GOVERNMENT ABANDONS CARERS STUCK IN EARNINGS TRAP

Some carers have lost £62.10 a week because the new National Living Wage put their earnings up by £8 a week in April. 

The people affected claim Carer’s Allowance – which means they already work unpaid looking after a disabled person for at least 35 hours a week. And they supplement that with part-time work of 16 hours a week on the minimum wage. Most of them will be parents – many single parents; some may be over 60 without a state pension; others may be disabled themselves.

Before 1 April 2016 National Minimum Wage for an adult was £6.70 an hour. For 16 hours work that is £107.20. On 1 April the new National Living Wage rate of £7.20 an hour began for those aged 25 or more, as most carers are. So 16 hours’ work comes to £115.20 a week. One of the conditions for getting Carer’s Allowance is that you do not earn more than £110 a week in a paid job. So before the change in minimum wage carers could work 16 hours and stay below the threshold. From 1 April sixteen hours’ work will put them above the threshold. Once that line is crossed the whole £62.10 a week benefit disappears completely. So an extra £8 a week costs them £62.10 in lost benefit. That is a tax rate of 776.25%. 

The simple answer of working fewer hours creates another problem. People on low pay can claim a benefit called Working Tax Credit. This group of people (single parents, some other parents, over 60s under pension age, and those who are disabled) must work at least 16 hours a week to get Working Tax Credit. So if they cut their hours below 16 to bring their pay under the threshold for Carer’s Allowance they stop being entitled to Working Tax Credit. It is worth up to £76 a week for some.

So this small rise in the National Minimum Wage faces this group of carers with the choice of losing a benefit of £62.10 a week or one of up to £76 a week.

Benefit complexities

Nothing in benefits is quite that simple. If they give up Carer’s Allowance they would not lose the full £62.10 a week. That is because their income is lower and Working Tax Credit might therefore rise – though never by more than £25 a week.

And two things might stop Working Tax Credit increasing. First there is a maximum amount payable and if they are close to or at that level already a further cut in income may not result in a significant rise in Working Tax Credit. Second, the Credit is worked out on annual income in the previous tax year. So it is insensitive to changes in the current tax year. You can apply for it to be changed if income has fallen significantly if your income in the current tax year falls by more than £2500 a year compared to the previous tax year. Losing £62.10 a week for a tax year will pass that test. Assuming of course you ask and HMRC, which administers it, gets the sums right. It often doesn’t.

If the carer also pays rent and council tax they will probably already get help with those expenses through Housing Benefit and local Council Tax Support. Again, a reduced income from losing Carer’s Allowance could mean those benefits rise, though always by far less than the amount they have lost. They will have to apply (remember they are already working at least 51 hours a week plus travelling time doing their caring and part-time job) and hope that the local council works it out correctly and swiftly. Almost all councils in England now have impose a minimum payment of council tax on even the poorest. So those who are paying that will not see it cut further. 

But even at the very, very best these carers are going to lose many tens of pounds for a pay rise of £8. Earn £8, lose £40 is not a slogan to encourage work.

Employers say no

Even those who do not claim Working Tax Credit may find cutting their difficult. Employers often structure part time work round standard hours. And because Working Tax Credit needs 16 hours work they may like their part-timers to work that many hours. They are under no obligation to agree to a cut of even one hour to allow someone to claim Carer's Allowance.

Government refuses to help

When this problem has happened before the Government of the day has often stepped in to raise the earnings threshold so that 16 hours work did not preclude getting Carer's Allowance. For example, in October 2014 when a rise in minimum wage put people in a similar position the Coalition Government announced a rise in the earnings threshold to £110 a week from the following April. That left the problem for six months but at least it was resolved then. 

The obvious answer, which CarersUK would like to see, is to link the earnings threshold for Carer’s Allowance to the minimum wage. It could fixed for example at 16 times the National Living Wage rounded up to the nearest pound. So when the National Living Wage of £7.20 an hour began on 1 April the the threshold would automatically have gone up to £116. Problem sorted.

