledge concealed a substantial income, theirs would be a fraudulent claim.

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

No, we are not asking people to speculate about future income.

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

No. We are not asking pensioners to speculate about the next 12 months. For example, if, during the process of applying for basic pension credit for his state pension, someone states that he has an occupational pension that is not yet due, that is giving known facts, not speculation. It is not as though he were about to win the lottery but didn't know it. He will have received something from the Prudential, or wherever, stating a set date—those of us with endowment policies have all seen such statements—and will know. If it happens that the set date for the payment of the endowment is later than the date of the commencement of assessed income period, it is more than reasonable for that to be notified to the authorities.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

There is the issue that has just been raised about fraud. Besides that, people, particularly

older people, are conscious of the need to be honest and to give a full report. They are likely to be apprehensive when they are asked about things that might happen in the future, and they are uncertain as to exactly what they must report. They find it very off-putting.

Mr. Boswell rose—

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

The hon. Member for Daventry is so keen that he wants to intervene now—but I shall give him a chance to get his breath back.

I can see the point being made, and for the purposes of the debate I shall take it as genuine. The procedure set out in the Bill concerning which income must be reported for assessment and which need not be is clear and limited. It seems reasonable. As they approach retirement, people have a good idea what their income is likely to be. The Pension Service bends over backwards to talk to them about it—it is a pensioner-centred service. It goes through the process meticulously with them, because if it does not, something might be missed that allows them additional income. It is a proactive process for gaining access to income, not a gateway to prevent people from having income.

The fears of the hon. Member for Hertsmere are groundless. The only person who would not want to give the information in such circumstances would be one who was trying to gain a fraudulent advantage, which would occur only in a minority of cases. We have to take account of that, but in the genuine cases—there are some—in which a pension is to be paid later, or endowment or other income will come on stream, people should report that. There will be a shorter assessment period subsequent to the payment, then the five-year period will kick in.

Individuals may receive a windfall for some reason. We have covered that possibility, and we know the rules. There is a clear distinction between a windfall gain and additional income gain, if that has not been part of the net changes in terms of the income assessment period. Where there is a narrow focus on a range of income that will impact on the outcome of the application for pension credit, there should be an obligation on people to report it.

Photo of Tim Boswell Tim Boswell Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Work and Pensions)

I am deeply sorry that I had to miss the discussions this morning, and I will read the report of them. I shall just comment on the Minister's specific point about an endowment policy vesting on a certain day. I understand why he wants people to level with the Pension Service that that might happen. However, some kinds of asset are not formally under the pensioner's control because they are held in a fund or elsewhere, without an absolutely set vesting day. There might be an element of discretion on the part of the pensioner, and in such cases there is a potential difficulty. A pensioner who may choose from a number of dates, and who knows that that could be relevant to the pension credit assessment, might choose a date beyond the period. He might do it in good faith and be exculpable. However, the Minister must make sure that the regulations are clear about what would happen if the date were ambiguous. When

would the asset be deemed to come under the pensioner's control?

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

I shall give a short resumé of this morning. I was 99 not out and was caught leg before wicket by the hon. Member for Northavon—that is the best way to explain it.

The hon. Gentleman raised a simple point. The rules are quite clear. If pensioners know that they will receive additional income, from whatever source, and that that will have an impact on their application for pensioner credit, they have an obligation to inform the Department. Any ambiguity will be resolved because they and the Department will determine between them the date on which they will begin to receive the additional income. That date could fall outside the 12 months. For example, if they began to receive it in 12 months and one day's time and it represented a significant increase in income, the decision maker may have to take that into account in a positive way, given that we want people to be able to maximise their income. It may well be that there is no good reason to take date B rather than date A, but there will still be a requirement for the pensioner to notify at the point of application that they are to receive additional income.

