Clause 6 - Duty to specify assessed income period

State Pension Credit Bill [Lords] – in a Public Bill Committee at 10:45 am on 23rd April 2002.

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Question proposed, That the clause stand part of the Bill.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

Clause 6 brings us to the question of the assessed income period, and is the first of several clauses to do so. The system set out in clauses 6 to 10 is put forward on the basis that the income of claimants aged 65 or over is to be treated as remaining the same for a five-year period, which is the assessed income period. Increases in income do not affect entitlement, and therefore they do not have to be reported, although a claimant can apply for reassessment if his income goes down. We shall shortly come to the mechanism for doing that. Other prescribed circumstances need to be notified during the assessed income period, and they are similar to those that apply to the basic state pension.

I cannot let the clause pass without making one observation. The original consultation document stated that the Government planned

''to award the Pension Credit for a longer, fixed period, drawing on experience from tax credits.''

That consultation was issued when the working families tax credit was granted for a six-month period based on a snapshot of a claimant's income, after which the credit was fixed. Since then, the working families tax credit has been replaced—or has evolved, as the Government would have it—and its successor establishes awards that are more sensitive to changes in circumstances, and allows for wider responsibilities for claimants who report such changes. In particular, clause 6 of the Tax Credits Bill establishes that, in relation to the working tax credit, at the end of the tax year the claimant must consider

their income and whether there have been variations in it. If there have been variations of certain types, they must report that and it will have an effect on entitlement.

The working families tax credit has evolved into the working tax credit, which is more sensitive to changes in circumstances than its predecessor, which gave credit for a fixed six-month period. One wonders what experience of other tax credits has been drawn on to design the pension credit. A lesson that could usefully be learnt from the working families tax credit is the way in which it has constantly changed. It would be a good idea if the Government could resist the temptation to make change after change to the design of tax credits. The more change there is, the more complexity enters the system. Many would say that the system is already complex enough.

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

Clause 6 sets out an assessed income period, and the presumption is that that period will be five years for anyone of 65 or over. I hope that the Minister will clarify what it will be for those under 65, and whether it will be akin to the weekly assessment that happens under income support, whether it will be one year, or what. I am hazy on that.

I have one point that I hope that the Minister will address. The nub of the Government's contention that the assessment is a more humane form of means-testing rests primarily on the fact that people will only be assessed every five years. There will be an assessed income period, which, once people are 65, will be five years.

There will be circumstances, which claimants will be obliged to report, in which that period will not be five years. It is not clear whether the Government have researched or made estimates of—I hope that the Minister will inform the Committee about this—the question how, if the assessed income period is set at five years, someone will typically run five years without contacting the Department to reassess their pension credit? If, for example, hitting a particular age, losing a partner or another major change in circumstance prompts a reassessment, two years, rather than five, might become the norm, or half of all claimants might have to put in fresh claims three times in five years. In that case, all the benefits claimed for only having to be assessed once every five years will be greatly diminished.

Although the attraction of means-testing somebody every five years rather than every week is self-evident, five years might not be the outcome if many people have changes in their circumstances that require them to report more regularly, or have changes in their circumstances that they would want to report because if they did not do so they would lose out. I should be grateful if the Minister were to tell us the Department's assessment of how many people will, even if the period in the clause is set to five years, be reassessed more frequently. Will it concern a minority, or will the typical pension credit recipient find themselves in contact with the Department far more frequently than every five years? That is critical to our assessment of how far that is humane means-testing, or how far it

will end up being regular contact with the Department, and I should be grateful for clarification.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

Clause 6 is important because it lays out a Minister's ability to be able to set the assessment period at five years. That is highly significant because it is about time that we started to move away from talking about a means test and describing the state pension credit by that phrase.

I have talked to some in the voluntary sector who work with older people, all of whom welcomed the additional money that will be going into pensioners' pockets when the Bill becomes law. They all agree that what is crucial to the take-up of state pension credit is the need to get it into pensioners' heads that it is something to which they are entitled, that it will not be intrusive or demeaning, and that it will not affect their wish to live a dignified retirement, but rather quite the opposite because it will hugely enhance the quality of life of many pensioners across the country.