But the Government has refused to act. It was raised in Parliament on 9 May 2016 by South Shields MP Emma Lewell-Buck 

"One of my constituents who works 16 hours a week and is a carer for a disabled relative has discovered that because of the living wage she no longer qualifies for carer’s allowance, leaving her with a substantial shortfall. Why on earth have this Government forced her and thousands of others into this desperate situation?"

But the Parliamentary Under-Secretary of State for Disabled Justin Tomlinson gave no hope of change when he simply replied “The impact of the national living wage will always be reviewed”. 

When Radio 4's Money Box programme asked if there were any plans to change the threshold it was told 

“There are no current plans to do so, but we do keep the earnings limit under review and adjust it when it is warranted.”

One barrier may be the cost. Around 80,000 people who claim Carer's Allowance also work part-time. If even half of them are affected by this rule it will save saves the Government £129 million in 2016/17. And that saving will grow. The Government plans to raise the minimum wage itself to £9 an hour by 2020. That would mean a threshold of at least £144 a week to keep those on 16 hours work entitled to Carer's Allowance.The National Living Wage may be even higher than that. 

Postscript

Buried deep in the rules is one small glimmer of hope. The income which counts for the Carer’s Allowance earnings threshold is earnings minus half the contributions paid into a pension scheme. So a carer who earns £115.20 a week but then pays £10.40 a week or more into a personal pension (or a pension at work) would bring their weekly income down to £110 and just scrape below the threshold.

Even though these carers earn far too little to pay tax the Treasury would still boost this £10.40 contribution by another £2.60 making a total of £13 going into the fund. Under the rules for stakeholder pensions contributions of as little as £20 have to be accepted. So a fortnightly or monthly contribution into a stakeholder pension would be accepted by any insurance company which offered the product. Stakeholder charges are capped at 1.5% a year. The small fund they build up could be cashed in at any time once they reach 55. If their circumstance remained the same no tax would probably be due on it. 

PS A benefit geek writes: when they cash in their pension it may reduce any working tax credit, housing benefit, council tax support, or other means-tested benefit they receive.

This blogpost is an updated version of Carers Stuck in Earnings Trap written in October 2014.

15 May 2016
version 1.00

THE EQUATION THAT SANK IAIN DUNCAN SMITH

The Secretary of State for Work and Pensions Iain Duncan Smith resigned on 18 March, two days after the Chancellor delivered his Budget which included another major cut in the benefits paid to disabled people.

In his resignation letter Duncan Smith said

"I have for some time and rather reluctantly come to believe that the latest changes to benefits to the disabled and the context in which they've been made are, a compromise too far. While they are defensible in narrow terms, given the continuing deficit, they are not defensible in the way they were placed within a Budget that benefits higher earning taxpayers."

The cut in the Budget was specifically set out in para. 2.76

• "changing the way that entitlement to Personal Independence Payment is determined – a reduction in the number of assessment points awarded for needing to use an aid or appliance to carry out two of the ‘daily living’ activities assessed. This will take effect for new cases and re-assessments from January 2017."

And the Prime Minister's reply to Iain Duncan Smith's letter of resignation says that the change was agreed by all.

"That is why we collectively agreed – you, No 10 and the Treasury – proposals which you and your Department then announced a week ago."

The equation
The savings from this change were around £1.3 billion a year. They were matched almost pound for pound by two items of spending. 1. raising the threshold at which higher rate tax began from April 2017 by £2000 to £45,000. 2. Cutting the rate of tax on capital gains made from selling shares, businesses and other items.

In 2019/20 the savings from cutting PIP were given as £1.3 billion and the cost of cutting those two taxes was estimated to be £1.235 billion. It was this use of the PIP savings to which Iain Duncan Smith objected. The table below sets out the annual costs and savings and the total over the five year period 2016/17 to 2020/21. They match closely.

