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Pension Credit

Volume 403: debated on Monday 14 April 2003

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4.

What the estimated impact has been on savings of the introduction of the pension credit. [108707]

When introduced in October, pension credit will for the first time reward, not penalise, savings, ensuring that those who have worked hard to save modest amounts will gain from having done so. The reward for saving will be up to £14.79 a week for single pensioners and up to £19.20 a week for couples. That is, of course, in addition to the guaranteed minimum income.

That is all very well—[Interruption]—but does the Minister not realise that he is creating a massive means-tested scheme for the elderly, specifically against his party's promise in 1997 and the wishes of the Chancellor? He has also created a massive disincentive to save—those are not my words, but those of the president of the Faculty of Actuaries—and a hugely expensive bureaucracy. Does he not realise on reflection that there is a much less expensive and more effective way to help poorer pensioners?

With all due respect, I do not think that the hon. Gentleman has understood the scheme. Let us contrast it with what we inherited: pensioners with modest savings had them deducted, pound for pound, from income support, giving out entirely the wrong messages to those who had properly saved. The purpose of the pension credit is to recognise those modest savings and reward them accordingly. Given his interest in savings, I should have thought that he would have welcomed the pension credit.

As the Minister suggests that we recall the position that Labour inherited when it came to power, does he accept that since 1997 three quarters of all company pension schemes have either closed to new members or closed contributions to existing members, and that 11 per cent. of those schemes are now in the process of winding up? If we do not want all our constituents to end up on the pension credit, does not it behove the Government, once they have considered the response to their Green Paper, to introduce some very radical pension reform proposals?

As the right hon. Gentleman acknowledges, we have published our ideas in a Green Paper, on which we are consulting. I was at a consultancy meeting in the south-east of England this morning, at which we heard from a range of partners and stakeholders. We will introduce our proposals in due course. He is right that there is much insecurity out there, and we need to reassure people that when they save it is worth their while doing so. That is the purpose of the Green Paper and, at the risk of being relevant, it is the purpose of the pension credit.

Does the Minister accept, none the less, that, according to Institute for Fiscal Studies figures, by October three fifths of all pensioners will be eligible for means-tested benefits, and by the middle of the century, with no change in policy, four fifths of pensioners will be so eligible? Does he accept that there is a connection with the halving of the savings ratio since the Government took office, and the fact that almost half of the youngest element of the work force now has no second pension provision?

As the hon. Gentleman is a good territorial, 1 knew that his time would come.

Again, the hon. Gentleman is not giving fair acknowledgement to the fact that, with the pension credit, we are at long last trying to reward savings, which is an important element. There is a debate about means testing, but the pension credit involves a very simple incomes test, which ignores, for example, any income from savings below £6,000. That means that 85 per cent. of pensioners receiving the credit will have any income received from their savings ignored entirely. Furthermore, unless they have major changes in life circumstances, once people are receiving the credit they will not have to have their income assessed again for a period of five years. That means that, on average, those getting the pension credit will receive some £400 a year. I am particularly struck by the fact that some of the poorest pensioners, women, will benefit disproportionately, which is right and proper given their circumstances. In fact, 54 per cent. of those entitled to the credit will be single women. That is targeting that should be supported by the whole House.

Has my hon. Friend the Minister had a chance to read the Select Committee report on pensions, which says that nothing is inherently wrong with means-testing, as it reduces the high withdrawal rates—previously, about a third of pensioners lost all their occupatonal pension and now none does so—and recommends that we should increase the income disregard so that pensioners can do more work without having any of that clawed back by the pension credit?

I have read the Select Committee report. Having served under two distinguished Chairmen of that Select Committee, it is always the first thing that I read at night—[Interruption.] A bit of Lib-Labery there. We will consider the proposals most carefully. I emphasise, however, that we are determined to increase the take-up of pension credit. All those on the minimum income guarantee will be moved automatically to the pension credit. We will write to others and there will be a major television and press advertising campaign. I hope that all Members of the House, whatever their feelings about the overall policy, can join in in their constituencies to make sure that the poorest pensioners benefit from the pension credit. We all have a role to play.

The Minister says that all those on the minimum income guarantee will be put automatically on to the pension credit. There are 670,000 pensioners on the minimum income guarantee who do not actually get it. Why does he think that it will be any different with the pension credit?

I want to be entirely fair about this, and take-up is always an issue. With all due respect, it was an issue for 18 years in an earlier part of our social and political history. The important point is that the poorest pensioners are more likely than others to take up income support or the minimum income guarantee. The proportion of the total amount available has a higher take-up rate than the number of claimants eligible for it, because the poorest tend to claim it most. However, I am not complacent. That is why I have outlined a range of proposals, including an advertising campaign and our writing to all other pensioners, to ensure that they know about the pension credit and will claim it.

The hon. Gentleman has asked a perfectly proper question, but I repeat the point that we all have a significant role to play in our constituencies in ensuring that many of the most vulnerable and at risk claim the credit, which is worth a significant amount of money to them.