State Pension Credit Pilot Scheme Regulations 2010

Lord Kirkwood of Kirkhope Excerpts

Monday 5th July 2010 Lords Chamber

[Lord Kirkwood of Kirkhope]

My Lords, I am grateful to my noble friend for introducing the regulations. It comes as no surprise to those of us who served on the Committee for the proceedings of the Welfare Reform Act 2009. Section 27 presaged the Motion tabled by my noble friend Lord Freud this evening. To that extent, it is business as usual.

These are interesting regulations, for a number of reasons. I would like to use the context of this evening’s debate to raise one or two issues. It is a tactical provision and an important piece of legislation for a number of reasons that I will come to the moment in terms of how it widens the extent of well understood and well honed social security tenets of legislation.

It is tactical because it seeks to underpin the concept of means-testing. In so far as that gets more money into pensioner households which are eligible and which are not claiming, that is welcome. But at the outset of this Government, if we are looking in the long term and thinking strategically, is more efficient means-testing what we are really trying to be about? That is an important strategic question.

It is early days for the new coalition Government to come to a final conclusion about that, but we are beginning to run out of time on a wider horizon. If you look at the proposals that were contained in the Turner commission some years back, the understanding that the noble Lord, Lord Turner, had when he made his recommendations was that there would have been more discernible movement by now in the direction of a universal basic state pension, which produced a threshold of earnings, such as 30 per cent of average earnings. It would be a base; a first-tier provision on which other things could be built. We are not getting there fast enough.

This is a limited project both in terms of time because it will run for a 12-month period, and in terms of scope, because we are devoting only £1 million of the DWP departmental expenditure limit—although that is £1 million not available for other things in very trying circumstances over the next comprehensive spending review.

We have got to think carefully about the signal that this is sending. We have to ask whether it is credible, even if this pilot is swimmingly successful, that the 70 per cent of pensioner households which do not currently get the entitlement which they are due suddenly become, as if by magic, able to get this automatic payment after a deemed application. Where does that take us? All it does is encourage people to think more about means-testing. If that is the long-term goal, I would be much happier if we were to think more carefully and strategically about developing the basic state pension in a sustainable way.

The State of the Nation report, which was helpfully produced by the department just after the election, talks at page 38 about the disincentives to save that can be created by means-testing. It refers specifically to pensioner credit in that regard. Although this is a very limited project—it pays benefit automatically for 12 weeks to families and the Pensions Policy Institute certainly suggests that as things stand 30 per cent to 40 per cent of pensioners will be eligible for pension credit and means-testing in the future—we have to bear in mind that this may be a project that ends up being of little value if the strategic decision is to go in the other direction and to head down a unified first-tier pension provision which gives a sustainable income for pensioner households.

It is an important signal in that you could raise expectations in the minds of pensioner households that this would be the way forward and that they would be sent money through the post. I do not think that we can do that. Looking at the financial framework that we are facing for the next three years, I do not think it is realistic that the department could find the money out of the annual managed expenditure of the departmental settlement—whatever it is—on 20 October. If this pilot is successful and a way to automatically send pension credit to pensioner households is found, it could cost £5 billion. I will put it no higher than this, but I doubt that there is £5 billion in the annual managed expenditure of the budget over the next comprehensive spending round to pay for that. We need to be very careful about how we evaluate this, how we sell it and how it fits into the long-term strategy of the coalition Government.

As I said earlier, deeming applications to have been made is a substantial revision of social security law, as is the automatic payment. The idea that people can be sent money in the post without having made an application in the first place is a radical departure from everything that we know and it needs to be treated with very great care.

I hope that my noble friend will look very carefully at the use of pilots. Perfectly understandably, he is still finding his way around the department. I do not say this critically because most of the pilots had a merit in their own right when looked at individually, but over the distance they became completely incoherent. It was impossible for observers to track the evaluation and what happened to them. I suspect that many of them bit the dust quietly. The whole notion of “pilotitis” was getting out of hand in the previous Administration. I am just warning my noble friend that the department might encourage him to do that. He has to be very stern and very sure that if he introduces pilots he really means them. He must take the value out of them and make sure that they are not just a waste of time for everyone involved.