	2016/17	2017/18	2018/19	2019/20	2020/21	2016/17 to 2020/21
SAVINGS
Cuts to PIP	£15m	£590m	£1,190m	£1,300m	£1,280m	£4,375m
SPENDING
Raise higher rate threshold	£0	£365m	£595m	£565m	£600m	£2,125m
Cut Capital Gains Tax rates	£105m	£630m	£605m	£670m	£735m	£2,745
Total SPEND	£105m	£995m	£1,600m	£1,235m	£1,335m	£4,870m

Source: Budget March 2016 Red Book Table 2.1, lines 5, 28, 73. pp.84-85.

The cancellation of the cut in the Personal Independence Payment leaves the Budget with this tax cut spend of nearly £4.9 billion but no offsetting saving of £nearly £4.4 billion. How this gap will be filled remains to be seen. Iain Duncan Smith's successor as Secretary of State, Stephen Crabb, will be asked to find a way. 

Higher rate threshold

Raising the income at which higher rate tax is paid will benefit people with a taxable income of more than £43,000 from 2017/18. That is about one in seven income taxpayers. The gain from the Budget change will be £200 in the year. The total gain from changes to the threshold between 2015/16 and 2017/18 will be £441.50. About 4.7 million people will benefit. Additional rate taxpayers, with an income of more than £150,000, will also gain, paying £80 less tax as a result of the Budget change and paying £81.50 less tax in 2017/18 than in 2015/16. About 335,000 people will benefit from that.

These figures assume that the limit for paying the lower 2% rate of NICs will also rise with the higher rate threshold. The lower earnings limit where NICs begin has not been announced for 2017/18 or beyond and it is assumed it stays the same. It will rise with inflation but that will make very little difference to the totals.

Capital Gains Tax

The rate of tax charged on gains from Budget day is cut from 28% to 20% for higher and additional rate taxpayers and from 18% to 10% for basic rate taxpayers. Sales of residential property are exempt so the gains will mainly be made from the sales of shares and businesses. The number of people who pay CGT is in the region of 200,000. Not all of them will benefit. 

The total gains on which CGT is charged were £30 billion in 2013/14. About a fifth of that (18%) is from residential property which the new rates will not apply to. If the new rates apply to the whole of the rest then the tax loss would be about £1.9 billion. But the Treasury says it will be only £630 million implying that it will only apply to around £8 billion of gains. At the moment I cannot reconcile those numbers. Perhaps you can do better with these latest CGT figures.

Personal Independence Payment

This benefit replaces what was called Disability Living Allowance. It pays between £21.80 and £139.75 a week depending on the degree of disability. The qualifying conditions for Personal Independence Payment (PIP) are much tougher than those for Disability Living Allowance (DLA). As people are reassessed many of them lose their payment or get a lower one. 

The planned change was announced on 11 March and would tighten the conditions further by halving the number of points allocated for needing aids for cooking, eating, and using the toilet. Halving the points would reduce the PIP paid, in some cases to nothing. Around 640,000 people would be affected. The Institute for Fiscal Studies estimates that 370,000 would get less money, costing them on average £3500 a year each. It would affect new claimants, existing claimants of DLA as they are moved to PIP, and existing PIP claimants who are reassessed or whose circumstances change. 

The change was due to start on 1 January 2017 but now will not do so. 

Version 1.00

19 March 2016

FLEXIBLE STATE PENSION

Should women born in the 1950s who face a steep rise in state pension age be allowed to draw a reduced pension early?

State pension age was raised from 60 for women born 6 April 1950 or later first to 65 to equalise it with men and then in parallel with men rising to 66 for anyone born 6 October 1954 or later. Many of these women say they were given no notice or too little notice of two changes to their state pension age. A strong campaign has been mounted by the group Women Against State Pension Inequality (WASPI). It wants what it calls 'fair transitional protection'.

The House of Commons Work and Pension Committee considered the women's case and in a report published on 15 March 2016 ruled out undoing the state pension age rises or revising the timetable for them because of the cost. (Though it left the door open to those "if the Government is subsequently able to allocate further funding" - p.22 para.5).

Instead it will consider further allowing these women to draw their state pension early but at a reduced rate. The reduced rate would last for life (paras.40-48).

