Welfare Reform Bill

Lord Foulkes of Cumnock Excerpts

Monday 24th October 2011 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, Amendments 50A and 53 concern couples where one member is above qualifying age for pension credit, and the other below. The Bill provides that such couples will in future claim universal credit rather than pension credit. I should stress that this change will not affect couples already in receipt of pension credit. It will apply only to new cases. The effect will therefore build up slowly and existing cases will not be disturbed.

In response to the point made by the noble Lord, Lord McKenzie, we still need to decide how to deal with cases which move on and off pension credit in future. To pick up on the point made by the noble Baroness, Lady Drake, about the impact assessment, this shows the long-term effect, and not the immediate impact.

I am grateful to the noble Baroness, Lady Greengross, for clarifying that she is not opposed to this change of emphasis in principle. The rationale is that while one member of the couple may be over the qualifying age for pension credit, the other member of the couple is of working age. Since all people of working age who can work should be expected to do so and there are no work-related requirements associated with pension credit, it follows that universal credit is the appropriate benefit. I should stress that the work-related requirements would apply only to the working-age partner.

I am grateful to the noble Baroness, Lady Greengross, for also acknowledging that in some cases the more generous earnings rules in universal credit may mean that it is a more advantageous benefit than pension credit. The disregards and earnings tapers in universal credit will mean that if one or both of the couple does work, they will keep much more of their earnings than they would in pension credit where earnings over £10 a week are deducted pound for pound from the guarantee credit.

The issue is about the rate of universal credit and how this compares with pension credit. Noble Lords will be aware that the levels of support through pension credit are significantly higher than levels of current benefits for people of working age. This is due in particular to the way in which pension-age benefits have been uprated at a faster rate than working-age benefits in recent years.

[Lord Foulkes of Cumnock]

As usual I am not up to speed on everything. Could the noble Lord say exactly what he means in this context by “working age”?

[Lord Freud]

My Lords, I am not often baffled, but by “working age” I mean someone below the state pension age, which is moving currently. But that is a formal definition.

[Lord Foulkes of Cumnock]

I am grateful to the Minister. In other words, as the age of eligibility for a state pension increases, under the definition in this Bill “working age” will increase at the same time with it. Is that right?

[Lord Freud]

Yes, I can confirm to the noble Lord that that is absolutely what is happening here. Clearly, we have debated the changes in pension age. That is to do with the very welcome increase in longevity and the length of people’s healthy lives. Returning to the point, the noble Baroness’s amendment would deal with the difference between pension credit levels and universal credit levels by including an additional amount in universal credit where a claimant is over the state pension qualifying age. I understand the reasoning—and indeed there are currently pensioner premiums along these lines in income support and jobseeker’s allowance. In designing universal credit, however, we have not included any additions specifically for people over pension age. There are two main reasons for this.

First, we think that it could reduce the work incentives for the working-age partner if they are paid a higher rate of benefit simply because they have an older partner. We are already including additions for specific reasons such as caring, or limited capability for work, where people are likely to have longer durations on benefit. Clearly, we are raising some of those levels appreciably. If in a particular case these additions are not appropriate, there ought, in principle, to be as much scope for the working-age partner to work as in any other case, so it is not clear why a higher rate of benefit should be paid.

Secondly, as the noble Baronesses, Lady Drake and Lady Hollis, rightly pointed out, there is a significant programme of change under way for people over pension age. Following the Chancellor’s announcement in the Budget of 23 March, the Government published the Green Paper A State Pension for the 21st Century in April. That paper set out options for reforming the state pension system for future pensioners. In the light of the responses to the Green Paper, we are currently developing proposals for changing the state pension system and at the same time are considering how pension credit may need to change to best meet the needs of future pensioners under any reformed state pension. It would clearly be important to make sure that any arrangements for pensioners dovetail closely with universal credit to ensure a smooth interface and also to ensure that we deal fairly with couples where one person is over pension age and the other is under it. Until our thinking is further developed, we have only one side of the equation. We need both sides of the equation to consider this issue fully. I should just add that clearly once there is a migration on changing pensions the migration strategy into universal credit and the timing of how we take different groups into it will also be hugely relevant. That goes to the heart of the very perceptive question asked by the noble Baroness, Lady Hollis.