Vol. 501 No. 5
4 Mr. J. O'Keeffe asked the Minister for Social, Community and Family Affairs his views on whether means tests conducted by his Department should, as far as possible, reflect actual income rather than inflated artificial income figures; and if he will change the system accordingly. [6483/99]
The purpose of the various means tests used by my Department is to ensure that the limited resources available are directed at those most in need. In assessing means, account is taken of any cash income the person may have, for example, earnings from employment or self-employment, together with the value of any capital or property. In addition, in the case of the unemployment assistance and supplementary welfare allowance schemes, the value of any benefit or privilege enjoyed by an applicant, such as that of board and lodging in the family home, is assessed.
For the purposes of assessing cash income, account is normally taken of the income that the person may reasonably be expected to receive during the coming 12 months. Where this is not possible to determine, the income for the last 12 months is taken as a guide, with allowances being made for any known variations. In the case of a couple, the joint income is assessed. There is also a range of disregards which apply in the assessment of income. These different disregards are designed to reflect specific policies being pursued, for example, to maximise incentives to work.
For instance, under the unemployment assistance scheme, where a person works for up to three days a week, earnings are assessed at 60 per cent. In addition, persons without children are allowed a £10 disregard for each day worked, while the balance of earnings are assessed at 60 per cent. These measures are designed to ensure that claimants have an incentive to work at all levels of earnings, even where the level of pay is less than the rate of unemployment assistance. Likewise the disregard of the first £50 per week – which I was delighted to increase in our first budget from £35 – in earnings from rehabilitative employment for disability allowance and blind person's pension purposes provides an important support for people with disabilities in taking up available employment and training opportunities.
As a consequence, cash income is assessed on a favourable basis for means test purposes, with the amount of income assessed in many cases being considerably below the actual income which the claimant receives.
With regard to the assessment of capital, I have already indicated that it would not be feasible to assess such amounts on the basis of returns from investments, as this would necessitate frequent reviews of entitlements of a very significant number of recipients whenever interest rates fluctuated or the capital was moved into a different investment option. For this reason, a notional value is ascribed to the capital owned.
While the formula for the notional assessment of capital includes rates of 7.5 per cent and 15 per cent, I emphasise that the effective and real assessment rates are much lower. For example, a single pensioner can have capital of up to £6,160 and a couple can have capital of up to £12,320 and still qualify for the maximum rate of old age (non-contributory) pension. In addition, a couple with capital of £20,000 would only be assessed with means of £600, giving an effective assessment rate of just 3 per cent. As only 2 to 4 per cent of pensioners have capital in excess of £20,000, this means that the effective assessment rates for the vast majority of pensioners are very much lower than the 7.5 per cent and 15 per cent rates which are used in the notional assessment formula.
The current system is designed to ensure that those with modest amounts of capital receive the greater share of available support, while the small proportion of people with large amounts of capital should avail of it to contribute, at least partially, towards meeting their needs.
Nevertheless at my instigation my Department is reviewing the system in the light of the interest rates currently available on investments. However, it is important for me to point out that simply reducing the assessment rates of 7.5 per cent and 15 per cent to the current levels of interest available on bank deposit accounts would disproportionately benefit those who are well off. This was the rationale behind the decision by my predecessor, Deputy de Rossa, to set the assessment rates at their present levels.
For the purposes of the unemployment assistance and supplementary welfare allowance schemes, the value of any benefit or privilege enjoyed by an applicant, such as that of board and lodging in the family home, is also assessed. The purpose of this assessment is to target the available resources at those most in need, by taking account of different household circumstances.
I am concerned about the artificial rates of interest assessed on capital for pension applicants, applicants for disability assistance and so on. They are being assessed on means arising from a 7.5 per cent or 15 per cent interest rate when their actual income could be a mere fraction of the amount assessed.
I will spell out my objections to this both for the Minister and comic strip type commentators such as 'Dreadful Drennan' who did not seem to understand this point when I raised it last week. There are two basic problems with this artificial rate of assessment. First, it is unjust and is not transparent. Some pensioners are being assessed on income which they do not have and, as a consequence, are receiving lower social welfare payments. Second – and this is where the decommissioning of the biscuit tin referred to by the parish priest in Achill comes in – this is an inducement for social welfare applicants to keep money out of banks in biscuit tins or under the bed, contrary to the advice of community and Government leaders.
It is essential that we change this system to achieve a two-fold purpose. First, we would encourage people to keep their money in banks, credit unions and so on away from robbers. Second, we would have a transparent system which would take account of the fall in interest rates arising from Ireland's membership of EMU. Does the Minister accept that a system could be put in place to accommodate those concerns and that it should be put in place immediately?
I do want to be facetious but perhaps it would be helpful if the Committee on Family, Community and Social Affairs, or Deputy O'Keeffe discussed the rationale behind this system with some of my departmental officials. The type of misinformation which is being peddled in this matter is the reason some elderly people might resort to keeping money in biscuit tins. It is important that Members of this House understand the system in order that the correct information will be conveyed to elderly people; that might encourage them to put their money into banks, building societies, post offices and so on.