It suggests that the reduction should be at an actuarially fair rate. In other words a woman who chose the reduced pension would get the same in total over he lifetime as if she drew her full pension at the new higher state pension age.

The rate it suggests is a reduction of 5.2% for each year early the pension was drawn. That is the rate used when MPs want to take their parliamentary pension early and is, the Committee says, common among similar work pension schemes. Note that the reduction applies for life so the pension is less from the date it is drawn until it ends on the death of the recipient.

There is already a provision in the new state pension for people to defer drawing it. In that case it is increased for life when they do finally take it. That increase is 5.8% for each year of deferral. The increase is paid as a supplement to the pension rather than as a part of it. That distinction is important because the main pension rises each April with the so-called triple lock of prices, earnings, or 2.5% whichever is the higher. But the extra pension earned by deferring only rises with inflation as measured by the Consumer Prices Index. This April the triple lock gave a rise of 2.9%; the CPI was zero so no rise was paid in the extra pension earned for deferring. The 5.8% increase for deferring is also supposed to be actuarially fair. In other words over the average life the total pension paid would be the same.

Some idea of what the reduction for drawing the pension early would mean is shown in the table. It uses a reduction of 5.5% for each year the pension is drawn early. That is between the 5.2% suggested by the Committee and the 5.8% given for deferring the new state pension.

REDUCED STATE PENSION IF DRAWN BEFORE STATE PENSION AGE
		Full state pension per week
		£120	£125	£130	£135	£140	£145	£150	£155.65
Reduction per year		5.50%	5.50%	5.50%	5.50%	5.50%	5.50%	5.50%	5.50%
Years early	Reduction
0.5	2.75%	£116.70	£121.56	£126.43	£131.29	£136.15	£141.01	£145.88	£151.37
1.0	5.50%	£113.40	£118.13	£122.85	£127.58	£132.30	£137.03	£141.75	£147.09
1.5	8.25%	£110.10	£114.69	£119.28	£123.86	£128.45	£133.04	£137.63	£142.81
2.0	11.00%	£106.80	£111.25	£115.70	£120.15	£124.60	£129.05	£133.50	£138.53
2.5	13.75%	£103.50	£107.81	£112.13	£116.44	£120.75	£125.06	£129.38	£134.25
3.0	16.50%	£100.20	£104.38	£108.55	£112.73	£116.90	£121.08	£125.25	£129.97
3.5	19.25%	£96.90	£100.94	£104.98	£109.01	£113.05	£117.09	£121.13	£125.69
4.0	22.00%	£93.60	£97.50	£101.40	£105.30	£109.20	£113.10	£117.00	£121.41
4.5	24.75%	£90.30	£94.06	£97.83	£101.59	£105.35	£109.11	£112.88	£117.13
5.0	27.50%	£87.00	£90.63	£94.25	£97.88	£101.50	£105.13	£108.75	£112.85
5.5	30.25%	£83.70	£87.19	£90.68	£94.16	£97.65	£101.14	£104.63	£108.57
6.0	33.00%	£80.40	£83.75	£87.10	£90.45	£93.80	£97.15	£100.50	£104.29

The Committee points out that calculating the exact reduction to make the exercise cost neutral is difficult. First, some women - mainly those who were single with few other resources - may be eligible for the means-tested pension credit if their weekly income was below £155.60. Under present rules they would only be eligible for that at women's full state pension age. In the longer term the cost of Pension credit may rise. Second, if women chose to draw their pension rather than work then tax and National Insurance receipts would fall. There would though be some savings if fewer women claimed Jobseeker's Allowance or other benefits. And the scheme would require some administration costs.

The Committee recommends that the Government explores this option and says it will take evidence on it in the near future.