The points raised by Opposition Members in trying to draw a comparison between a state pension credit, in which there will be an assessment of pensioners' means every five years, and national assistance benefits, in which people face intrusive interference in their personal lives and minute inquiries into their personal circumstances, is ludicrous and damaging. The Bill will pass into law, and we should start using more realistic language when we talk about it and recognise that the burden of the so-called means test in the Bill bears no comparison with the kind of burden that lives in the memories of people from my part of the world as a result of means-testing in the 1930s.

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

To a point, I am with the hon. Gentleman, and I accept that we are not talking about the 1930s. However, two important aspects of what is proposed here are substantially worse than anything any of us would want in our old age. First, there is the duty to report certain changes in circumstances to the authorities for fear of creating overpayments, debt and all the rest of it. The death of a spouse would be an obvious example, but there are others. There will be a set of people who have to tell the authorities about what is going on in their lives, and that will affect their income. Secondly, whereas we all want to know that we have a certain income in our old age, which we know will go up in a certain way, people subject to the pension credit will always substantially be at the whim of the Chancellor, whoever they are and whatever party they come from, and the way in which they set tables, thresholds and rates. That is quantitatively different from, and inferior to, what we would want in our old ages.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

As we know from the last Government, pensioners can be subject to whims and ideology. The last Conservative Government made perhaps the most significant breach from the pattern of pension provision since the war when they broke the earnings link with the state pension many years ago.

Providing that those reports are the minimum required, simple and well understood, I do not see

them as an intrusive and unnecessary burden. It is not unreasonable to expect people to be able to make them. When one gets down to the minutiae of people's business and they are expected to report on a weekly basis, one can talk about a means test in the sense that people are trying to portray.

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

I have listened to the debate with interest. The hon. Member for Northavon made some good points about the potential frequency of testing, and I await the Minister's comments with interest. Aside from the potential frequency of the tests and leaving aside periodicity, what makes that kind of means-testing more humane?

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

That is self-evident. When people apply for the state pension credit, they will not need to reveal the minute details of their means on a weekly or daily basis. The proof of the pudding is in the eating. On the ground, people will see how that is radically different from the sorts of means-testing they may have faced before under income support.

Photo of David Cairns David Cairns Labour, Greenock and Inverclyde

As well as the five-year frequency, another key factor is the amount of money that is being given, which is far more generous than anything given under the old system. Does my hon. Friend agree that the weekly assessments of the old National Assistance Board were designed to ensure that people were not getting too much money? Their income was assessed, and any additional assistance that they got still kept them in poverty. This assessment is about ensuring that people get the maximum amount of money that they need in order to lift them out of poverty.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. Before the hon. Member for Cardiff, West (Kevin Brennan) resumes, I remind the Committee that the debate is interesting, but it is going rather wide of clause 6, which is entitled:

''Duty to specify assessed income period''.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

I naturally take your advice, Mr. Atkinson. I am grateful to my hon. Friend for his in-flight refuelling, which enables me to conclude my remarks by saying that we obviously need clarification from the Minister about the circumstances in which people will need to make reports, and I am sure that he will provide us with that. The specification of a period of five years for the assessment of income will make the pension credit a radically different type of benefit from those that we have seen before.

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

I shall try to be helpful to the hon. Member for Hertsmere. He raised the issue of whether the establishment of clause 6 is consistent with the assertions in the consultation paper. It is to pensioners' advantage that, in putting down the proposal, we maximise the period of assessment in their favour by taking into account the way in which their incomes overwhelmingly grow after retirement. Five years is surely a better period for them because their incomes are more stable—we shall come to this later—than those of people of working age. Tax credits do not allow for reductions in income, but that is not the case in pensions. Pensioners have access only to a limited income, in any event. If, for whatever legitimate reasons, their income falls, it would be important to reassess in favour of them. In that five-year period, any

changes that impact negatively on pensioners' overall income can be assessed and additional income can be achieved, which would not have been available to them if we set this in a concrete way.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury) 11:00 am, 23rd April 2002

I was drawing a contrast between the Bill and what has happened with the working families tax credit. I fully appreciate that if pensioners' income goes down, they can apply for reassessment. The problem in the working families tax credit is that the change that has been made since the consultation means that recipients are under a duty to report change of circumstances upwards at the end of the year period, which they were not when the consultation came out when the Government said that they were learning lessons from the working tax credit. I was merely drawing a contrast between what was happening there, and what will happen with this credit.

