PENSIONSANDSAVINGS.COM

24 February 2015

• Protecting pensioner benefits is politically astute but also makes some sense for now

• Tinkering with the current package of benefits is not a solution – they could be taxed or paid from a later age, but the whole system should be rationalised

• A proper assessment of all later life support is needed – including social care

If the Government just stops paying pensioner benefits such as Winter Fuel Payments or free TV licences, this would be the equivalent of cutting the state pension by over £10 a week. I do not believe that is right or fair. Suggestions that £4bn could be ‘saved’ by sweeping away these freebies are not reasonable. In fact, there are far better and fairer ways to save money if we need to and, until a more thorough assessment is made, it is right to reassure vulnerable older people that their payments are protected for the moment.

If we want to reform pensions, there are far better ways in which this can be done, which can also save money. I have suggested many times that these payments should be taxable and perhaps paid from later ages, but I would prefer to see a proper and comprehensive assessment of how we support older people in this country.

Yes, it is ridiculous to pay a tax-free Winter Fuel Payment to extremely wealthy people who may even live in warmer climes all winter, but why not make the payments taxable, rather than taking them away or means-testing them? The whole system needs an overhaul and, during the next Parliament, the Government should set up a proper review of old age support. Just taking away parts of the current system will not solve the underlying problem.

Of course it is not optimal policy to have so many add-on benefits anyway. The paternalistic notion of Government deciding how pensioners should spend money is long past its sell-by date. Government should give people a decent pension and then it is up to them to decide what they need it for.

Governments have used pensioner freebies as political vote-buyers. The Winter Fuel Payment was actually introduced by the last Government as a series of high-profile but temporary extra payments to please pensioners instead of just increasing the state pension by that amount. When they were introduced, they were not designed to be permanent but have become important to many to supplement inadequate state pensions.

Consideration should be given to rolling all the free benefits into the State Pension, making them taxable, but people could spend the money as they wished. Those pensioners who pay tax would then be taxed on the extra income, so saving costs, but the poorest pensioners would receive the full benefit. There would be savings in administration costs too.

The potential for savings to be made by rationalising and simplifying our benefit system for pensioners is enormous. At the moment, there are over twenty – yes twenty! – benefits that pensioners could be entitled to, they all have different rules and different qualification criteria, some will be payable to every pensioner, some only to older ones, some are tax free, some are taxable, some are means-tested and they need to be administered, claimed, assessed and paid.

So let’s not rush to tinker with the existing benefits system – and also take into consideration the need for social care as well as just pensions. We urgently require a proper review of the entire later life support mechanisms and design a better package of measures to support older people with the dignity they deserve.