Monday 17 December 2012

Dr Ros Altmann, director-general, Saga comments on Nick Clegg's proposals for means testing pensioner benefits:


Why it is wrong to means-test pensioner benefits?
Nick Clegg today is arguing that we have to take pensioner benefits such as Winter Fuel Payments away from wealthy pensioners.  This may be a populist headline, but it is absolutely the wrong policy.  This is not the way to deal with old-age support.  Yes, we have to balance the books, but not by extending means testing to millions more older people.  Making the benefits taxable, increasing the age of entitlement and comprehensively reforming our disgracefully low Basic State Pension would all be ways of controlling costs better .  Extending means testing would be a further major disincentive to those hard-working people who are trying to save for their own future.  If Nick Clegg’s policy is adopted, it would punish those who have tried to be self-reliant and give much more money to those who have not saved for their future.  And then what’s next?  Will he tell us that rich pensioners don’t need a state pension either?  This could be the slippery slope to undermining our whole pension system.  Lets’ not have any hasty knee-jerk policies that could have very damaging long-term consequences.

Pensioner benefits were introduced as a political ‘gimmick’ to make up for very low Basic State Pension: 
The reason that pensioners receive additional benefits such as free bus passes, prescriptions, TV licences and Winter Fuel Payments, is that the state pension itself is so low.  Instead of increasing the state pension, past politicians decided to introduce special payments that would find favour with pensioner voters and would make good headlines, while leaving the Basic State Pension as one of the lowest state pensions in the developed world. 

Making pensioners claim more benefits is not the answer – we need to reduce means-testing!: 
The current system is not sensible, but the answer is not to just sweep the benefits away from better off pensioners and then make people claim the money. 

Costly and complex to administer – universal payments simple:  Firstly, the complexity of assessing millions of pensioners is costly and will result in many people being wrongly paid, or being denied money and having to appeal against a refusal.

Many of those who need it will not get the money:  Secondly, because we know that many pensioners are too proud to claim any benefits, many of those who desperately need the money will not receive it.  With the rising costs of fuel and energy, many older people will be at risk if they do not receive their Winter Fuel Payments.   Every winter, over 20,000 pensioners die of cold in this country.  These ‘excess winter deaths’ would increase if more pensioners were denied a Winter Fuel Payment and had to claim it.

More means-testing means fewer people being self-reliant, disincentive to save:  Thirdly, by extending means-testing in the state pension system, the disincentives to saving will be increased, just when we need to be reducing them.  If those who have saved for their retirement and have higher incomes find they then lose out on benefits that others who did not do so will receive, many workers will simply decide it is not worth bothering to save, because they will be penalised for it.

Thin end of the wedge – take away wealthy pensioners state pensions next?:  Would this be the thin end of the wedge?  Would the Government next say that wealthy pensioners do not need a state pension either?  Since these benefits are part of the state pension and were introduced to make up for the inadequacy of the National Insurance pension system, removing them would be like cutting the state pension itself.  Of course wealthy pensioners do not need their £110 a week from the Basic State Pension, but that does not mean we should take it away from them.

What is the answer then?
Of course we all know that Government spending needs to be reduced, that there is a large fiscal hole and that we must cut out waste.  However, there are far better ways to save money on pensioner benefits.

1.         Make the benefits taxable:  Many of the payments to pensioners are tax free.  That does not necessarily make sense, because the highest income pensioners benefit more than those with low incomes.  The benefits could be made taxable, just as the state pension is subject to tax, which would raise more revenue.

2.        Pay from later ages:  There is also a case for considering an increase in the age of eligibility.  If the benefits were paid only from a later age, and it is possible to argue that around age 60 is too young, then further cost-savings would ensue.

3.        Give people the option to not receive the money – or donate to others: Saga has supported an initiative, Surviving Winter, that ‘recycles’ Winter Fuel Payments from pensioners who feel they don’t need the money, to help others struggling to stay warm in winter.  Such initiatives should be encouraged.  Only a small proportion of pensioners are really wealthy

4.        Reform state pension so we don’t need to add ‘freebies’ to avoid poverty:  A radical reform of the State Pension, leaving it as a flat-rate payment that is at a decent level, would permit a reassessment of the need for all the additional pensioner benefits.  IF they could be rolled into one payment, which is a higher pension than currently paid, the system could be simplified without major savings disincentives and without taking away much-needed income from many older people who will not claim their entitlements.

All these suggestions are far more appropriate ways of dealing with the issue of pensioner benefits, than just means-testing them or taking them away from millions of pensioners.  In fact, nearly half of pensioners are entitled to means-testing already and there is a general consensus that means-testing of pensioners needs to be reduced, not increased.  If those who have saved and have higher incomes in later life are then penalised for it, the disincentives to self-reliance will continue. 

There are strong reasons why universal benefits are needed.  In public policy and fairness terms, the Government should assess pensioner benefits comprehensively, rather than trying to score political points by taking money from older people.


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