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

If that is all that the hon. Gentleman has to say, fair enough. We are not here to debate the working families tax credit, but we have learned from that. In the consultation period, we have learned a lot from pensioners. In my initial intervention, I said that the income patterns for people of working age are radically different in context from those of pensioners. During the process, we did consider the working families tax credit, but we also listened to what was being said by older people's organisations and older people themselves. We considered the empirical evidence—what happens to people's income, and the stabilising effect of that, as they reach 65 and beyond.

We have been true to the consultation paper. Indeed, we have actually improved on it by not taking what might be called the prescriptive route of the working families tax credit, which I am not criticising. I would be criticising the Chancellor—God almighty. If the hon. Gentleman was saying that the way in which that has been prescribed is different, the answer to that is yes. The reason for that is to take into account the different circumstances of people of working age and their propensity to earn income in a way that is not available to older people. The propensity for older people to lose income is greater than those of working age. I think that we have got the balance right.

The hon. Member for Northavon raised a legitimate question concerning the proportion of assessed income periods that will be achieved during the five-year period. We expect the vast majority of assessed income periods not to change during that period. The main ongoing changes concern those with earnings: only 2.5 per cent. of those entitled to pension credit would be in that group. Other changes are life events, such as the unfortunate death of a partner, of which people would notify us in any event for the obvious reason that it initiates other benefits. Furthermore, when income goes down we do not want pensioners to lose out.

The whole system is designed as an intervention measure, more for pensioners' intervention than the state. That is the difference from what has gone on in

the past. There has been state intervention in the past to prevent people gaining access to income, because legislation is usually designed as a gateway—''Do not come through here''. Alternatively, assessments have been carried out in such a way to make it difficult for people to make claims, or the tapering arrangements are such that the number of people entitled to claim is reduced. As far as possible, all of the panoply of what people feared in the old-fashioned system has gone. The whole principle and concept is now different. We are standing the old welfare state on its head, and the principle of the basic state pension. We have brought together for the first time two forms of income that will be assessed when people claim their pensions. Hopefully, those who are currently in the system will automatically, with no fear or concern, transfer to pension credit. In future, when people apply for their basic state pension, they will also apply for pension credit, which will be worked out for them. How can it be said that that is some from of draconian means test? During the four months or so in which someone applies for their basic state pension, what do they do? They apply to have their national insurance contributions assessed. It is that assessment that determines someone's level, whether they get the basic state pension or not, as has been the case ever since the day when we created the basic state pensions.

The state has decided to get rid of the income trap in which people have been for so long and, at the same time, is assessing their pension credit for them. What is wrong with that? I have been branded a red-hot socialist on occasion but, for the life of me, even as a red-hot socialist, I cannot see that that could ever, in any way, be painted as a draconian measure, forcing half of Britain's pensioners into a means test. That is ludicrous. [Interruption.] I shall give way to the hon. Member for Northavon and have a wee rest.

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

The Minister identified three cases in which there would be a reassessment, the third being where someone's income fell, including imputed income from capital. Let us take the hypothetical scenario in which pensioners have Railtrack shares and those shares have fallen in value. In principle, their imputed income from that capital would fall and, if they were above the threshold, they would be entitled to more pension credit. So, every pensioner with Railtrack shares who is getting pension or savings credit, if they are not to miss out, should contact the Department.

That, indeed, is the case for anyone with any other shares. If one thinks of what has happened to the stock market during the past 12 months, and in the previous year, it is probable that everyone with shares has a case to re-contact the Department. What assessment has the Department made of the number of people in that third category—those who might face falls in their income, including that from capital, and who would, therefore, have the ongoing contact with the Department that the five-year assessment is supposed to prevent?

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

That seems a very clever case—Railtrack. I shall try to count on one hand the number of pensioners who suffer from Railtrack in terms of

shares. Certainly, plenty suffer from it in terms of poor performance.

The hon. Gentleman's point is not a big deal. Even under the current system, every day pensioners legitimately use up their capital for various reasons and so qualify for the minimum income guarantee. The whole point is that a pensioner has choice. A pensioner whose capital decreases, for whatever legitimate reason, has access, through this system, to additional income from the state.

How is that a burden? I take it that the hon. Gentleman is not suggesting that, when a pensioner's income falls significantly to the point at which it affects their level of pension credit, whether because of Railtrack shares or another reason, we should simply leave them to grin and bear it for five years. There is no way that I would agree to support the Liberal Democrats on such a policy.

