Impact of government policy on pensioners
Compiled by experts from the Centre for Economics and Business Research (CEBR), the report examined the impact of tax and benefit changes on Britain’s pensioners - taking into account changes in the pipeline as well as rock-bottom interest rates and quantitative easing (QE). Whilst many of these changes are already having a significant impact, the report reveals that the average cost to each pensioner by around April 2014 is likely to be in the region of £1,318. This will have a devastating impact on the spending power of this important consumer group.
According to the research, two thirds of this is due to the impact of record-low interest rates and QE with the remainder due to fiscal measures such as the reduction in Winter Fuel Payments and the abolition of the Age Related Allowances, or so-called “Granny Tax”.
The report also shows that 40% of single pensioners in the lowest income bracket are forced to get by on £8,034 with couples having just £13,883 to make ends meet. The median income of the next 40% of pensioners is £13,104 for single households and £23,998 for couples while even the “top” 20% typically take home just £20,332.
Responding to this shocking new report, Dr Ros Altmann, Director-General of Saga, said: “Pensioners are being hammered. They didn’t cause our economic meltdown yet they have been paying a heavy price as we try to fix it and they face an even tighter financial squeeze in future. Those retiring now are the biggest losers in life’s pension lottery as tax and benefit changes will compound the misery wreaked by paltry savings rates, plunging annuity rates and overshooting inflation.
“Instead of pumping hundreds of billions of pounds into financial markets and bank balance sheets it would have been much better sending cheques to everyone to encourage them to spend.
“If older generations felt confident again, they would splash out and boost economic growth. If we keep cutting their income, these grey pounds will be wasted.”
The study also highlighted how different types of pensioner households have been affected, with better-off couples losing up to £5,345, equivalent to a 13% fall in annual income.
In fact the biggest savers are the biggest losers as falling interest rates have taken a heavy toll on their investment income while pensioners have felt little, if any, benefit from the sharp drop in mortgage payments enjoyed by younger households.
“These are the people who have done the right thing, saving diligently for their retirement but now they are seriously suffering.” Said Dr Ros Altmann “This report contradicts conventional claims that pensioners have escaped unscathed from the impact of government measures designed to tackle the deficit.
“As so often, the devil is in the detail, but this analysis shows quite clearly that many pensioners are actually shouldering more than their fair share of the burden.”
Dr Altmann also voiced her fears that the impact of these policies will do yet more damage to the image and reputation of pensions, undermining confidence just as the government is poised to launch its flagship programme which will start automatically enrolling millions of workers into employer schemes.
The CEBR study concludes that 1.6 million people due to retire in the next two years will be amongst the hardest hit as scheduled changes to tax and benefits kick in.
- Changing the measure for State Pension increases from the Retail Price Index (RPI) to Consumer Price Index (CPI). The government has pledged to increase pensions by the highest of CPI, earnings growth or 2.5%. The coalition has made great play of its “triple lock” pledge but the state pension would actually be higher under the RPI formula used by Labour.
- Age-Related Allowances have been frozen in 2012 and are being scrapped for anyone retiring from next April. These changes will cost pensioners up to £193 a year, with middle incomes households hit hardest by this so-called Granny Tax.
Cutting Winter Fuel Payments to pensioners by £50 a year, £100 for those aged over 80.
- Changes to Savings Credit which reduced the maximum payment by almost £2 a week to £18.54 for single pensioners and £3.36 for couples. The qualification threshold was also increased by 8.4% to £111.80 for singles and £178.35 for couples, excluding many altogether.
- "Our financial crisis was caused by too much borrowing.” Concluded Dr Altmann, “Banks, house-buyers, and the Government, took on debts they couldn’t afford and risked going bust. So interest rates were slashed to make borrowers’ repayments more affordable and the Bank of England created new money to push up inflation and devalue the debts.
“But the side-effects of these policies have punished pensioners. High inflation and rock-bottom interest rates have been acting like a tax increase and now they are facing further financial hardship from fiscal changes coming down the track.”
Dr Ros Altmann gave a presentation to policy-makers and opinion-formers highlighting the devastating impact these policy changes are having on pensioners. Our write-up of the event includes images and gives details of the discussions held amongst policy-makers as a result of the presentation by our key speakers .