Issues

• Even if the scheme was cost neutral in the long term it would bring cost forward as women claimed their reduced pension earlier. The costs would be felt in the first few years and the savings would only be made over the long term after they reached state pension age but drew their smaller pensions over another 25 years or so.
• Although the Committee says the scheme would apply "from a specified age and for a defined cohort of women" it may be very difficult to impose such restrictions. Equality laws mean that the change could not only apply to women. Even restricting it to those with a certain number of years' delay could be challenged by men as indirect discrimination if women were the clear majority of those affected. So the reduced pension for drawing it before state pension age would almost certainly have to become a part of the new State Pension rules and allow anyone to claim their pension early - perhaps from 60 or even 55 - if they were willing to have a smaller pension for life. That would parallel the existing rule allowing the pension to be deferred in exchange for an enhanced pension for each year of deferral.
• Although the change is a fairly fundamental one, could it be implemented quickly - perhaps by October and certainly by April 2017?
• Women who were already on a means-tested benefit such as Jobseeker's Allowance, Universal Credit, Employment and Support Allowance, Housing Benefit, Council Tax Support would find that benefit was reduced if they got the state pension. So the very women who need the support could find they get the least from it.

Government response

The Government is obliged to give a formal response to a Select Committee report. But the DWP has already said  

“The government has already listened to concerns expressed by those affected by the 2011 changes, and took action to limit the maximum change to state pension age to 18 months, a concession worth over £1bn.

“Women retiring today can still expect to receive the state pension for 26 years on average – four years longer than men.”

Your thoughts

Many WASPI women have already expressed their opposition to this plan in their very active twitter presence. 

Please let me know your response to the Select Committee plans and the issues raised in this blogpost. Email paul@paullewis.co.uk.

I will update this blog to reflect different views and changes.

Background
My earlier blogpost Women Given just Two Years' Notice of State Pension Age Rise

Version 1.10

15 March 2016

CHANGING STATE PENSION AGE

1908 - age 70

The first state pension in the UK was the Old Age Pension. The law was passed in August 1908 and the first pensions paid on 1 January 1909 to around 500,000 people aged 70 or more. It was 5/= (five shillings or 25p) a week and was paid in full to individuals aged 70 or more with an annual income of £21 a year or less reducing to nothing at an annual income of £31 a year.  A higher pension of 7/6 (37.5p) was paid to a married man. At the time only one in four people reached the age of 70 and life expectancy at that age was about 9 years.

1925 - age 65

In 1925 a new kind of pension was introduced based on contributions paid at work by both the employer and the employee. It was paid from age 65 without a means-test. A married couple's rate of pension was paid if both spouses were aged 65 or more. That meant men whose wives were younger than they were had to wait for some time after they reached 65 to get the higher rate for their wives.

1940 - men age 65, women age 60

In 1940 pension age for women was cut to 60 to try to ensure for most couples that the married rate would be paid as soon as the husband reached 65. 

1948 - retirement condition added

From 1948, men had to retire as well as reach 65 to claim the new Retirement Pension paid under the National Insurance scheme. If their wife was still under 60 when they reached 65 and retired they could now claim a dependant's addition for her. When she reached 60 she could claim a married woman's pension of around 60% of the full rate. 

1995 - women's state pension age to be equalised

Following pressure from Europe, the Conservative Government under John Major was forced to announce plans to equalise state pension age for men and women. The decision was put off at least once for fear of adverse public reaction. The timetable for change was the most relaxed possible and would raise pension age for women from 60 to 65 over a ten year period from 6 April 2010 to 6 April 2020.

2007 - rises for men and women to 66, 67, 68 planned

Rising life expectancy led the Blair Labour Government to pass a law to raise state pension age to 66 between April 2024 and April 2026, then to 67 between April 2034 and April 2036 and to 68 between April 2044 and April 2046.

6 April 2010 - women's state pension age begins to rise

The first women are affected by the equalisation changes. Women born 6 April 1950 to 5 May 1950 have to wait until 6 May 2010 to reach state pension age, a delay of up to one month.

Entitlement to Pension Credit for men and women became linked to women's state pension age rather than the age of 60. A similar change restricts entitlement in England only to free bus travel. Entitlement to Winter Fuel Payment is also linked to women's state pension age and the qualifying date for the payment in winter 2010/11 moves to 5 July 2010. It would then rise by six months each year.