The hon. Gentleman had a good try, but it was an attempt to construct a scenario that has been claimed continuously since the original presentation of the Bill—that this Government have turned their back on Britain's pensioners and are forcing them through old-fashioned means-testing. That was not true at the beginning, it was not true during the consultation process, it is not true now and it will not ever be true. That is not what we are attempting to do.

I ask the hon. Gentleman to think about the matter a little more, to think about what we are trying to do to change the whole ethos of the basic state pension and income related to it. Even if someone is totally opposed to what we are doing, they cannot argue against the significant change that we have made to people at the point of retirement. For the first time, the state will recognise not only their contributions to the basic state pension but contributions of other kinds and other forms of income, and will give out income in relation to that.

Photo of Julian Brazier Julian Brazier Opposition Whip (Commons)

It does not seem to me that the Minister has answered the questions posed by my hon. Friend the Member for Hertsmere and by the hon. Member for Northavon. I put to him another hypothetical case. Let us look at income from earnings, which the Secretary of State has assured us will be treated in exactly the same way as other forms of income. If a pensioner is doing a part-time job in which the value of the work fluctuates enormously from week to week, as quite a lot of younger pensioners do, how will their work be treated?

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

The hon. Gentleman said that I had not answered the questions, but perhaps he did not like the answers. Eighty-five per cent. of pensioners have less than £6,000 capital. They will not be affected by the rules, and quite rightly so. [Interruption.] The hon. Member for Northavon says 15 per cent., as if I am trying to wash this away. Is it his contention that half of Britain's pensioners will be forced through a draconian system to get income? That is patently not the case.

The rules are designed to assist the 15 per cent. if they legitimately use up their capital at any point. If a

change in circumstances affects their entitlement, they will automatically have access to the system and be reconsidered for receipt of income. What is wrong with a system that acts so proactively for older people? At present, an older person in that situation has to grin and bear it. Under the Bill, we will reassess their case in respect of the change in their circumstances—circumstances are bound to change—when they approach us. As a package, clauses 6, 7, 8, 9 and 10 are a reasonable approach and allow for fair assessment of claimants' circumstances.

If the five-year award were totally fixed and continued to be paid regardless of any change, there would be significant costs. The Bill reduces reportable changes to the absolute minimum and maintains the integrity of the scheme. If we had not designed it in such a way, the taxpayer would not be protected from attempts to undermine the scheme but, more importantly—the balance must be right—pensioners who legitimately find themselves in the situation that I outlined earlier would not have an automatic right to be reassessed and, I hope, secure additional income from the state. I will come back to that later—it is important to deal with the general principles of the clause. I hope that I have dealt with the question of whether the Bill introduces a nasty, means-tested system.

Clause 6 establishes the principle of an assessed income period of up to five years during which most changes need not normally be reported. That is one of the main reasons for introducing pension credit. The assessed income period is the legal mechanism through which we will abolish the weekly means test for pensioners from age 65. When they reach that age, the vast majority of pensioners find that their income is settled and that their circumstances are stable. There is no need to continue to impose on them a requirement to report every little change from week to week. That is in response to the hon. Member for Canterbury (Mr. Brazier). Fluctuations in incomes will have to be reported, but in a way that is in keeping with the principle of the Bill. The reporting system is designed to assist the pensioner to benefit from the assessment, in almost all circumstances.

Clause 6 requires the Secretary of State to set an income period when he is making a decision on the pensioner's pension credit entitlement. The decision may be made when the pensioner first claims on retirement or it could be made at a later stage. The assessed income period will usually last for five years, during which the retirement provision—the types of income are defined in clause 7—of pensioners aged 65 or over will be deemed to stay the same.

In general, pensioners, particularly those aged 65 or more, have settled and regular income that is not subject to frequent changes. There is little point in continuing the existing regular re-examinations of the financial circumstances of people in that situation. In theory, under the current regime, pensioners are supposed to decide each week whether there has been a reportable change. That is intrusive and demeaning, and we have discussed why it is completely wrong. We are righting a big wrong by introducing an effective and transparent system that

provides flexibility for the pensioner or the pensioner couple. That will reduce considerably the number of enquiries that are made and the number of changes that must be reported by pensioners.