I have outlined all the facts and figures on this issue previously and they clearly indicate that when all of the disregards built into the system are taken into account, the effective assessment rate for the vast majority of people is only 3 per cent. This fact was acknowledged by Deputy De Rossa who introduced the system in the previous Government. I am not being political about this because the system has not changed since then. When Deputy De Rossa was in Government, the effective rate for people with approximately £20,000 – which is not insubstantial – was only 3 per cent. When Deputy Durkan was a Minister of State in the Department, he stated that these assessment rates were more generous than those which previously applied.
The system is a reasonably complicated one but was designed as such to ensure it targeted people with a certain level of capital. If a basic assessment rate of 3 per cent applied, it would effectively mean that people with large amounts of capital would get the benefit of social welfare schemes when they would not be entitled to them. The Department rationale, under the previous Minister, sought to ensure that any available money in the social welfare scheme was targeted at people who just had their heads above water, not those pensioners who were well off.
Does the Minister accept that things have changed since the advent of the euro, as a consequence of which interest rates have dropped to nominal levels? The situation which pertained in 1997 does not really apply now. The interest rate on a bank deposit could now be as low as 0.2 per cent. The Minister stated that the effective rate for pension applicants is only 3 per cent but that is more than ten times the amount people are receiving. Muintir na Tíre carried out an assessment on this matter recently and pointed out that a pension applicant with life savings of £14,000 would suffer a reduction of £12 per week in his or her pension payment as a consequence of an alleged income from the bank.
I accept the Minister's sporting offer that we discuss this matter at the Committee on Family, Community and Social Affairs. Does he accept that any such discussion should be predicated on the basis that we are seeking and alternative, fairer system? I am not thinking of someone with £100,000 in the bank, rather someone with life savings of £14,000 whose pension payments will be reduced by £12 per week on the basis of an income they simply do not receive and who might be encouraged to keep that money out of the financial institutions and in the way of robbers.
The Deputy referred to an interest rate on deposits of 0.2 per cent. A reduction of the 7.5 per cent and 15 per cent assessment rates to a combined 0.2 per cent rate and the retention of the current £2,000 disregard would have the following effects on the amounts of capital pensioners could have. Amounts of capital which pensioners could hold and still qualify for the maximum level of payment are as follows: a single OAP – £158,000; married OAPs – £316,000; widow or widower non-contributory pensioner – £158,000; and, PRETA – £54,000. The amounts of capital pensioners could hold and still qualify for reduced payment are as follows: a single OAP would currently be allowed to hold £1,978,000 rising to £2,134,000 after changes implemented in June; married OAPs – £3,956,000 at present and £4,268,000 from June.
Deputy O'Keeffe should call off some of the excessive publicity on this matter as it is engendering unnecessary unease among old age pensioners. I specifically refer to the Connacht Tribune which contained an article by one of the Deputy's colleagues, probably pedalled by Deputy O'Keeffe. I am not saying the scheme cannot be examined and that is why I have given an undertaking to review it, but I appeal for less of the excessive publicity which has resulted, particularly when stories are run on the front pages of the Evening Herald every now and again. It would be better if the Deputy and the journalists who run these stories would at least ask the Department for its view.
I put it to the Minister that the figures he is quoting are ludicrous and that—
This is Question Time, not suggestion time.
Will the Minister expedite a change in the system? Having an assessment against very substantial amounts of capital might be part of the answer. Ordinary people with life savings which run to £10,000, or a bit more, and which are nothing like the stratified figures the Minister is speaking about, should not be penalised. I am convinced a system can be put in place and I want the Minister to give me a guarantee that that will be done soon so that the manifest injustice will be removed.
I say to Deputy O'Keeffe, "There you go again". I strongly suggest that he talk to an official in my Department and I will give him the name of that person who will be very willing to explain the matter. I am not saying I am not open to changes, but it is a not a matter of saying, "That is then, this is now" because in effect the assessment regime which was put in place while Deputy De Rossa was Minister was quite rightly extremely generous for people at the lower end of the scale and not so for those at the upper end of the scale.
Regarding assessment I wish to raise the very pertinent issue of a young lady who was on sick benefit for 15 months and then went on to invalidity benefit. The few pounds she had in the bank resulted in a reduction in that pension of £9. What is the position regarding assessment of farm incomes? Assessors are prepared to accept the costings but refuse to accept the fact that cattle and pig prices have fallen through the roof, and they make their own conclusions regarding income on that basis. I can show the Minister proof of this.
On the last issue I can quote for the Deputy instances where Deputies have queried the issue of whether an assessment is made on current prices. In a number of cases I have seen the assessment was made on the basis of accounts for the current year. A later question deals with this issue.