May 2010 - further change promised

In opposition the Conservative Party had announced it would raise pension age for men and women more quickly than existing plans. After it came to power in the Coalition government with the Liberal Democrats in May 2010 this pledge was repeated in the programme for government set out in the Coalition Agreement.

"We will...hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women."

October 2010 - revised changes

The commitment in the Coalition Agreement fell foul of EU equality laws which allowed the government to equalise state pension ages as late as April 2020 but would not allow further discrimination between men and women during that process. So in the Spending Review of October 2010 the plans were revised. Women's state pension age would now be raised more quickly to reach 65 in 2018 and then both men and women's pension age would rise to 66 by 2020. Critics pointed out that plan breached the Coalition Agreement promise of 'no sooner than...2020 for women'.

2011 - Pensions Bill sets out the planned changes

In February 2011 the detailed timetable for change was announced in the Pensions Bill 2011. Women's state pension age would rise to 65 by November 2018 and then men and women's pension age would rise together to reach 66 by 5 April 2020. Five million men and women would face a later state pension date. But while men would have to wait at most another year, 500,000 women would have to wait longer than a year. The wait for 300,000 would be 18 months or more and 33,000 would have to wait for two years.

Widespread protests and rebellions in Parliament - which the Government defeated - led to promises by the Secretary of State Iain Duncan-Smith to introduce some 'transitional' changes to help the most severely affected women. But the Pensions Bill went through almost all its stages in Parliament with no details of what the Government would actually do.

On Thursday 13 October 2011, the last possible date, the Government announced its plans. It would cap the delay for women at 18 months. It kept the rise to 65 by November 2018. But would then stretch out the transition from age 65 to 66 for both men and women by an extra six months. It will now be completed in October 2020. The concession will cost £1.1 billion (at 2010/11 prices), half of which will be spent on stretching the timetable for men, none of whom had complained.

On Tuesday 18 October 2011 the House of Commons accepted these changes and despite a further attempt in the Lords to make further amendments the Pensions Act 2011 became law on 3 November 2011.

April 2011

In April 2011 the Government began a consultation on how it should bring forward the change in state pension age to 67 and then 68. That consultation closed on 24 June 2011.

29 November 2011

In the 2011 Autumn Statement the Chancellor George Osborne announced that the rise in the State Pension Age to 67 would be brought forward eight years to run from April 2026 to April 2028 instead of April 2034 to April 2036. That change will save £60 billion.

5 December 2013

Two years later, the 2013 Autumn Statement announced the principle "that people should expect to spend, on average, up to one third of their adult life in receipt of the State Pension."

It warned that would bring forward the rise to 68 which was announced in the 2007 Pensions Act. 

"This principle implies that the increase in the State Pension age to 68 is likely to come forward from the current date of 2046 to the mid 2030s, and that the State Pension age is likely to increase further to 69 by the late 2040s." (1.122-1.123)

And admitted that one purpose of this change was to save money

"Along with action this government has already taken on the State Pension age, [this change] could save around £500 billion from pension expenditure over the next 50 years."

A paper setting out the principles also said that in future people should have at least ten year's warning of any change in their state pension age.

The changes were set out in the Pensions Act 2014 and the Government set out the timetable of the 2011 and 2014 changes.

A review of state pension age was promised by spring 2017.

March 2016

On 1 March 2016 the Government set out the Review's terms of reference and John Cridland, ex-Director General of the Confederation of British Industry, was appointed as its chair.

It is clear from these terms of reference that the principle of people spending a set proportion of their adult lives on state pension had been abandoned. Para 2.2 says the Review will consider "Whether the current system of a universal State Pension age rising in line with life expectancy best supports affordability, fairness, and fuller working lives objectives."

It was also clear that cost was a major consideration "These recommendations should be affordable in the long term" (para 1.1).

And the principle that there should be one state pension age for all was being abandoned "the review is to have regard to: Variations between different groups" (para 2.3). That leaves the way open for pension age to vary with postcode as life expectancy does; with occupation; or even with education - should someone who starts contributing at 16 reach state pension age earlier than someone who does not start until 21?

