PENSIONSANDSAVINGS.COM

20 April 2017

Help poorer pensioners, older women and families facing elderly care

1. Radical overhaul of social care to ensure fairer system for all – a crisis worse than pensions
2. State Pension triple lock could move to a double lock, increasing by prices or earnings
3. Double lock should apply to Pension Credit so poorest pensioners are protected properly
4. Improve pension outcomes for women – private pensions, State Pensions and WASPI
5. Reform pensions tax relief to give everyone a 33% Government bonus on their contributions
6. Encourage longer working life – mid/later-life training, career reviews, apprenticeships

Government plans for Brexit and the economy will dominate many people’s thinking, but a coming Election Manifesto needs to cover other important issues that will affect the lives of older voters significantly.  Here’s some initial thoughts – a six-point plan to improve older people’s lives, while giving a more affordable, sustainable and fairer system for the future.

Here are my suggestions:

1. Radical overhaul of social care to ensure fairer system for all

In terms of fairness, it is absolutely vital that the Government finally addresses the ongoing and worsening crisis in social care.  The current system penalises elderly people and their families and lowers care standards, while raising the costs to those paying privately.  It is undermining the NHS and places the biggest burdens on those who fall ill, rather than being shared fairly.  There is no help for the poorest people with moderate needs, which makes it more likely that they end up in hospital or care homes and lose their independence.

Meanwhile, older people who do have savings have to lose everything, including the value of their home, before they get any state help at all.  The draconian means-test coupled with council cutbacks, on top of rapidly rising numbers of elderly people in our aging population has caused huge strain on the social care and health services, undermining the quality of social care (such as only allowing 15 minute visits and low paid staff on zero hours contracts).  The system is riddled with unfairnesses and is simply not fit for the 21^st Century.  Private payers who are denied state help end up paying over the odds for care, to make up for local authority underpayment.  This penalises those families who are unlucky enough to need elderly care twice – firstly they get no help from the State and secondly they also have to pay extra to cover the costs of those who are covered by the State.

This amounts to a most inequitable stealth tax, hitting the most vulnerable in society.  To add further to the unfairness, elderly people who are judged to have a health need, rather than social care need, will have all their care costs met by taxpayers.  This arbitrary allocation of resources is unsustainable and is placing the NHS under intolerable strain, even before the huge bulge of baby boomers reaches advanced old age.  Proper integration of health and social care is long overdue.  It is obvious that the State cannot pay to look after all baby boomers who will need it in coming years.

There is no money set aside for this purpose and younger taxpayers will be unable to afford it.  Therefore, incentivising those older people who have pensions, ISAs or other savings to earmark a sum to pay for care, while the State then covers the extra on top of that, would kick-start funding which is currently non-existent.  Introducing a Dilnot-style cap on care costs, then allowing tax free withdrawals from pension funds if needed to pay for care, plus introducing a special Care ISA allowance (that can be passed on free of Inheritance Tax) or allocating some proportion of property value up to a limit of, say, £70,000 per person, would ensure baby-boomers have incentives to prepare for their coming care costs, while also signalling that everyone will need to think about providing for care in old age, as well as pensions.

2. State Pension Triple lock could move to a double lock, increasing by prices or earnings

The triple lock commits to increasing (only some parts of the) State Pension by the highest of price inflation, average earnings or 2.5%.  The 2.5% commitment contained in the triple lock adds billions to the cost (it is estimated that State Pension has cost £3billion more for the years 2010 – 2016 than if a double lock had been in place).

The longer the triple lock lasts, the greater the future cost will be, with official forecasts predicting it will add at least £15billion to the long-term cost of State Pension provision.  The arbitrary 2.5% figure is a political construct with no economic or social logic.  When it was introduced, the State Pension had fallen well behind average earnings, so it served a useful function in increasing basic State Pensions to a more reasonable level.  But pensions have increased significantly relative to other benefits.

The Pensions Commission recommended only increasing State Pensions in line with earnings, but perhaps the Government should offer pensioners the higher of prices or earnings inflation, as a double lock, to protect against rises in the cost of living and average living standards of those in work.  If other benefits are being frozen, or only protected by either prices or earnings, to add the extra 2.5% protection for pensioners will cause increasing resentment and also adds to pressure to increase the State Pension age faster, which disadvantages those with lower life expectancy and in poorer health.  In addition to this, the new State Pension system has rendered the triple lock concept socially inequitable.

