Skip to main content

Pension Credit and Personal Expense Allowance (Duty of Consultation and Review)

Volume 490: debated on Tuesday 24 March 2009

Motion for leave to introduce a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to make provision for the periodic review of the capital limits and tariff income rules and the personal expense allowance; to make provision for consultations on the level of those allowances and rules; and for connected purposes.

The Bill I wish to introduce seeks to tackle two injustices. The first concerns the penalty that over 500,000 thrifty pensioners face as a result of benefit rules which, in effect, assume that they are earning 8 per cent. interest on their savings. The second concerns 250,000 frail pensioners in care homes who are reliant on state support and are left with just £21.15 a week to cover their personal living costs.

Under existing benefit rules—the so-called tariff income rules—pensioners with savings over £6,000 who qualify for pension credit are assumed to be earning anything up to 8 per cent. interest on their savings. Whenever I talk about this matter with pensioner and other groups in my constituency, there is one of two reactions—derisive laughter or disbelief turning to outrage, often followed by the question, “Which bank gives that much interest on savings? I want to move my savings there straight away.”

A rate of 8 per cent. is significantly higher than any savings or investment account currently available, and it has not changed, up or down, since 2003. Benefit entitlement is calculated on an assumed rate of return that pensioners receive from their savings. Any savings below £6,000 are disregarded, but for every £500 above that, a saver is assumed to earn £1 per week from their investment.

My Bill would place a duty on the Secretary of State for Work and Pensions to review the tariff income rules and the level of capital. By placing a duty on the Secretary of State to consult widely about the rules and limits, I hope the Bill will force the Government to address the growing anomaly which discriminates against thrifty pensioners. I would go further, but that is as far as the rules of the House allow me in a ten-minute Bill.

The Government argue that the tariff income rules do not represent a rate of return for investing capital, but are there to

“provide a simple method of calculating the weekly contribution that people with capital in excess of £6,000 (or £10,000 if in a care home) are expected to make from those resources”.

However, the rules imply that pensioners with savings over £6,000 are receiving up to 8 per cent. interest. Back in the real world, where, for example, an individual savings account provided by the Government-backed National Savings and Investments currently offers only 1.62 to 2.16 per cent., that notion bears no scrutiny whatever. More than 500,000 pensioners are having their income overestimated, and are missing out on pension credit and other benefits to which they should be entitled.

The Government calculate, for example, that a pensioner with savings of £16,000 earns £1,080 per annum in interest. In the real world of, for example, National Savings and Investments ISAs, such savings would generate £259 to £345 a year. The Government’s assumption that such an interest rate is unrealistic is costing such pensioners at least £734 per year. As real interest rates fall, hard-pressed pensioners are being forced to run their savings down at ever faster rates. That is unfair and needs to be changed.

As for the second injustice, the personal expenses allowance is the only source of income for care home residents whose care is funded by the local authority. At the moment, 250,000 residents receive that support. Means-testing rules require those entering care homes with savings of less than £22,250 to surrender to the state their income, including their state pension and assets to cover the cost of their care. The personal expenses allowance is the amount that residents are allowed to keep for personal expenditure each week, and it currently stands at £21.15—about £3 a day. That amount is the only source of income for local authority-funded care home residents and is intended to pay for toiletries, clothes, gifts for family and friends, travel, hobbies, hairdressing and other leisure activities. Some have had to use that money to pay for health services such as chiropody and physiotherapy. In some cases, the personal expenses allowance is being called on to top up the fees that people pay in care homes. The personal expenses allowance is due to rise this April by 75p a week.

The case for reform and an increase is compelling. It has the support of many older people’s charities, as it is vital to ensure the dignity and self-respect of residents and to give them a certain amount of independence. Age Concern, Help the Aged and the Joseph Rowntree Foundation have all published reports demonstrating that the personal expenses allowance is crucial to the dignity of older people and must therefore be raised, as many elderly people live in poverty or their relatives supplement their allowances from their own incomes.

The Joseph Rowntree Foundation conducted research among pensioners and concluded that the minimum such amount needed by a single pensioner to maintain an acceptable standard of living is £42 per week. The Royal British Legion, in its Return to Rationing campaign, also calls for a higher personal expenses allowance. In 2005, the Work and Pensions Committee stated:

“The Committee remains concerned at the low level of the Personal Expenses Allowance and repeats the recommendation of the Social Security Committee that the Government should ‘conduct research to establish the amount necessary to enable pensioners in institutional care to live their lives with dignity.’”

Three years later, the then care services Minister, the hon. Member for Bury, South (Mr. Lewis), twice gave an undertaking to Parliament that a public consultation would be carried out that included the rate of the personal expenses allowance.

However, the current care services Minister, the hon. Member for Corby (Phil Hope), who is sitting on the Front Bench, issued a written statement in January 2009 in which he refused to initiate a consultation on the level of the personal expenses allowance. How does that square with the Department of Health’s Dignity in Care campaign launched in November 2006, the stated aim of which is to ensure that older people are shown dignity and respect at all stages of their care? In that campaign, one of the Department’s dignity tests is

“to enable people to maintain the maximum possible level of independence, choice and control.”

The low level of the personal expenses allowance compromises the quality of life and dignity of older people by restricting their ability to meet their essential physical and social well-being needs. An amount of £21.15 is simply not enough.

My Bill would place a duty on the Secretary of State for Health to undertake an annual review of the level of the personal expenses allowance, including public consultation, so that it can be increased to a level that guarantees a decent, minimum standard of living. Thrifty and frail pensioners in this country deserve a better deal than they are getting on such matters from this Government. I commend the Bill to the House.

Question put and agreed to.


That Mr. Paul Burstow, Steve Webb, Sandra Gidley, Tom Brake, Susan Kramer and Greg Mulholland present the Bill.

Mr. Paul Burstow accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 12 June, and to be printed (Bill 80).