The Review will report to Government by January 2017 and a decision will be made by the Chancellor George Osborne before 7 May 2017 (para 3.1). Perhaps in the 2017 Budget.

14 April 2016

Version 1.52

PENSION SECRECY SHUTTERS LIFTED

The Department for Work and Pensions has finally answered two Freedom of Information requests about the new state pension and the letters written to women whose pension age was postponed twice. Initially both requests were refused.

Pension letters destroyed if not delivered
Letters written to women warning them of rises in their state pension age which were returned undelivered by Royal Mail were destroyed and no further action was taken to find the women concerned. No record was kept of how many letters were returned.

Part of the changes to state pension is the rise in the State Pension Age. This has hit women harder than men and data provided under FOI showed that the Department failed for 14 years to begin to inform women of changes passed in 1995. That exercise began in 2009 and was halted in March 2011. Women's state pension age was changed again in November 2011 and the DWP then restarted writing individual letters from January 2012 to inform women of their new state pension age including both changes. That was often the first they had heard of any change. But many women claim they never received such a letter.

A global study of data quality to be published by the credit reference and address validation agency Experian found that 23% of customer prospect data - including names and addresses - contained errors. That does not mean nearly a quarter will not arrive. But many were clearly at risk of not doing so. That raises the question of what the Department did to deal with this problem.

Initially the DWP refused my Freedom of Information request for more details of how many letters were returned and what happened to them, on grounds of cost. But on review the DWP agreed to give answers.

• QUESTION: What information does the DWP hold on how many of those letters in any or all of those batches were returned by Royal Mail?
• REPLY: DWP no longer has access to this information. To support the principles of the Data Protection Act 1998, DWP has a Records Management Policy. This confirms the retention periods for DWP products and, in line with this Policy, there was no specific reason to retain these letters.

• QUESTION: When letters were returned as above what further steps were taken to try to find the people concerned?
• REPLY: The letters were issued to the customers’ latest address held on HMRC records. No followup action was taken on any letters that were returned undelivered as DWP had no further information on the customers’ whereabouts. 

No state pension
Women are the big losers from a new rule under which people with fewer than ten years of National Insurance contributions get no new state pension. Under the old rules (since 2010) people with under ten years contributions get a pro rata pension of 1/30th of the full amount for each year of contributions. Under the new pension they get nothing. Nearly three quarters f those affected will be women.

On 14 January 2016 the DWP published Impact of New State Pension (nSP) on an Individual's Pension Entitlement which shows that from 2016 to 2050 a total of 110,000 people will get no new State pension because they have fewer than ten qualifying years of NICs. Of those 110,000, 80,000 (73%) are women and 30,000 (27%) are men.

The estimate of around 3200 people a year is rather lower than those published in the Impact Assessment in May 2014. Those lacked some detail and were not broken down into men and women. But the table showed that in each of the five years from 2016/17 to 2020/21 between 9000 and 12,000 people living in the UK would be denied a new state pension because of this rule. That is between 2% and 3% of those reaching state pension age in that period and a total of between 45,000 and 60,000 in just five years. A further 6000 to 10,000 a year who lived abroad would also would not qualify which is 18% to 23% of those living abroad reaching state pension age (see Table 3.1 on p27).


Further information
Women will get less than men from the new state pension
Women given just two years' notice of state pension age rise 

version 2.00
1 March 2016

HOW FLOOD RE WILL WORK

UPDATED 12 JANUARY 2016

Flood Re is part of a plan which is intended to ensure that homes at a high risk of flooding will be able to obtain buildings and contents insurance at a reasonable cost.

It begins throughout the UK on 4 April 2016. From that date an estimated 350,000 dwellings at high risk of flooding will be put into the Flood Re scheme.

