Pensions and Common Sense
You’ll notice, I hope, that the title of this BeeLine isn’t ‘Pensions and Commons Sense’. That’s because I came across this sensible and really useful contribution to the pensions debate while I was reading through the Hansard transcript of the proceedings in the House of Lords.
While I was reading it I thought that it would be of interest to BeeLiners; so I’ve copied a chunk of it here for you to read if you’ve got the time. It’s taken from the debate earlier this week (on the 26th of February) and is part of the contribution made by Lord Kirkwood of Kirkhope, who you may remember better as Archy Kirkwood - a previous chairman of the Work and Pensions Select Committee.
The topic that is first being discussed is the anachronism that is known as the Guaranteed Minimum Pension, but he goes on to say some very wise things (in my opinion at least) about the wider pension issues facing our country these days. This speech should (again in my opinion) be read by anybody who has an interest in what is going on in pensions right now; it shines a light on many dark corners of the subject and blows away what Bob would call ‘the dust of rumours’.
28 February 2008
Here’s the short extract (but there’s a link at the end to the whole debate if you want to read it in context):
Lord Kirkwood of Kirkhope: Before the Division, I was raising one or two questions about the Guaranteed Minimum Pensions Increase Order. Do the Government have any plans to look at ways of getting rid of the guaranteed minimum pension? It is now a rump. I know that entitlements accrued between 1987 and the early 1990s, which I do not diminish, but it is an awkward hangover from an earlier time. They cost a lot of money to administer. I am told by people who have to do the actuarial work for them that they are fiendishly complicated and boring for them. Those few employers who still run the defined benefit schemes have to pay an enormous additional cost, because of the failure fully to uprate guaranteed minimum pensions by indexation and the cap. That is a further burden on employers. With pensions legislation coming thick and fast through your Lordships’ House, and if it is possible to apply a little creativity, we should undertake a thorough review of the way in which the GMP system works. Review and reform are long overdue.
A number of colleagues who are involved in the pensions field complain that information from Her Majesty's Revenue and Customs and the National Insurance Contributions Office has often been unacceptably misleading and incorrect in the past, which causes great problems for employers who run the schemes. It is an urgent problem which I hope that the Minister will say he will address.
I turn in the main to the Social Security Benefits Up-rating Order 2008. I could speak without hesitation, deviation and even repetition for a long time about all this, because I have spoken to one such order per year since 1983. They do not get easier as you get older.
I shall say a word about the context. It is acknowledged that the Government have made a lot of progress. It is very easy to be blinded by big numbers, and we are dealing with big numbers in the
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social security system. We are using the September 2007 retail prices index figure, and I could persuade Members of the Committee that things have changed quite a bit since September. I am sure that noble Lords have seen the figures about energy costs that I have recently seen. They suggest that fuel inflation over the recent past was nearly 20 per cent—19.3 per cent. Fuel, particularly domestic heating fuel, cannot be avoided in a poorer family or household, and that is a worrying level of increase. Reading the commodity pages of the quality national press, it is obvious that in the next few months we will sustain quite substantial increases in basic food costs—not just in raw material costs, but in processed foods costs as well.
Therefore, although I welcome this order and think that the Government have done much, I worry whether we are making proper provision for the next 12 months. I do not want to be gloom-laden or a doomster in any sense, but we could well be heading for a much more difficult period of economic growth. If that is the case, worklessness will increase, which will make it more difficult for the Government to attack their 80 per cent employment target. In addition, the costs of living will go up. Another factor that is now worse in the context of this uprating order than in many years in the past is the residual level of indebtedness in the economy. Many poorer households have unconscionable levels of credit card debts that are very difficult to sustain. The context in which these orders are being promoted by the Government is difficult. The economic situation is likely to get worse before it gets better.
Secondly, I know the Minister will play a straight bat and say that the Government can deliver it all with the level of departmental spending but, as I said earlier, I am really concerned that the 5 per cent saving and the Gershon cuts will make it nearly impossible to deliver the changes that are coming. We have a raft of Jobcentre Plus schemes, bit and pieces and pilots. Taken on their own, they are all welcome and I am not arguing against them, but I have serious reservations about whether the headcount and the resources available to the department between 2008 and 2011 will be able to administer the processes that deliver these benefits. It is all very well increasing the benefits, but if people do not get access to them or if there are barriers to access to them, there will be great difficulty for the people we are seeking to serve.
I could make a longer point about this, but I will not, because it plays into the consequential argument about complexity on which the Select Committee in the other place produced an excellent report. There is a simplification unit in the department, but I am still not convinced that its members are earning their pay, but if they meet me in the pub late at night they may tell me different. There is a real issue about complexity. The Social Security Advisory Committee captured it rather well when it said that there was still a,
“substantial barrier to full customer engagement”.
