PENSIONSANDSAVINGS.COM

• Delighted to see Chancellor keeping the State Pension triple lock promise.
  
• Ensuring State Pensions and Pension Credit rise by 10.1% cpi for next year is the right decision. 
• I also welcome the inflation protection for all other benefits as inflation has soared.
  

 

Today’s fiscal statement will come as a big relief to millions of worried pensioners.  It is great to see that the Chancellor has decided to honour past commitments to uprate State Pensions in line with September’s 10.1% cpi inflation figure.

 

It was also absolutely right to announce that Pension Credit and Universal Credit will also rise by 10.1%: The poorest pensioners need means-tested Pension Credit and benefits such as Universal Credit are paid to the poorest working-age citizens who will also rightly receive full inflation uprating for next year. In the middle of a cost of living crisis, with inflation still rising and not yet under control, it is vital that we protect the most vulnerable.

 

The poorest pensioners only received a 3.1% increase in April, while prices have rocketed. Those relying on benefits have been particularly hard hit recently. This has hit millions of pensioners hard as they spend a higher proportion of their income on staple foods, heating and basic essentials which have increased by well over the average cpi. They tend to live frugally and can hardly look forward to being able to earn more in future, they are often wholly reliant on the State.

 

Just ‘targeting’ state pensions on the poorest pensioners would be damaging: There are calls to means-test the State Pension rather than paying benefits to all. This would be undermine our whole national insurance system.  Today’s pensioners have contributed throughout their lives on the understanding they would have a State Pension in retirement, but the UK’s state pension would only provide a low basic amount, not enough for a great lifestyle. Britain has always relied on spending enormous sums each year to incentivise individuals and employers to build up good private pensions to supplement the low state retirement benefits. Other countries social insurance pensions are far more generous.

 

Gordon Brown tried extending means-testing and it was a disaster: About twenty years ago, the then Government decided to focus public spending on the poorest pensioners, by increasing the generosity of means-testing. Rather than increasing state pensions for everyone, Pension Credit was introduced to pay more to those who qualified. That sounded sensible as a short-term policy decision to address the poorest pensioners directly, but the policy did not work.

 

Pensioner poverty rose, private pension contributions collapsed and millions did not claim:  Within a few years, pensioner poverty rates had risen and private pension savings had collapsed, because more and more people on lower or middle incomes realised it might not be worth bothering to save.  If they could lose most or all their private pension income in a means-test, or if having a small pension excluded them from state benefits that others who did not contribute to pensions were receiving, then they quite understandably decided not to bother saving. And many pensioners are too proud, or private, to want to claim.  So, the short-term attraction of extra means-testing for pensions had seriously damaging long-term consequences.

 

Means-testing excludes many poor people as there is a stark cut-off. The means-test income threshold is only around £10,000 a year, but pensioners with tiny amounts of private pension with incomes of, say, £10,500 a year, would be excluded.  In addition, means-testing the state pension undermines our whole welfare system. National Insurance has always been a pay-as-you-go system and the inter-generational transfers are a fundamental part of our welfare state. For today’s commentators to complain that working age people are paying to support more older people, ignores the fact that today’s pensioners supported those older than themselves in the past. With around half the population having little or no private pension, especially among women, there are enormous income disparities among older age groups. Of course, there are well-off pensioners, who may not really ‘need’ the state pension they receive but that is the deal and how our system works.

 

There are better ways for the Government to save money in its overall pension budget. Areas that could be reformed to cut costs would include rolling the add-on pensioner benefits and ‘freebies’ into a higher State Pension, rather than paying them separately.  Winter Fuel Payments, Christmas Bonus, free travel and other benefits are all tax-free for pensioners, even though the State Pension itself is taxed. It would make sense to pay more in State Pension and recoup some of the money from the better off pensioners in tax. Addressing the costs of tax relief for private pensions could also free up huge sums for the Exchequer and ensure adequate resourcing for the basic state pension underpin. Currently, tens of billions of pounds are spent on the second-tier of pensions, while there is said to be insufficient money for the basic first tier.

 

To begrudge pensioners the small State Pension sets up worrying societal tensions which can damage social cohesion.  How we look after the elderly in our society, who have built this country over many years, is a political choice and I am pleased that the Chancellor has made the right decision to properly protect pensioners.