Staff resources will be involved because it is complex. I am absolutely sure that my noble friend is right. Trying to stitch together the bits and pieces of data that are available legitimately and lawfully to the department in order to establish who will get these automatic payments will not be easy. If anyone is unsure about that, they should look at parts 4 and 5 of these regulations which have completely separate definitions for income and earnings that have to be laid on top of an already complicated situation. People will have to do staff training to carry out these pilots, which will be random across the whole of the United Kingdom. Only 2,000 people will be involved, but that does not mean that a whole lot more people in the staff complement will not need to know about these things. There may well be a single helpline telephone number, which I would welcome. People will need to know how to deal with folk who ring up and say, “I have just been sent a lot of money by the department in the post. What is all this about?”. I know that a lot of care is being taken over getting the letters of explanation correct and I welcome that, but there are staff resources involved in this and it will involve complexity of some kind.

On the operational questions, a lot of the problems have been ironed out in the extensive consultations that have been conducted. I welcome that. I recognise too that the stakeholders who have been asked are a lot more welcoming to the order than I am sounding today. However, there are still some questions in my mind. For example: why is this money being paid for only 12 weeks, monthly in arrears? Did someone guess that, or is there a reason for having 12 weeks of payments and then they stop?

A second question that is obvious but to which I think I know the answer is that if an underlying entitlement is detected from this automatic payment, presumably people are entitled to pursue that genuine entitlement. Once week 13 comes along and the money stops coming, they can go to the Jobcentre or phone the Pension Service and get a proper claim. I assume that that is axiomatic and will not be a bar to long-term entitlement, if entitlement is indeed found.

I have a slight objection to the pilot excluding people who do not have access to direct credit. The people with bank accounts are the people who are organised; the people who we are trying to help most are the folk who do not have bank accounts and are still using alternative means. Now, there are not many of them, and statisticians may say, “If you take too many of them into the pilot, that may skew the pilot”, but some of them should be in the pilot to draw statistical conclusions from, because there are still significant numbers of people in that category across the United Kingdom.

Why we are excluding religious orders is an interesting question. “What have we got against monks and nuns?” I ask myself. I have no way of understanding that, except maybe that they live in a residential setting.

May I have an assurance, just for Daily Mail purposes, that this money will not be sent to people in Spain? I think that regulation 10 means that people in Spain will not be sent cheques automatically, having been deemed eligible for pension credit, because that would be in nobody’s interests.

I hear myself sounding quite niggardly about this, but there are some important issues here that I hope the Government are thinking through. My question to my noble friend is this: “Is it really credible to say that this pilot is determined to achieve an algorithm that will produce automatic payments of pension credit in future to the 30 per cent of pensioner households that are not currently collecting it because they do not know that they are entitled to it and that we have the money to pay for this in the short to middle term?”. That is an important question that the Government need to think about carefully before they implement these pilots.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of the order before us. I will not rise much to his opening salvo about the state pension, except perhaps to remind him gently that it was a Conservative Government who broke the link with earnings, and it was the previous Labour Government who, on coming into office, had to address the abject situation that many pensioners found themselves in, hence pension credit. That is how the previous Government lifted hundreds of thousands of pensioners out of relative poverty. Perhaps, though, that is for another debate.

It goes without saying that we support the pension credit pilot, which, as the noble Lord, Lord Kirkwood, acknowledged, has as its basis the provisions of Section 27 of the Welfare Reform Act 2009. Maximising the take-up of income-related benefits is an effective way of tackling pensioner poverty. We know that, despite considerable take-up activity, a significant number of people who are entitled to pension credit are still not claiming it.

