My Lords, the purpose of this clause is to provide for the abolition of the assessed income period in pension credit cases from April 2016. I will just add that I was most welcoming of the reinforcements I had temporarily.
The assessed income period removes the requirement for certain people to notify the department of changes to their retirement provision for a defined period. The assumption when the assessed income periods were introduced in 2003 was that pensioners were more likely to have relatively stable incomes and capital, so a lighter touch to reviews was therefore considered appropriate as a way to minimise intrusion and ease the administrative process.
The logic behind the policy is clear, but operating the system over the past 10 years has shown the reality to be somewhat different. The operation of assessed income periods has proved to be more complex and intrusive for both staff and the individual than anticipated. For example, people can report a change during an AIP and, as a result, their award can be increased. However, because we have to look again at all of their retirement provision, not just the reported change itself, it does not always lead to a change in the award. This is nugatory work for the Pension Service and is confusing for recipients.
More importantly, our assumptions about the stability of pensioners’ incomes and capital have not stood the test of time. Our analysis shows that circumstances change and fixing retirement provision for such a long period leads to inaccuracies in benefit awards, which then remain in the system for some time. Based on a sample of around 100,000 cases that have been reviewed, the pension credit award required updating in 54% of them, and in 36% of cases the award was reduced.
In the current economic climate, we believe it is right that benefit awards reflect the individual’s current financial circumstances. We therefore propose to abolish assessed income periods by removing them for new
claimants and phasing out existing fixed-term ones from April 2016. It is estimated that this measure will result in steady-state savings in AME of around £80 million per year in the long term. We recognise that removing assessed income periods will require pension credit recipients to report relevant changes when they occur—however, this will not necessarily result in increased levels of contact for all recipients.
We will be working with stakeholders and partners on communications products to ensure that people are clear about what this change means and what they will need to report and when. For example, there will be no need to report changes in capital provided it remains below £10,000. Currently, only 12% of recipients—around 290,000—have capital above that level. Above £10,000, changes are only relevant where they cross £500 bands. Annual increases in pensions will be taken into account automatically, as now, so only new income streams will need to be reported. It is also worth remembering that the impact of reporting changes will depend on individual circumstances and that not all will lose out. Some may see an increase in their award, while some may not experience any change at all.
Pension credit is a safety-net benefit designed to help the poorest pensioners, and as such it is right that it takes account of the income and capital people have access to. Through the abolition of the assessed income period, we will ensure that pension credit awards are accurate and that, in future, our limited resources are spent on those who require the most support. I beg to move that Clause 27 stand part of the Bill.