Photo of Ms Annabelle Ewing Ms Annabelle Ewing Scottish National Party, Perth

Let us consider the mechanics of the measure. My experience as a lawyer dealing with financial institutions such as pensions companies is that it takes a lot of time to get information from them. What impact would that have on when the pensioner receives pension credit?

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

I accept that when lawyers get involved all sorts of delay can arise.

The Pension Service has devised the application process for pension credit in such a way that at the time of the initial assessment, the key elements of what is required to meet it are in place. In ensuring that, the Pension Service will assess the pensioner. We have had this discussion in debates on other clauses. I understand the hon. Lady's point, but I do not see that there is a difficulty with respect to this clause. Irrespective of the paperwork from a particular insurance company, what is important is the fact that it is known that during the first 12 months of the assessment period a substantial sum will become available to the pensioner through either an endowment or the commencement of a works pension. It seems reasonable for it to be a requirement to notify at the point of application and for that to be taken into account in determining a shorter assessment period.

Photo of Julian Brazier Julian Brazier Opposition Whip (Commons)

May I raise again the question of income from work? Let us take two similar scenarios. In one case, someone retires intentionally from an area in which he has a particular specialist skill. He has his assessment and just weeks later he is approached, to his total surprise, perhaps by one of his former employer's competitors, and offered some well-paid part-time work. He decides that after all he is bored with gardening, and accepts the offer.

The second scenario is exactly the same, except that at the point at which the man fills in the assessment form, he knows that the approach from the competitor

is about to be made. What would happen in those two cases?

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

We are into individual cases here. If the man knows that the approach is going to be made and asks for it to be put off so that it does not affect his assessment—well, he should consult a lawyer before he does that. If the approach is made outside the assessment period, any earnings would have to be reported and taken into account, as they always must be. The money might take the form of a windfall payment and be disguised as something else, but it is unwise for people to try to be clever with a system and lead themselves into fraud. That is the important point: if a financial change is foreseeable during the 12-month period, they need to report that.

Secondly, rather than take a snapshot of income we want to review it over a five-year period. I hope that that helps the hon. Member for Perth. That is an important change: any foreseeable change between the second and fifth years is ignored. Only the first year is relevant, which is more than reasonable. We have got the balance right by following that policy for the first 12 months, after which, in years two to five, the virtuous circle kicks in and pensioners receive the benefit without losing out. When a change takes place that is not a benefit, they gain access to additional income. I do not think that anyone could expect a Government to juggle those three balls without dropping them, when all the balls in the air are 100 per cent. to the benefit of the pensioners. That is a radical departure from previous arrangements.

Photo of Julian Brazier Julian Brazier Opposition Whip (Commons)

I just want to make something absolutely clear about the answer that the Minister gave me on earnings and his answers to similar questions in earlier debates. If a pensioner is earning as a result of part-time work and, as is the nature of part-time work, his earnings fluctuate from week to week, will he have to have weekly assessment? Will he give me a yes or no answer to that question?

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

That is the same question that the hon. Gentleman asked me before. Some 2.5 per cent. will be affected by that fluctuation issue. I thought that I had answered that question quite reasonably but if he thinks that I have not done so when he reads Hansard, we can consider the matter again.

Under clauses 6, 7 and 8, we have been clear about the fact that the reporting system links positively to the assessment system to the benefit of the pensioner. The clause alone gives some responsibility to the claimant to give an indication of foreseeable income. That is a reasonable balance to strike. If hon. Members can accept the clause on that basis, our debate may move forward to the next clause.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

We have to beware of Ministers juggling balls in these circumstances. We shall have to read Hansard to see to what extent the Minister has succeeded in keeping his balls in the air at the same time.

I detect some sensitivity in some quarters on the subject of means-testing, as I was not conscious of the fact that we had been banging on about the subject all

morning. The Government told us that the five-year period and the other features of the provision make that feature less of a burden and less intrusive for claimants. A lot of issues have arisen from today's amendments on which we shall want to reflect in due course. Further consideration may put those claims in a different context, and perhaps put a different complexion on them. The hon. Member for Northavon pointed out that further exceptions keep cropping up.

