Good news and Bad News for Pensioners from the ChancellorWednesday 20 October 2010
Good news and Bad News for Pensioners from the Chancellor
Women bear the brunt of pension age changes, but universal pensioner benefits protected
What does the Chancellor's announcement today mean for pensioners of the future?
State Pension Age: women are the big losers here.
Over the next ten years, women's state pension age will increase by 6 years, from 60 to 66. Over that same ten years, men's state pension age will increase by just one year, from 65 to 66. Is this fair?
I am not quibbling with the concept of equalising men and women's pension ages, but the speed of change is harsh for women. After much talk of men's pension age rising by one year in 2016, the reality is that Government has given men a reprieve, but it is women who are paying for that by a more rapid rise in their pension age.
The Chancellor says that a higher state pension age is needed in order to be able to afford to pay pensioners a 'decent income in retirement'. That sounds great, but the reality is that our State pension does not provide a decent income and the small increases being proposed each year still are not sufficient to bring it up to a decent level. We have an inadequate state pension, which has to be supplemented by mass means testing to avoid poverty, and people are being forced to wait longer to get what will still be an inadequate state pension in 2020. More radical reform is required, paying a proper pension to all pensioners, without penalising their private savings, without making women lose out due to inadequate National Insurance records. A good pension would be worth waiting longer for, but the current inadequate level is not!
For people who cannot find work to remain employed until age 66, there is further bad news. Come 2020, they will have to live on unemployment benefit, instead of the current much more generous Pension Credit. It will therefore be vital to ensure that age discrimination in the labour force is tackled vigorously and programmes to support people back to work are focussed on older workers, not just the young. Otherwise, we will have many more people in poverty, unable to find work and unable to draw their pension.
The Chancellor has clearly signalled that public sector workers will have to contribute more to their generous pensions. They will retained 'defined benefit' provision, but it will presumably be in the form of a career average scheme, not a final salary scheme. The MPs' final salary pension scheme will also be closed next year, and it will be brought into line with the new arrangements for the public sector recommended by the Hutton Review's final Report.
The CSR states that it expects average contributions to public sector pension schemes to increase by 3% of salary in future, although this will comprise higher increases for the higher paid and less for lower paid workers.
In order to determine the contributions, the Government is going to consult on the appropriate discount rate to use. This is long, long overdue and independent commentators, such as our Independent Public Sector Pensions Commission which reported a few months ago, have long argued that the current discount rate being used by the Government Actuary's Department is unrealistically high, which has served to hide the true costs of the public sector pension schemes from future taxpayers and indeed from the workers themselves. An independent examination of the appropriate discount rate would suggest the need to reduce the current rate and recognise that previous estimates of public sector pension contributions required to meet the future liabilities have been too low. At the moment, the Government uses a discount rate of 3.5% above inflation, whereas index linked gilts pay just 0.5% above inflation.
The news that the Government will be compensating the Equitable Life with profits annuitants in full for their relative losses is most welcome, but it is essential that the money starts to be paid quickly - no more delays. The fact that not a single penny of compensation has yet been paid is an absolute disgrace and it seems the earliest payments will be made is the middle of next year, which is over a year after this Government took office promising to urgently sort out the scandal.
The Government says it will decide how to compensate the rest of the victims on the basis of the recommendations of the Independent Commission in Equitable Life, expected in January 2011. Again, this decision must be implemented quickly. No more delays. Enough people have died waiting for their money and the sooner this dreadful scandal is settled, the better.
And now some good news…
Free eye tests, prescriptions, bus passes, TV licences for over 75s, plus Winter Fuel Allowance and cold weather payments at higher rates have all been protected. That's a relief for most pensioners.
The care system is in a mess and increased funding, with better choice should be welcomed. However, let's see what the details are before rejoicing too much! We are still heading for a crisis in long-term care unless we take seriously the issue of funding for the future. The costs of supporting increasing numbers of elderly people who need care will be enormous and we must find ways of planning for that now, rather than waiting for a crisis to emerge.
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