Photo of Julian Brazier Julian Brazier Opposition Whip (Commons) 11:15 am, 23rd April 2002

A growing number of pensioners, particularly younger people in their late 60s, choose to go out to earn money in part-time jobs—a growing number that Government spokesmen have said that they expect to continue to grow. Given that incomes usually fluctuate enormously—sometimes they stop completely, then start again—how will the Minister square such cases with what he has said?

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

I thought that I had already acknowledged that there would be occasions on which there were fluctuations, and that we would be using average figures. I have already explained all of that. The problem of the hon. Member for Canterbury is that he does not like what we are doing. However, we have not heard what the Conservative Front-Bench spokesmen would do: would they keep the credit or get rid of it? The mother and father of all parties when it comes to using means-testing to prevent people from accessing income and other benefits is the Conservative party. It is a past master.

We have been consulting people and restructuring the basic state pension credit to try to unpick the labyrinth of rules and regulations left by the Conservative party. I am not just referring to way back in the '40s, '50s and '60s, but to when you were last in power. You spent most of your time not providing access—

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. When the Minister says ''you'' and ''your'', he is referring to me.

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

I am sorry. I realise that for the purposes of the debate, you are not a member of the Conservative party, Mr. Atkinson. I do apologise, and would not want to embarrass you or impugn your character.

Most of the 18 years that the Conservative party was in power was spent creating new forms of regulation to prevent people gaining access to credit, including removing income support from those who already received it. I spoke out against that from the Back Benches, and occasionally from the Front Bench. The Conservative party did not modernise the system, but ensured that what people had was removed from them. It left a huge pool of general poverty—children's poverty, in-work poverty and, of course, pensioner poverty. Clause 6 reverses that so that the state has a different relationship with older people, and it creates a different way in which to assess them and their incomes.

Clause 6 is an important aspect of the Bill, and we have had a good discussion on it. There is a divide between the Government and Opposition Members, but nothing more that I could say would bring the Opposition on board. I will leave it at that, and simply add that it is an excellent and necessary building block of the Bill. I ask hon. Members to accept it.

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

In theory, means-testing every five years under an assessed income period sounds great. The

Government's line, which is always airbrushed, is that pensioners will not have to touch the authorities for five years at a time, which is wonderful. However, on examination, we find that that is not the case.

Things will not be like that, and the first group for whom things will not be like that comprises of women aged 60 to 64. Their assessed income period will be every week, as it is at present. That may not be called an assessed income period because the clause refers only to people aged 65 and over, but of the 5 million people who will receive pension credit, probably more than 500,000 women aged 60 to 65 will have a weekly assessment. They form one group for whom the assertion is not true.

The second group comprises anyone who must report a change in circumstances. If people's incomes drop, it is good to give them the opportunity to report that and to give them more money. However, the Minister has not addressed two problems. The first is take-up. If people are given the impression that the amount is for five years, and that they will have no contact with the authorities for that period, when reassessment takes place, I reckon that hundreds of thousands of people will be uncovered who are not getting what they should because they have failed to report falls in their income. The system is so complicated that the chances are that people will not appreciate what has happened. The Government are using a five-year assessment period, but leaving the onus on the individual to report falls. Why not 10 or 20 years? There is a trade-off. The Minister has given no justification for selecting a five-year period. The longer the period, the greater the chance that there will be people whose circumstances have changed but they have not reported it, and those people will be missing out. However, the shorter it is, the more intrusive the assessment. That is the trade-off that he has not addressed.

The critical point is that the claim, ''This is five years, and we'll leave you alone between times,'' is not true. People will have a lot more contact with the authorities than is being suggested, so it is simply not true that the provision makes a completely clean break with what has gone before. I am not convinced that the Minister has made a strong case to persuade us that the Government have got the balance of that trade-off right.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

The Minister said that he was trying to bring the Opposition on board. I am trying to be as consensual as possible, but I must say to him that for much of the time we were not trying to jump overboard in the first place, because we agreed with a great deal—but not all—of what he said. I agree with the Government that it is more appropriate to have a longer assessed income period for pensioners than for people of working age, and that the assessment period should not be as sensitive to changes in circumstances as when people are working. The point that I was gently making was that that was not the case when the Government launched their consultation paper. They said that they wanted to learn lessons from the existing system of the working families tax credit, and then promptly changed that system.

