My Lords, I thank the Minister for his explanation of this clause. I would like to explain why I and my noble friend Lord McKenzie have raised this on the stand part debate so we can discuss the issues. As the Minister said, this clause proposes to abolish the current assessed income periods for pensioners claiming pension credit. At the moment, pensioners are means-tested for pension credit at their retirement at 65; then at 70; then again at 75 and not thereafter. I am genuinely surprised and, actually, disappointed that the Government want to make a quick saving of £82 million gross—as the Minister said—or some £60 million-odd or £65 million or so net by introducing annual means testing, although excepting current pensioners over 75 who may be in receipt. It will affect 1 million pensioners a year up to 2020.
Why do we have the current rules? My noble friend Lord McKenzie was instrumental in further enlarging and developing them in 2008. Very wise he was, and very good they were—of course. I hope Hansard records the “Hear, hears” to that. In particular, he introduced the indefinite assessed income period for no means-testing for those reaching 75. In my mind, that was a most important consideration, the one I am most concerned about. Essentially, we know that pensioners loathe means-testing so much that—either through ignorance or stigma—a third do not now claim that to which they are entitled. Those eligible non-recipients are missing out on something like a mean average of £34 a week. That is an average loss of £34 a week, an income that would transform their circumstances.
More means-testing, which is what the Government are proposing, will not, given this strategy, bring more pensioners in, but will deter even more pensioners from claiming what they should. That is why I am so pleased that we are extracting means- testing out of the new state pension, as the former Pensions Commission recommended when considering the old pension. I was pleased that we were removing it from the new state pension, only to find that the Government are foolishly importing it back in again and extending it through annual means tests, rather than five-yearly ones, in pension credit to make a quick buck. Therefore, those who get the more generous pension in future will escape the means test; the older, poorer pensioners—mainly women—will be subject to even more of it. I think that is wrong.
Why was means-testing for pensioners under my noble friend Lord McKenzie carried out with a light touch? It was essentially because pensioners’ income is pretty well stable in their retirement years. The three major events which are likely to affect their entitlement are, first, the death of their spouse. When he dies—and it is, alas, usually “him” ahead of “her”—his modest pension, if it is a single-life pension which two-thirds of them are, dies with him. That is why it is elderly widows who most need pension credit. The second major event is that they may, rarely, get a small legacy—say, from the death of an unmarried sibling. The third is that they may have to move into residential care.
Such big events should be reported, and I have no objection to reinforcing that and making it clear that capital from, say, a generous legacy of more than £10,000 or £15,000, acquired before 75, should be reported. I do not have a problem with that. Apart from that, a five-year check will discover not just whether pensioners are getting too much, which is rare, but sometimes whether they are getting too little. I do not think we have recently had much in the way of a take-up campaign—funny, that.
Now the Government are going to produce annual means tests, and the Bill team—I thank it for this—very helpfully sent me the best statistics we currently have, which show that twice as many people will lose under annual means-testing as will gain. The Government will not make their savings primarily because people are receiving too much, although some money may come from that and will be clawed back, and so on. No, if the Minister will actually make a saving, it will come from pensioners who should get it not claiming, and certainly not annually. The department has a lot of literature, which is entirely decent, about the problems of the means-testing, which informed the new state pension. It was absolutely right to do so, and yet it seems to be ignoring it in their efforts to make a quick £65 million or so saving from the poorest pensioners.
The Minister and his team will so increase the stigma of means-tested pension credit—with people annually reminded that they are suspected of error, if not downright fraud—that more of the poorest pensioners will slip down the snake of further poverty. Pensioners do not cheat on pension credit, but this proposal suggests that they do. Let us not have any spin about increased take-up as a result. This is about savings and nothing more, and I do not think it is decent.
The Government boast of their reduction in means-testing for the new state pension, while quietly importing a massive extension of means-testing for those not joining the sunny uplands of the full new state pension. They are deliberately widening the gap between those who will get the new pension, and those who cannot on grounds of age. Poorer pensioners will be worse off simply because they are a day older or a year older than other pensioners who are eligible for the new state pension.
Single people who are on pension credit because they are on the wrong side of that cliff edge will have £30 of pension credit added to their BSP of £111, giving them a total income of some £140. However, if they acquire any capital savings over £10,000, they will find them means-tested. In some cases they will then lose every penny of pension credit. Meanwhile, other pensioners, who are a day or a year younger, will get their more generous pension of £144, and will also keep every penny of savings they may have or acquire because we rightly float them off pension credit, and all credit to the Government for that.
The older and poorer start to lose if they have any savings over £10,000, so there is not an incentive to save. Yet pensioners a day younger not only have a higher pension, but their savings are not taken into account at all. This problem will of course be made worse by the loss of savings credit. Is this fair? Far from increasing means-testing for the poorest group, in my view the Government should do exactly the opposite. They should reduce means-testing to achieve greater fairness for pensioners who are being penalised for nothing but their age. That would give less of a cliff edge, and more equity between the two groups of pensioners who are divided by one day. It really is shameful to import an unnecessary cliff edge for trivial government savings, and it is also perverse.