Flood Re will be funded by a levy on all insurance companies. From 4 April 2016 all home insurance policies will include a supplement which will pay for that levy. The Government has estimated that will add around £10.50 a year per policy. It will almost certainly not be shown separately on insurance premium bills. But as part of the premium it will be subject to insurance premium tax of 9.5% which would add £1 to that amount. The levy will be reviewed in the first five years of the scheme and if it changes the supplement could change too. Almost all insurers are expected to join Flood Re and all of them, in Flood Re or not, will pay the levy based on the amount of home and contents business they do.

In Flood Re

If your home is put into the scheme by your insurer the flood risk element of your insurance will be charged at a fixed rate depending on your council tax band (valuation band in Northern Ireland). The amount for combined buildings and contents will range from £210 a year for the lowest band properties through £276 in the mid-range to £1200 a year for the highest. If you insure just the buildings or the contents the amounts will be lower. Details here 

Those are the fees that Flood Re will charge your insurer for taking on the flood risk. The insurer can pass those costs on to customers or can charge more or less than that for the flood risk. Charging less is very unlikely. The excess on the policy - the amount that has to be paid by the insured in the event of a claim - will also be fixed at £250 on this flood risk element. But again your insurer can charge whatever excess on this part which it chooses.

The rest of the insurance against all other risks will be estimated and charged as normal by your insurer on top of the amount for the flood risk. There is no guarantee what these premiums will be or what excess will be charged. The premium you pay will include all risks, including the flood risk passed to Flood Re, and you will not see those as separate elements in your premium. 

Your home will only be put in the scheme if your insurer chooses to do so. It is not clear if there will be any mechanism to request a property is or is not put into the scheme or to appeal against a decision. 

Flood Re expects to have 350,000 properties passed to it in the first year. It claims it can accommodate more than that but it is entirely up to insurers to decide which properties to include. The Environment Agency has estimated that more than 5 million homes are at some risk of flooding.

If a claim arises for flood damage the householder will claim directly to their insurers not to Flood Re which will have no contact with consumers.

Excluded from Flood Re

Some properties will specifically be excluded from the scheme even if they are at high risk of flooding. These include

·         Homes built from 1 January 2009

·         Purpose built blocks of flats

·         Houses converted into flats. But if the freeholder lives there and there are only one or two other units it can be part of Flood Re.

·         Buy to let property where the landlord arranges insurance.

·         Commercial property

·         Mixed use property – for example flats over shops.

·         Social housing buildings – but contents can be part of Flood Re.

The rules are complex. More details from Flood Re  

It is not clear whether or at what price these excluded properties will be insurable.

May be excluded in future

Flood Re Chief Executive Brendan McCafferty has said that homes liable to frequent flooding could be excluded from the scheme if the owner did not invest in flood resilience measures. Flood Re would gather information over the next few years and decide if these homeowners could be taken out of the scheme after three claims. He also some very high risk properties that flood every year or two could be excluded from the scheme whatever steps they took.

Not in Flood Re

If your home is one of the estimated 5 million or so homes at some risk of flooding but is not in Flood Re then insurers will no longer make any guarantees about providing insurance nor about the level of premiums or excess charged on these homes. The existing deal called Flood Insurance Statement of Principles will end on 4 April 2016 when Flood Re begins.

The Statement of Principles, which in one form or another was in force since 2000, guaranteed that your existing insurer would offer insurance – though at an uncapped premium – and included all properties. From 4 April 2016 all homes not in Flood Re will be subject to normal market forces including those at risk of flooding. Insurers can refuse to insure homes at flood risk or insure them on any terms, with any premium or excess they choose. The industry hopes that firms will be able to offer insurance on all property either by putting it into Flood Re or, if the risk of flooding is low, then taking on that risk in the normal way. But whether that happens remains to be seen.

The future
The Association of British Insurers says that in the 1990s there were three flood events which led to claims of £150m or more. This century there has been one a year. Further bad weather will test this latest effort to provide insurance to its limits.

Matt Cullen of the Association of British Insurers and Brendan McCafferty, Chief Executive of Flood Re, explained the scheme from their point of view on Money Box 9 January 2016.

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12 January 2016