We shall consider the Minister's remarks further, but for today's purposes I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Tim Boswell Tim Boswell Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Work and Pensions)

I beg to move amendment No. 37, in page 7, line 4, at end add—

'(6) For the avoidance of doubt, and notwithstanding regulations made concerning absence from Great Britain under section 1(5), the assessed income period shall continue through any period of absence from Great Britain during that period.'.

I am glad to be back in the Committee after an unmannerly interruption, although it is clear from the tenor of the exchanges that my hon. Friends have handled the Minister in a masterly way and that he has done his best to reply.

The amendment rehearses two previous debates. I was not expecting to have to move the amendment and I did so only because of the result of those two debates. It is an example of the kinds of difficulty in the Bill that concern us.

I shall remind the Committee of the two debates to which I refer. Under clause 1, we debated the jurisdiction and for how long the pension credit would be payable if someone went abroad for an extended holiday, for example. Last Thursday we debated the eligibility for continuing the assessment to pension credit by inference if it was more favourable than the current assessment for prisoners who were incarcerated at the time.

We could reopen the question of whether it is a suitable additional punishment for prisoners and whether pensioners should be able to go abroad for as long a holiday as they wish—good luck to them—but I do not seek to do that. I am trying to expose something implicit in the earlier debate. It seems to me that in framing regulations Ministers must have in mind two potentially different activities. They need to provide for a change of circumstance, and the making of a fresh assessment in certain specific circumstances. I am conscious that some of the debate this morning, in my absence, turned on that matter, but pensioners get married, they decide to leave the jurisdiction altogether and their income falls—and the Minister wants to help them.

Such changes in circumstances are all understandable. Except for the purposes of debate, I am not arguing that it is necessarily wrong to deal with discharged prisoners in that way. Nevertheless, Ministers need to equip themselves with the power to suspend the payment of the credit without amending the assessment itself. The Minister may say that it is already provided for—that is what I want to know—but it particularly inheres in the amendment. Some

pensioners may decide to have an extended holiday—they may spend the winter in Benidorm. However, if an assessment is made that is more favourable than that made on their current level of income and capital, as we teased out this morning, before they go abroad, they will have to come back with a completely fresh assessment.

That creates a material consideration. No member of the Committee would want pensioners to have to say to themselves—or fail to say, to their subsequent regret—''I went away, I told the Pension Service, I was away for two months, but when I came back they said that I could not have the same pension credit because the income had changed and I was entitled to a lesser amount, or nothing.'' There is the possibility of deterring innocent travellers from going outside the jurisdiction for more than four weeks, and there can also be a retrospective effect if someone gets caught out. What I am saying to the Minister through the amendment, with particular application to leaving the jurisdiction, although there may be other cases, is that we need to have a battery of proposals that pick up the change in circumstances leading to fresh determination route, but given that some people lose when they have a fresh determination we also need the power to suspend the payment without affecting the determination of assessed income. If I have overlooked a way of doing that, I shall accept the Minister's assurances, but it is of particular relevance if pensioners decide, in all innocence, to take an

extended holiday, because no one wants them to lose out in the process.

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

I was interested to hear the hon. Gentleman say that the amendment harks back to a previous discussion on prisoners. During proceedings on the Proceeds of Crime Bill, he made a great fist of ensuring that people detained at Her Majesty's pleasure were able to get pension credit while they were there, and as a sign of not having double jeopardy, all was forgiven when they came out. It was the Ronnie Biggs amendment. One can go to Brazil for 35 years and then come back for one's pension credit. I know that that is not what was intended—

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

Indeed, that may well be why he came back. It was approximately at the time when the Chancellor made the announcement that Mr. Biggs got on that plane. Perhaps Ronnie Biggs's view of the clause is similar to that of the hon. Member for Daventry. However, I shall not go too far down that road.

The amendment would—

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.