Since my noble friend Lord McKenzie wisely reviewed AIPs, there have been huge cuts in domiciliary support for the elderly from social services. Mr Pickles has cut local government budgets by 35%, and inevitably this is passed on in depleted services. Nearly half a million people, mostly pensioners, have lost homecare since 2008—half a million. Only those with substantial or even critical care needs can now expect to have carers who are funded by the local authority.
Pensioners with only “functional” disability may have quite significant mobility or sight problems, and five years ago they could have received perhaps three or five hours per week of help from social services. They now get nothing, and their family may live 100 miles away. If someone’s needs are more substantial and they are frail, and they need help getting up in the morning and at night, the two hours a day which was offered may now come down to two slots of 15 minutes. On top of this has come Dilnot.
The Government’s response has been to emphasise co-payment. I do not disagree with that, but where is the money for that co-payment to come from? If you are a pensioner on pension credit, you have minimal or low savings and your only asset is your home. Outside London this may be worth perhaps £100,000 or double that. Some 80% of pensioners below 60% of median income are owner-occupiers. Half of those on
pension credit are owner-occupiers. Equally, three-quarters of those who should claim pension credit—but do not and so lose out on £34 per week—are owner-occupiers.
Pensioners may have to contribute to the cost of their social care, or decide—rightly, in my view—that they wish to live independently outside of residential care, with more domiciliary support than social services can now provide. However, those on pension credit, having been means-tested at 65 and again at 70 and now coming up to 75, have only one way to do that, which is to release some of the equity in their home.
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A couple of years ago I spent several days with equity release staff visiting potential customers in their homes. Some customers were comfortably well off, had no children, and had decided to enjoy the money locked up in their home. That was their issue and it was nothing to do with me. But for others, older pensioners, the very first and key question they asked was this: “How will it affect my benefits?”. Let us remind ourselves of the facts. A widow who has lost her spouse would get £111 a week of basic state pension topped up to around £140—by a further £30—from full pension credit if she has no other income. With a home outside London worth around £150,000, at the age of 75, when means-testing currently ends, she could release some £50,000 of capital. On her death her home would revert to the equity release company with no negative equity. That money could be taken as structured income or as tranches of capital.
Capital in pension credit after the first £10,000 is treated much more onerously than income. Pension credit assumes a tariff rate of £1 of income for every £500 of capital over £10,000. In other words, it assumes a notional income of 10% interest. Every £1,000 of capital over £10,000 costs £2 in lost benefit. If the widow puts £50,000 of equity release capital into a building society and takes off the £10,000, today that would bring in £20 a week. She will have lost £30 a week from pension credit, only for it to be replaced with £20 a week from equity release, and with no inheritance possible for her children. She is £10 a week worse off as a result of releasing the equity in her home, thus saving us as taxpayers some of her funding costs for social care. No pensioner is going to release equity from her home at the expense of her family’s inheritance if not only does she then lose benefit pound for pound, she is also £10 a week worse off. She absolutely will not do it, and why should she? Currently, knowing that she will no longer be means- tested when she reaches 75, she can work out with her family what is best for her.
I know that some people have released £20,000 or £30,000, particularly from homes of modest value, often in the form of regular drawdown as structured additional income. Others need capital as they have no other savings. Younger and better off pensioners do as they wish, but they are not my concern. Older pensioners aged over 75, however, are most likely to be on pension credit with no savings and nothing but their home, which is why they are getting maximum pension credit. They use equity release primarily, as I have seen with
my own eyes, to adjust their home for increasing disability: walk-in showers, a downstairs loo, a stair-climber, a new boiler or a more reliable washing machine for increased laundry; while in some cases where the pensioner has arthritis, the money is used to pay for cleaning help.
In the future, along with personalised budgets, equity release could help fund local longer-term social care and allow people to remain in their own home and thus out of residential care. That is freeing pensioners from means-testing, even if only at 75 where the savings made by insisting to continue to means-test them will be trivial. I have not got a figure and the Bill team cannot give me one because the information is not collected in that way. My hunch is that it will be barely £20 million a year, if that. We have already means-tested these people twice, so any savings apart from their homes have probably been means-tested out of existence. Freeing these pensioners from means-testing, if only at 75, means that they are nudged into equity release, thus drawing down the value of their home only as they become more frail. This was, and in my view is, wise policy.
The Government have a choice. They can increase means-testing, especially of those aged over 75, and ensure that those they means test do not draw down equity to help themselves but rely on us, the taxpayers, or they go without. That is crazy. Instead, the Government are choosing to abolish means-testing for those on the new state pension while importing it back in again for the elderly and more frail in more intrusive ways, knowing that many pensioners, especially owner-occupiers, will not claim what they are entitled to. That is shameful. Or the Government could think again. I repeat: it is only an accident and a complete lottery of timing that, after April 2016, some pensioners will be on the old legacy system with lower pensions and increased means-testing, while the younger neighbour next door will have a higher pension and no means-testing.
That first group which misses out on the new state pension will be penalised if they have any savings over £10,000 and probably will not be able to afford to release any equity in their home to meet care needs. The other group, comprising people who are perhaps one day younger, will get their full new pension, avoid any means-testing and can enjoy any savings or choose to make any equity release as they see fit. Who are these older, frailer pensioners who are effectively denied equity release and punished for their poverty? They are older women, of course.