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Pensioners: Savings

Volume 709: debated on Wednesday 1 April 2009


Asked By

To ask Her Majesty’s Government whether they plan to review how savings over £6,000 are assessed for pensioners receiving income-related benefits.

My Lords, the Government remain committed to supporting pensioners during this difficult time. Tax and benefit levels, including the relevant thresholds, are kept under review as part of the normal Budget process. The vast majority of pensioners—about 80 per cent—who are eligible for pension credit have savings below the level of the lower capital threshold and do not have any tariff income applied.

My Lords, I thank the Minister for that reply, but does he not agree that, given that the average growth rates of interest on instant access accounts fell from 4 per cent to 1.6 per cent over the year to January 2009, it is wholly unacceptable that the current system for calculating income-related benefits assumes that any savings in excess of £6,000 provide an income of £1 a week for every £500 saved, which would be equivalent to an interest rate of 10 per cent? When can people who are faced with this really rather unjust situation expect some relief?

My Lords, so far as the process is concerned, this is not and has never been about interest rates. The tariff income is a simple method of calculating the contribution that people are expected to make to help to meet their living costs. The tariff income rules have been in place since 1988. Indeed, the thresholds and the tariff that is applied to them are now more generous. We also need to take account of the fact that savings income comprises a relatively small proportion of most pensioners’ overall income. As I said, 80 per cent of pension credit recipients are unaffected by the tariff income; 42 per cent of pensioners receive less than £1 per week or no income from investments and 40 per cent of pensioner benefit units, which are basically households with investment income, are estimated to have received extra income this year in excess of the loss of any investment income.

My Lords, pension credit has done wonders to address pensioner poverty, but does my noble friend accept that the pension credit capital rules mean that those who end up with, say, a small pension pot of around £15,000 from a personal account or want to release, say, £15,000 from their homes in equity to adjust their homes for older age will find, if they are 75 or under, that they lose every penny of pension credit as a result? Does my noble friend agree that this is a problem that we will have to address?

My Lords, I am not sure that I followed the last part of my noble friend’s question. Clearly, capital of £15,000 would not preclude or shut off pension credit, as there is no upper limit to pension credit in terms of the capital available, although there is a £16,000 upper limit for housing benefit, council tax benefit and income support. Clearly, someone with £15,000 in capital would have a tariff income applied, which could impact on their pension credit. However, even at £15,000, it would generate an effective interest rate, if that is the way you do it, of considerably less than 10 per cent.

My Lords, the Minister seems to be saying that really the £6,000 was worth nothing to people and they were getting nothing on it, but is he not overlooking the fact that people who had £6,000 must have looked to that for some small help towards their survival but are now getting nothing on it? I do not understand his answer at all.

My Lords, I will try again. If you have capital of £6,000, that is disregarded in the calculation for pension credit. No income is imputed to that and no contribution is required to be made in relation to pension credit if that is a person’s level of savings. That seems to me to be fair. It is a more generous starting point than existed prior to 1997.

My Lords, do the Government agree that, if the current means-testing persists, an increasing number of pensioners will dip into their savings and thus hasten the day when they will be eligible for more state support? Do they agree that we are in a cleft stick in this economic recession between short-termism and long-termism?

My Lords, the long-term issue is very important, which is why we have undertaken pension reforms over the past couple of years in improving the position of the basic state pension and state second pension and why we are encouraging savings in the longer term by auto-enrolment. Analysis shows that, if we had not undertaken those measures, in the long term something like 70 per cent of the pensioner community would be in receipt of some income-related benefit, whereas, as a result of those reforms, by 2050—a long time off, I grant you—the proportion will be considerably smaller. We have set in train the long-term policy changes that will seek to address that issue.

My Lords, does the Minister believe that it is fair to dock pensioners’ means-tested benefits when they have £7,000 or £8,000 in savings, which is barely enough to pay for two funerals?

My Lords, I have explained that the system has been in place for some while. It is kept under review. If the savings are £6,000, as I have just explained, there will be no adjustment. If the savings are £8,000, I am not sure what the effective interest rate would be—something like 1 per cent. The issue is how we target resources. Since 1997, the Government have targeted resources on the poorest pensioners, which is why, in comparison to 1997, they are a third better off in real terms. That was the right thing to do. Average pensioner households are something like £1,600 a year better off in 2008-09 as a result of our tax and benefit changes than they would have been if we had just rolled forward the 1997 system. The poorest third of pensioners will be around £2,200 a year better off on average.

My Lords, given the considerable pressure on pensioners who have saved on their incomes and given that the stock market has fallen by 25 per cent and annuity rates have also fallen, would this not be a good moment for the Government to suspend the rule that requires people to buy annuities at the age of 75, which is causing real hardship and disadvantage?

My Lords, when we debated this in connection with the Pensions Bill last year, the analysis of most people, including providers, was that the worst option to adopt was a temporary suspension, as it would throw into disarray all the systems in place. The fact is that most people annuitise well before the age of 75. Currently, people can annuitise between the ages of 50 and 75, rising to between 55 and 75 shortly, and only 5 per cent of those with annuity pots annuitise after the age of 70. Increasingly, people’s pots secure a sort of lifestyle to dampen the impact of what is happening in the equity markets. Although we keep all these matters under review, we do not believe that there is a compelling argument to do away with the requirement, certainly on a temporary basis.