The noble Lord, Lord Kirkwood, said that the regulations are, in his view, basically tactical in enshrining means-testing as part of the system. I remind him that the package on which the pensions system is based stems from the Turner commission: improvements to the basic state pension, relinking it to earnings, and improvements to S2P, particularly the flat rating. The other component is, of course, auto-enrolment, on which we await the results of the review that is under way. My noble friend Lady Hollis, who is not with us today, has strong views about wrapping pension credit, S2P and the basic state pension into one pot.

[Lord Kirkwood of Kirkhope]

I have said that, too.

[Lord McKenzie of Luton]

Indeed, among the advocates of that I include the noble Lord and possibly even the Pensions Minister, although we shall see what will flow from that.

We note that the limited consultation that the DWP undertook before the election showed general support for the pilot, although, as ever, with some reservations. Clear communications are, as the DWP’s response to the consultation acknowledges, of paramount importance. We are likely to be dealing with many people who are vulnerable and who could be distressed at seeing ad hoc credits appearing on their bank statements.

A condition of eligibility of receiving benefit under the pilot is that a person must receive retirement pension that is paid by way of direct credit transfer to a bank or other account, a point that the noble Lord, Lord Kirkwood, probed. I am not sure whether the Minister has information to hand—if not, perhaps he could write—but we would be interested to know what percentage of people in receipt of retirement pension are now paid other than by these means. Are there data covering the extent to which such people are underrepresented or overrepresented in the entitled non-recipient category? We ought to know that.

The noble Lord, Lord Kirkwood, also touched on a question that arose about the design of the pilot, which involves the payment of just three four-weekly amounts. Is that sufficient to provide the information to satisfy the objectives of the pilot? Given the set-up costs of the pilot, it would be a pity if the opportunity were missed to provide a secure evidence base. On what basis is the Minister satisfied that the three-month period is sufficient to meet the objectives for which the pilot is designed?

The pilot is to cover both the guarantee credit and the savings credit, so the spread of amounts of payments could be quite wide. Is the Minister also satisfied that the proposal to select 2,000 at random from the entitled non-recipient population will pick up a sufficient range of circumstances to enable a comprehensive evaluation of the differing reasons for lack of take-up?

Of course, the pilot has to be seen in the context of other campaigns that are under way to improve the take-up of benefit. Perhaps the Minister could give us an update on these. Specifically, could he tell us about the outreach programmes and the current volumes of face-to-face visits that are being undertaken? What progress is being made on the programme that allows one phone call to access three benefits—pension credit, council tax benefit and housing benefit? Will this continue alongside the pension credit pilot payment?

The noble Lord will recall our deliberations towards the end of the Welfare Reform Bill on the renaming of benefits and the campaign by the Royal British Legion to improve the take-up of council tax benefit by designating it as council tax rebate. If memory serves, we had common cause on this; the noble Lord indicated that it had the support of his party, particularly the now Prime Minister. Will the Minister tell us what progress has been made on this and the current timetable to bring it to completion?

The relationship between pension credit and housing and council tax benefit is important. I understand, for example, that no capital limit is applied to the latter two if a person is in receipt of the guaranteed credit. Both elements of pension credit can be the passport to social fund payments, both discretionary and regulated. Do the amounts paid under the pilot not count for these passporting purposes? If this is the position, is there a risk that, by claiming housing benefit separately during the course of the pilot and/or refraining from claiming pension credit until the end of the pilot period, an individual might miss out, albeit for a short period?

We welcome the pilot. As I have said, it is another means of improving the take-up of pension credit. It is encouraging to see it move forward, notwithstanding the more disagreeable rhetoric that typically emanates from this coalition Government around the welfare system, focusing on fraud and error and itself creating a climate that will deter some people from claiming their just entitlement. This is all against the backdrop of draconian cuts to be visited on government departments and local authorities, with knock-on effects for the voluntary and third sectors—collectively, the support system for helping the most vulnerable to obtain their rights. It is to be hoped that the benefits of this pilot will not be swept away in the deluge of cuts, which would impair the functioning of those whose efforts are directed at helping the poorest and most disadvantaged.