Pension Schemes Bill — House of Lords, 2015-02-05
Topic: Labor
Richard Newby (Liberal Democrats, Centre to centre-left): My Lords, I begin by thanking the noble Baroness for her amendment, which obviously addresses an extremely important issue This amendment seeks to place a separate and additional duty on the Treasury to provide appropriate information on the effect of pension freedoms and flexibilities on income-related benefits and social care costs. I agree that it is vital that people understand how benefits and social care entitlements interact with the new pensions flexibility and that consumers need to be aware of the impact of accessing their pension pot on their eligibility for income-related benefits and help with social care costs The Treasury is working to ensure that the content of the Pension Wise service includes information about entitlement and deprivation rules so that consumers are aware of these when choosing whether to access their pension savings. We are also working to ensure that people are aware of the need to plan for later life, including the risk of needing care and support and what that might mean for their choices. This will help people think about how they wish to live the rest of their lives. In response to the noble Lord, Lord Lipsey, the Care Act provides that no one is required to sell their home to pay for care. The difference in this case is that the lump sum is income in the year taken, and we agree that this will need to be covered in guidance, both on pension pots and on social care, which we will provide The DWP will issue clear guidance on the treatment of pension pots in income-related benefits in advance of April. This is to help people make informed decisions about accessing their pension pot. We plan to do this, as requested by the noble Baroness, by producing a leaflet which we will both print in hard copy and place online on GOV.UK. Other websites will be able to link to this information, and there will definitely be such a link from the GOV.UK Pension Wise website, which will direct those who are affected by this issue to the DWP information. Pension Wise will be a key way of equipping people with this information online on GOV.UK, on the phone through the Pensions Advisory Service, and face to face through citizens advice bureaux across the country. Alongside the new content being developed for Pension Wise, the new guidelines will also be reflected in the training programme for guidance specialists from the Pensions Advisory Service and Citizens Advice As the noble Baroness said, she met my noble friend Lord Bourne and me earlier this week to discuss the substantive policy issue—namely, the interaction of pension flexibilities with the benefits and social care means tests. The principal query that the noble Baroness raised is whether the distinction we make between ISAs and other savings vehicles, as opposed to pension pots, in benefits means testing remains fair after the introduction of the new flexibilities. ISAs are taken fully into account in income-related benefits, whereas we ignore untouched pension pots until someone reaches pension credit qualifying age. The noble Baroness argues that this is an arbitrary distinction now that the tax treatment of the two products is more aligned The Government, however, firmly believe that the difference is an important one. ISAs are for use at any time, but we specifically encourage people to save into pensions to provide for themselves in later life. We would not want to design our benefit system in such a way as to encourage people to spend their retirement savings when they are still below pension credit qualifying age. Aligning the treatment of ISAs with that of pension pots in the means test would be expensive for the taxpayer, as people with resources could secure more benefit. On the other hand, aligning the treatment of pension pots with that of ISAs would mean that claimants could lose benefits and so may deplete their pension savings before reaching their retirement. Neither outcome is desirable, and we therefore believe that the current position remains the right one This gives rise to a second question that concerns the noble Baroness, which is whether this situation gives individuals the opportunity to move their ISAs, which would be taken into account, into their pension pots, which would not be taken into account until pension credit qualifying age. The Government have considered the matter seriously and, in the light of our analysis, we do not feel that we need to act on this matter presently. The numbers of income-related benefits claimants with substantial ISAs is relatively modest and, should people move their savings to their pension pot, the additional upfront welfare costs to the Exchequer are partly offset by welfare savings in later life as those individuals would rely less on income-related benefits as a pensioner. On this issue, we plan to monitor behaviour after April when the new pension flexibilities are introduced, and respond proportionately if we need to I should add that people deliberately depriving themselves of money in order to secure or increase benefit entitlement may be subject to rules on deprivation of assets that already exist in both the benefit and social care systems.