The Minister asked me about the Opposition's policy, and whether we would do away with the provisions. In the next three or four years, the biggest risk to the provisions will come from the Government themselves. The credit would be unique if it survived that long; none of the other credits has. There have been relaunches and fundamental changes pretty shortly after they were introduced. My plea to the Minister was that there should be some stability in the system. Credits should not be abolished or changed before people have the opportunity to get used to them.

I take the Minister's point that the means test is less intrusive than past tests, but I draw his attention to the remarks of the hon. Member for Northavon about the fact that there is still a need for changes in circumstances to be reported. I shall not take issue with the Minister about pensioners reporting falls in income and the effect that such falls would have. However, I remind him and his colleagues of the evidence presented to the Select Committee from a variety of sources on pensioners and means testing. They have a resistance to means tests for a variety of attitudinal reasons, and simply do not want to undergo them.

It may be less intrusive for pensioners to undergo just one means test every five years, but they do not like them at all. There is a wealth of evidence for that, including some from the Institute for Public Policy Research, which I invite the hon. Member for Cardiff, West to consider. Proof of that fact will be found in take-up rates, on which we shall have to keep a close eye. I also gently remind the Minister of the pledge made by his right hon. Friend the Chancellor of the Exchequer in 1993 to abolish means testing for pensioners altogether within a generation. He did not pledge to introduce a different form of means test.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

I was intrigued by the hon. Gentleman's remarks. Do I take it that he, as a Conservative Front-Bencher, is saying that he is opposed to means-testing?

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

I do not want to go too widely into that; I do not want to earn your strictures, Mr. Atkinson. However, in the 18 years of Conservative Government there was a reduction in means-testing as more pensioners had pensions and assets of their own. We have heard the Minister's comments on that. Pensioners floated off means-testing.

In 1993, the man who is now Chancellor of the Exchequer pledged that a Labour Government would abolish means-testing, saying that that generation of pensioners would be freed from it altogether. However, there has been an increase in the proportion of pensioners undergoing means-testing—and the structure of the Bill and the assessment period are likely to ensure that there is a huge increase in means-testing in the future. PricewaterhouseCoopers' analysis was that given the way that things are structured at the moment, 70 per cent. of pensioners will be undergoing means tests by 2050. Those records are there for the hon. Gentleman to see. May I gently remind him of his party's obligations? I appreciate that

he is trying to make the point that this is a new and improved form of means-testing that is entirely different from that done in the past, but that is not quite what the Chancellor said.

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

Once again I rise to speak—rather wearily. I thought that I would give the hon. Gentleman another chance to come on board—

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

The hon. Gentleman is on board in the sense that he recognises the common sense of the Government's position, but he could not quite overcome his prejudices against the proposals and find a reason not to jump overboard. I hope that when he does, he will have a lifebelt.

I perceive a wee bit of movement among the Liberal Democrats. We were told this morning that more than half Britain's pensioners would face a nasty means test. The hon. Member for Northavon then recalculated and reduced the figure to a proportion of men aged 60 to 64—he has a point—and turned the argument round. He now accuses us of not being intrusive enough. He says that if the period remains five years, at the end of that period—[Interruption.] I apologise for paraphrasing the hon. Gentleman; I shall give way to him in a moment. He says that at the end of that period, huge amounts of benefit would be unclaimed because we had not been in contact. I thought that Liberal Democrat policy was that we were being far too intrusive. He cannot have it both ways.

The Pension Service will send all pension credit recipients an annual statement that shows their entitlement and how it is calculated. Each year, therefore, they will know how much they receive and whether that amount is correct. Regularly and unintrusively, we shall maintain contact with them to tell them what they are receiving and ask them whether the amount is correct and whether there has been a change in their circumstances. If the amount is not right because of error or a change of circumstances, that is where the beauty of the scheme kicks in. It turns the current system on its head and becomes an advocate on older people's behalf. The system will operate effectively on behalf of older people.

The hon. Member for Northavon must sort out in his mind what he wants us to do—to have an ongoing, transparent and grown-up relationship with older people through the Pension Service, or to go back to the past, when we had no relationship other than the draconian one of which he paints a picture. We are moving on, modernising and considering the matter in terms of the two components of income assessment that apply at the start of someone's basic state pension.

