State Pension Credit Pilot Scheme Regulations 2010
(13 years, 10 months ago)
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Lord Freud
That the draft regulations laid before the House on 10 March be approved.
Relevant Documents: 11th Report from the Joint Committee on Statutory Instruments, Session 2009-10; 16th Report from the Merits Committee, Session 2009-10.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I confirm that in my view the statutory instrument is compatible with the European Convention on Human Rights.
Britain used to have a pensions system to be proud of but, due to years of neglect and inaction, we are left with fewer people saving into a pension every year, and the value of the state pension has been eroded, leaving millions of people in poverty. We are taking action to address that and will deliver on our responsibility to reinvigorate the pension landscape. But too many of today’s pensioners are already paying the price exacted by allowing the value of the basic state pension to be eroded over time.
We will halt that decline by ensuring that the basic state pension rises in line with whichever is the greatest of earnings, prices or 2.5 per cent. But for those who are already paying the price—those who have been let down by the pensions system—it is absolutely critical that they get the help that is available from pension credit.
Pension credit means that no pensioner needs to live on less than £132.60 a week—or £202.40 for couples. Those with severe disabilities, caring responsibilities and/or qualifying housing costs may be entitled to more. But, like other social security benefits, pension credit has to be claimed, and we know that significant numbers of pensioners are not getting the help that they are entitled to.
Latest figures show that some 2.7 million pensioner households, which equates to 3.3 million individuals, are in receipt of pension credit. However, it is estimated that more than 1 million pensioners could be entitled to the benefit who are not claiming it. Research shows that this is due to a range of factors. Predominantly, these include pensioners incorrectly thinking that they are not entitled to any help. Others are reluctant to go through what they see as a demeaning means test whereby they are required to open up their bank books to the state to verify the details of their personal finances. This is in many ways unsurprising. Due to what my honourable friend the Minister for Pensions has called “the curse of incrementalism”, the system of support for older people in this country has under successive Governments become one of Byzantine complexity. Although pension credit can be claimed with one simple telephone call, it cannot surprise us that many older people are bewildered by the system and that many still do not claim what is rightly theirs.
It is quite clear that we have to explore new approaches, but we have also to be sure that taxpayers’ money is properly targeted. For some time, lobby groups such as Age UK have argued that we have all the information that we need to do away with the need for pensioners to make claims at all, and to make automatic payments.
Data that we already hold about people’s financial circumstances have been used to help target take-up activity. However, this information is not specifically collected to decide entitlement to income-related benefits. The indications are that the department is not yet in a position to estimate entitlement with sufficient accuracy to offer a fully automated pension credit payment system now. Indeed, I think it has been generally accepted that the study that we are now planning to conduct is not intended to see whether a system of automatic payments can be rolled out in the near future. The previous Minister of State for Pensions acknowledged this when she said, in reply to a Question, that the previous Government had,
“no current plans to introduce wholesale automatic payments of pension credit”.—[Official Report, Commons, 21/7/09; col. 1316W.]
I am not interested in what we cannot do, but rather in what we may be able to do by using more effectively the information that is already available to us. We need to start from somewhere, and this study will help us to understand what might be possible in the short to medium term. It will help us to explore what opportunities there are to use data more innovatively to drive take-up in the longer term, while ensuring that, in this difficult economic climate, taxpayers’ money continues to be properly targeted on those in the greatest need.
We therefore propose to take forward a modest research study later this year in which awards of benefit will be made for a limited period of 12 weeks to a random sample of some 2,000 pensioners resident in Great Britain based on the information that we already hold and without the need for a claim. The study is being designed with a view to meeting the following objectives: to provide information about how a system that makes more use of personal information that the Government already hold to pay people pension credit might be received by potential recipients; to evaluate ways of using the data available to us to improve take-up under the present pension credit regime; and to deliver evidence about how, in the long term, a reshaping of the benefit or acquisition of better data might enable us to radically streamline the process for awarding pension credit. On the study's conclusion, there will follow an extensive and detailed evaluation of the pilot to see how it has delivered against those objectives.
The regulations make provision for the study. In particular, they set out the provisions for identifying potential participants, calculating the amount of any benefit payable and the manner of subsequent payments. We have spotted that the reference to the regulations coming into force should be in accordance with Regulation 1(2) and not “2(2)” as drafted. That typographical error was noticed after the regulations were laid. While it makes no difference to the content or the effect of the regulations, I assure noble Lords that we will of course amend the reference prior to publication.
The development of these draft regulations has involved the ongoing input of a number of external stakeholders such as Age UK, to name but one. However, I express my gratitude to all those who have been involved in getting these regulations into the shape we see before us today. I commend them to the House.
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 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.
Lord Freud
My Lords, this has been an interesting debate. Several points have been raised, which I will endeavour to respond to. I start with the question of my noble friend Lord Kirkwood on means-testing and the signal that it gives out. Whatever system we end up adopting—whether we go for a higher basic pension, as he suggested he supported, or stay with means-testing—there will always be the need for some sort of safety net, given that it is a contributory system. That does not send a message that the Government want more means-testing at the heart of their vision. Nevertheless, it remains the case that we want to ensure that pensioners get what they are entitled to.