I think that that is right and that it will get worse because we are asking Mrs Strathie and the others who are running Jobcentre Plus and the pension credit system—the whole pension system, indeed—to
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do more with less. I acknowledge that there has been investment from the Treasury in the past, but I have some severe worries that the processes will fall over and that clients will not be served despite the increases in these orders.
In particular I want to mention two kinds of households and client groups. One is people in workless families without children. It is absolutely true that the Government can say that income support for pensioner households and for households with families with two and more children is higher relative to earnings than in the past. I was looking at some figures produced by the Monitoring Poverty and Social Exclusion 2006 report. It confirms that that is the case. It also makes an important point which I want the Minister to go away and think about. It demonstrates to me without any peradventure or doubt that the level of support for working-age adults without children is much lower and getting worse. A graph on page 36 of that report demonstrates that very clearly.
The other thing the report says—and I confess that I did not know this—is that almost half of all adults relying on state benefits or of working age do not have dependent children; 46 per cent are of working age without children. That client group is very important to us, and to the Government because the whole act of labour market policy that is driving the Government’s reforms—and I am in favour of that—is trying to get people into work. What if we are trying to get people into work and they find that they are actually worse off? The budget changes have made this worse because the 10 per cent tax rate—if you do not have access to child tax credit, as you will not if you are a workless household—means that the better-off calculation in terms of welfare to work is very much harder to make positive. I genuinely think that is a problem and that not enough is being done about that client group. I could go on at much greater length about that. I will not; I just make the point that it is a particular client group of families under these uprating orders who are being left behind.
The second group I want to mention in passing, and this is more familiar territory, is pensioner households and the whole question of take-up. I know that the Government have take-up schemes and that take-up schemes have come and gone in the past. There is now a structural problem about uprating and the stigma of take-up, both of pension credit and with housing benefit credit and council tax credit.
I was quite taken aback last week when I discovered in a press release from the Administration in Wales that it has now been calculated that up to £100 million in council tax benefit goes unclaimed in Wales. Good for the Welsh devolved Administration for finding that out. They are spending £3 million on a targeted take-up campaign. That is very welcome too. I know that the Government have got some plans to roll out some development of take-up schemes with associated organisations in the voluntary sector—not-for-profit organisations—but this is now urgent. A lot of the residual long-term poverty in our
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communities derives from the fact that these means-tested benefits, which are designed rightly to target the poorest, are just not getting through. That is a serious worry.
I have perhaps a penultimate point, and I have said this before. Uprating year to year is fine, but uprating over a 20-year period is dire for low-income households and social mobility. People have slipped behind earnings increases inexorably, year in and year out, over a 20-year period. We are intelligently positing some of the policy proposals over longer periods. The Government are right to look at their child poverty programme up to 2010-20, because it is only over those timescales that you can get hold of some of those issues properly.
I did not have time to do the calculation but, to demonstrate the point about the erosion in the value of benefits, I should say that before I was elected to the House of Commons in 1991 I last calculated that the state pension was worth 23.7 per cent of average earnings. When the new Labour Government came to power in 1997, it was 17 per cent and at today’s prices it is 15.4 per cent. I know the arguments better than anyone—that it is not about a basic state pension but about pension credit, and that we will have guaranteed minimum payments and a savings element to the pension credit. I know all that, but every one of those benefits—not only the basic state pension; it is not the best example and if I had had more time I could have chosen a better one—is being eroded over time. That will continue over time, as long as we merely use RPI.
Incidentally, there is immense confusion about the plethora of different indices that are used. I get confused myself. We have RPI, RPI minus X, CPI, the Rossi index and other indices. Somebody should get hold of that, rationalise it and make it a lot more easily understood. Again on the point from the Social Security Advisory Committee, it is a substantial barrier to full customer engagement.
For all these reasons, these uprating orders are welcome so far as they go. The noble Lord, Lord Skelmersdale, and I are always being held to account for expenditure claims that we make on behalf of our respective organisations. I pose an important question: are the Government going to use benefit uprating as a tool between now, 2010 and 2020 to bear down on child poverty? There are lots of welcome schemes that seek to do bits and pieces of that work, but personally I do not believe that it is possible to do this job properly without looking substantially afresh at how we uprate basic benefits. Means-testing and targeting were worth trying but have come through with all sorts of problems. This involves the noble Lord, Lord Skelmersdale, and I thinking hard too, because these are big numbers if you start to go above indexation of benefits, and you have to justify them. But if the Government are really serious about bearing down on child poverty and abolishing it by 2020, they will not do that unless they improve on the uprating orders that we have before us this afternoon, welcome as they are.
Source: Lords Hansard 26 February 2008
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