The Liberal Democrats do a disservice to pension credit—and, more importantly, to older people. They tell older people that they will be means-tested, screwed into the ground, kicked from pillar to post and have the thought police, the financial police and the Metropolitan police all onto them. That is what the hon. Member for Northavon throws into the argument. Perhaps I exaggerate—I am paraphrasing—but that is the point that the Liberal Democrats have

reached. They are desperate to ensure that pensioners do not regard the proposal as a beneficial and major change on their behalf.

If pensioners do regard it in that way, as they increasingly do and will, the hon. Gentleman's arguments will be threadbare in the extreme, and all that will be left is a simple question that pensioners will ask them: ''Would you take it away?'' That is rather like what happened with the winter fuel payment, as hon. Members may remember. Pensioners got the payment, and when the Liberal Democrats were asked whether they would take it away, they changed their policies overnight. They will do the same with pension credit.

Mr. Webb rose—

Annabelle Ewing rose—

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

The alternative to 5.5 million people receiving pension credit is a decent state pension. Let us suppose that we asked Britain's pensioners, ''What do you want in your old age? You have a choice. You can have a good state pension, which won't change when your other income goes up and down, or a relationship with the Pension Service. Which would you prefer?'' Something tells me that Britain's pensioners are not crying out for a relationship with the Pension Service, and that that is second best to a decent pension—

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. That is an interesting point, but it has little to do with clause 6.

Annabelle Ewing rose—

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

I shall address the points raised by the hon. Member for Northavon first and then I shall give way to the hon. Member for Perth (Annabelle Ewing), but I thank her for the note that she sent me at the weekend.

The hon. Gentleman is no longer drowning; he has drowned. Pensioners will not only have a relationship with the Pension Service, they will get a decent pension. More importantly, the basic state pension is a building block, and there are additional above-average increases. We are dealing with the problem that pensioners lose out for every pound of their small additional earnings or small second pension. We have changed the nature of the game. We will make a contribution—a payment to reward thrift. Hon. Members may inform me otherwise, but I know of no other state pension system in the world that has ever done such a thing. It is a dramatic change in terms of both structure and policy.

The hon. Member for Northavon mentioned the alternative. At some stage in the proceedings, we must put on record what the alternative would mean, because it is full of means-testing and poorer pensioners would lose out considerably—but we will return to that later, because I have information that is hot off the press; I have just received another note. The hon. Gentleman needs help with his policy because it is in disarray.

Photo of Ms Annabelle Ewing Ms Annabelle Ewing Scottish National Party, Perth 11:30 am, 23rd April 2002

Taking the European Union as a comparator, I wonder how the United Kingdom fares in terms of the level of basic pension rights—although that may be beyond the scope of the clause. The Minister mentioned the annual statements to pensioners in receipt of pension credit and said that they would be able to see at first hand if they were not receiving their full entitlement. What type of information will be provided in the statement to enable pensioners to look at the statement and know if they are not receiving the amount to which they are entitled? Will it simply be a case of, ''Please contact the office if you have any questions''? They may fear that if they contacted the Pension Service, they might end up with less money.

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

The hon. Lady makes a good point. I can assure her that when we design all the materials that the Pension Service will send out, we will sit down with pensioner groups from the beginning and agree the design, content and language. We have a group that already does that, and because of many of the changes that have already taken place, the materials that we have produced are quantifiably better than in the past—irrespective of the party in Government; this is not a partisan point. That has happened because we have put a new system in place.

I would be happy to write to the hon. Lady and the rest of the Committee, but the process is simple. The statement will set out the entitlement, the guarantee and the credit, how the figures have been established, what payment arrangements are in place, and what the bottom line is. It will also include clear points of information about the simple easy way to gain access to the new Pension Service.

Any materials produced by the Pension Service, for whatever reason, must be compatible with older people's organisations and language. It is also important to remember people whose first language is not English, and those who have disabilities such as visual impairment, and to produce materials that are accordingly sensitive. They must not lose out or receive a service that is any less first class than those without disabilities receive. The hon. Lady's point is well made and will be taken into account when we produce materials for the Pension Service that will help pensioners with their relationship with the Department. I hope that now that I have made those remarks, we can agree to the clause.

I shall make one final point, so that later we can have some continuity with the comments of the hon. Member for Northavon. Under his proposals on state pensions, 80 per cent. of pensioners will still qualify for the minimum income guarantee through a means test. I look forward to further discussion on that subject, and I ask hon. Members to support clause 6.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.