The noble Lord asked this pointed question: if there are no plans to roll the system out nationally, what is the point of spending a goodly sum, £1 million, in the present climate? When you look at the scale of the problem, with 1 million pensioners not getting the help that they are entitled to, despite the efforts of PDCS and third sector organisations, we need to think innovatively. Clearly, we are not in a position to roll out a fully automated system today, and we need to build up the evidence base to establish what kind of information we need to get people more of the help that they deserve. The cost of the study was queried by my noble friend Lord Kirkwood. The current revised estimate of the cost of the whole study is £800,000.
Will we have the necessary information to evaluate at the end of the study? There are several elements to the evaluation. We will be asking a sample of the customers to participate in a face-to-face interview and using research contractors who know how to encourage participation. The interviews will be carried out in the place most convenient to the participants—probably in their own homes. Then we will track the take-up of the pension credit of people who have participated in the pilot. Those data are gathered automatically as part of the administrative system. Finally, we will gather the claims data from those who claim pension credit as part of the pilot. Again, that will be done via our own systems.
Homing in on the point on which I touched just now on national rollout, there are no plans for a national rollout. This is a study to help build the evidence base to see what we may be able to do in this area in the future. The complexity and the staff training required are not as daunting as my noble friend Lord Kirkwood suggested. The study will be run by a centralised team rather than small groups across the country. The definitions of income and capital are very much based on the definitions used in standard pension credit. If there are any changes, these will be introduced to make them simpler. We do not have any concerns about our ability to train staff to administer these payments effectively.
My noble friend mentioned the Daily Mail in connection with possible stories about lots of money whizzing off to the Costa Brava. The pension credit is not an exportable social security benefit. Therefore, I assure him that we will select people to take part only if they are resident in Great Britain.
The noble Lord, Lord McKenzie, asked about process. Pensioners can claim housing benefit and council tax benefit alongside pension credit in a single phone call without the need for a signed claim form. Their calls to the 0800 claims number from a BT landline or from the six largest mobile phone networks are free. The noble Lord asked whether 2,000 was sufficient as a sample size. We are confident that 2,000 participants will deliver a sufficient range of circumstances to build a meaningful evidence base. He asked about recovery of money in different ways in terms of the interplay with other claims. I make it absolutely clear that under no circumstances will anyone receiving a payment under these regulations be asked to repay a penny. We will make sure that participants in the study are made fully aware of that fact.
Both the noble Lord and my noble friend asked about the 12-week length of the pilot. It was important to balance two factors; namely, to make the pilot long enough to collect enough meaningful information and to protect public funds which are in short supply. The determination is that 12 weeks is a reasonable compromise between those two objectives.
The noble Lord, Lord McKenzie, asked about passporting and the exclusion of housing benefit and council tax benefit, as it is called at the moment. If we had added in those two benefits, it would have added a significant level of complexity and cost to the pilot. From the outset it was never the intention that the interaction between pension credit and housing benefit and council tax benefit should be factored into this study. Clearly, we expect to learn more about issues such as people’s attitudes to receiving automatic payments of benefit, which may have wider application to other benefits such as housing and council tax benefits.
Lord McKenzie of Luton
Perhaps we can just be clear on this fairly narrow point. If somebody in receipt of payments under the pilot refrains during that period from making a claim for pension credit, is there a risk that they could be disadvantaged? If they have a claim for pension credit, I think it will open up some passporting opportunities. I was probing whether that passporting will exist in the interim if a payment is made under the pilot which is not the result of an actual claim to pension credit at that stage.
Lord Freud
I thank the noble Lord for that question. I will go back and double check this, but my understanding is that this pilot is entirely separate from any other activity. If an application which took in the passporting opportunities was made in the normal way during this pilot, there would not be a countervailing claim on the money paid by the pilot.
I have just received some support, for which I am more than grateful, confirming my understanding—it is therefore more than my understanding. The position is that there is no risk of disadvantage. If someone claims pension credit, they will get the full claim plus any passporting money, in addition to the pilot funds.
I turn to the question raised by my noble friend and the noble Lord on how many pensioners are paid directly into a bank account. More than 90 per cent of pensioners receive their pensions through direct payments into either a bank account or post office account. I refer to the standard pension to which they would be entitled. We are talking about a small group who do not receive their payments in that way.
I shall write to the noble Lord on his question about the number and content of visits to customers to encourage their take-up. I do not have that information to hand.
Let me draw my remarks to a close. The research study, through these draft regulations, will allow us to explore what potential exists to use data more effectively to improve the take-up of pension credit, to make more automatic awards of pension credit in the future when better data are available, or to simplify the benefit rules. Importantly, it would also help to throw light on whether people are happy about personal data being used in this way. I therefore commend these regulations to noble Lords.
Motion agreed.