3. Double lock should apply to Pension Credit so poorest pensioners are protected properly

The triple lock, in fact, contains inherent unfairness which will worsen in coming years as more younger pensioners receive the new State Pension.  The triple lock does not actually protect many of the poorest and oldest pensioners because does not cover all State Pension payments.

It only applies to two bits of State Pension – the old Basic State Pension (up to around £120 a week) and the full new State Pension (up to around £160 a week, but only available to the youngest pensioners).  Most importantly, it does not apply to the Pension Credit (which the poorest pensioners receive).  A much fairer system would see the double lock protection extended to Pension Credit to help the oldest and poorest pensioners.

4. Improve pension outcomes for women – private pensions, State Pensions and WASPI

Women lose out in pensions in many different ways and, although the Government has made some improvements, both State and private pensions policies still discriminate against women.  As regards private pensions, women are losing out in workplace pensions.  There are several reasons for this.

The gender pay gap means they earn less than men, so their pension contributions will be lower but recent studies also show that women work in jobs with lower employer contributions and on average their employers pay 1% of salary less into their pensions than for the typical male.  Women also take career breaks which reduce their lifetime earnings.  In addition to these factors, women are also losing out in auto-enrolment as they are more likely to be low earners.

Only people earning over £10,000 a year in any one job are auto-enrolled by their employer.  So these lower earners lose out on their employer’s contribution and on the behavioural benefits of being automatically enrolled, even though they are the people who would probably most need better pensions and the behavioural nudge of being automatically enrolled.  Many women work in multiple low paid jobs, in order to fit their work commitments around caring responsibilities.  Even if these women’s total income is above £10,000, if they earn less than this in each job, they lose out on auto-enrolment completely.

The Government estimates that over 70,000 women are affected.  These women are also more likely to be losing out in State Pensions too.  The cracks in the National Insurance system penalise far more women than men.  Those earning less than £5,876 a year in any one job get no credit for their State Pension, even if they have multiple low paid jobs that would bring their earnings over the National Insurance threshold.  The Government estimates 20,000 -30,000 women are affected and they get no credit for their State Pension.

In addition, women who have children but are in households with incomes that disqualify them from Child Benefit have to claim the benefit even if they know they’re not entitled to it, otherwise they lose out on their State Pension credit too.  All these wrinkles in the National Insurance State Pension system should be removed, so that women are no longer discriminated against in these ways.  Finally, there are many WASPI women who were not properly notified of changes to their State Pension Age.  The Government should recognise the hardship its failure to communicate properly has caused and should ensure those affected are able to receive some early payment, to compensate for the short-notice increase in pension age which they did not have time to prepare for.

5. Reform pensions tax relief to give everyone a 33% Government bonus on contributions

The Government decided not to reform the current system of pensions incentives, that revolves around tax relief.  The present arrangements are not understood by the majority of people, who don’t realise that 20% tax relief gives them a 25% Government bonus on their pension contributions, while higher rate taxpayers get 40% tax relief, which is a 66% bonus on their contributions.

Instead of confusing people with a Lifetime ISA that could also be used for house purchase, the Government should introduce a fairer system of pension incentives shared more fairly, with a 33% Government bonus being offered to everyone.  The annual contribution limit would need to be cut from the current £40,000, and the Lifetime Allowance should be reformed or abolished.  The freedom and choice reforms have made pensions the most attractive retirement saving option, but if the Government is serious about helping those in the middle or less-advantaged positions in society, then making the pension system fairer for all should be a priority.

6. Encourage longer working life – mid/later-life training, career reviews, apprenticeships

If the Government is serious about controlling immigration, given the aging workforce it will also need to ensure that more older people stay engaged in the labour market than ever before.  This will need a radical rethink of workplace practice, as well as greater encouragement of mid-life training, career reviews and apprenticeships.

Those who can and want to work flexibly as they get older should be supported positively, with employers required to ensure age is no barrier to ongoing training and re-skilling opportunities.  Businesses should take the value of older members of their workforce more seriously and unlock the potential of older workers.  This can boost the economy both now and in future, as people have higher lifetime incomes and opportunities to build up better pensions.