It's Your Pension, What Do You Think?

The Conservative Party wants to give older people in Britain a unique choice at the next General Election. Do you want to carry on with Labour’s policy of a winter fuel payment at 60 and a free TV licence at 75? Or do you want to use the money to raise the basic pension by £3.50 a week above inflation, and £5.50 a week for those over 75? No major political party has given pensioners such a choice before. Although there have, of course, been promises made by political parties before elections, this one is about how the money is spent rather than about how much.

So what is the Tory party offer worth? The Tories would

· SCRAP the £150 winter fuel payment paid to each household where someone aged 60 or more lives – saving £1,260 million

· CANCEL the free £104 television licence for people aged 75 or more which begin on November 1 this year – saving £370 million

· END the £10 Christmas Bonus paid each year to all pensioners since 1972 – saving £120 million

· ABOLISH the 25p age addition paid since 1971 with the retirement pension of everyone aged 80 or more – saving £30 million

 

And to make sure there are no losers – among those who claim retirement pension at least – the Conservatives would find more money from four other sources

· CANCEL the winter fuel payment for men aged 60-64 recently given by the European Court of Justice – saving £100 million

· SCRAP the New Deal scheme to help lone parents get jobs – saving £90 million. Government figures show it does not work well.

· TAKE £90 million away from the Social Fund which gives loans and grants to very poor families – they admit that was "a tough decision".

· ADD on £40 million saved from reduced administrative costs – no need to employ bureaucrats to issue free TV licences or run the winter fuel payment scheme.

 

The total of £2 billion will be spent boosting the basic retirement pension. But the actual rise is not as much as the headlines have indicated. From April 2001 the pension will rise anyway by the rate of inflation in September this year. The Treasury is predicting that will be 3.4% - three times as high as the 1.1% last September which led to the insulting 75p a week rise in April 2000. Next April, inflation alone will boost the basic pension by around £2.30 a week with £1.30 extra for a woman who gets a pension on her husband’s National Insurance Contributions. The Conservative Party plans round these down to £2 and £1. On top of that they will divide up the £2 billion to boost the basic pension, on top of inflation, by £3.50 a week for pensioners under 75 and by £5.50 a week for those aged 75 or more. The married woman’s pension would rise by 50p above inflation for women aged 60 to 74 and by £1.50 for those aged 75 and more.

The scheme has been carefully crafted to try to make sure there are no losers among people old enough to claim a pension – 60 for women and 65 for men. But there are some odd results. A single person aged 70 will get £3.50 a week for a year – a total of £182. They will have given up £160 (Winter fuel payment plus Christmas bonus). So they gain £22 a year or just 42p a week. Someone ten years older aged 80 will get no more under the Conservative plans but will have given up 25p a week age addition leaving them just 9p a week better off. Couples will generally do better than single people – those aged 65 to 74 will get an extra £90 a year or £1.73 a week. Though that disguises a bigger gain for the husband and a slight loss for the wife. For example, in a couple aged 80 or more, the wife will lose £72 over the year while her husband will gain £136, leaving them £64 a year or £1.23 a week better off. But the biggest winners are those couples aged 75 to 79 where the woman has paid her own full National Insurance Contributions. Between them they will be £5.73 a week better off.

‘The big losers of course are men aged 60 to 64 – and some men and women over pension age who do not get retirement pension. They will lose their entitlement to the winter fuel payment – and because they do not get a retirement pension they will not benefit from the increase in the pension promised by the Conservatives. It is particularly hard on this group - until late last year they did not qualify for the winter fuel payment at all. But then the European Court of Justice ruled that anyone over the age of 60 should be entitled to it. As a result of the judgement the Government changed the rules and more than a million extra people, mainly men aged 60 to 64, became entitled to the £150 payment. Under the plans unveiled by William Hague they would all lose it again. The total saving to the Treasury is estimated at £100 million.’

It is a matter of debate whether the lone parents who would have found work through the £90 million New Deal, which the Conservatives describe as ‘a costly flop’. It remains to be seen if its alternative is any better. But there will definitely be some losers among the low income families who could be denied a social fund grant or loan because of the further £90 million cut in the budget for those payments.

There are four other problems that need to be addressed before the apparently simple scheme can be adopted. They are

· Timing

If the election is in May 2001 (and it could be as late as May 2002) then the next time to put up pensions will be the following April. But the winter fuel payment and the Christmas bonus would normally be paid before Christmas. The Conservative Party has told Saga Magazine that the winter fuel payment would not be scrapped until the winter after the pension went up.

· TV licences

The free television licence scheme will already have begun by the time the next Election comes round. It is one thing to take away a winter fuel payment in exchange for a higher pension. It is another to re-impose a charge that has just been lifted. It is also worth pointing out that the television licence is set to rise by more than the rate of inflation – but the extra paid on the pension will rise in line with prices. So in a few years time the value of the free licence could be worth more than a rise in the pension.

· Tax

The retirement pension is taxed and around 3.5 million people over 65 pay tax. The winter fuel payment and the free television licence are not taxable. So taxpayers will find the value of the pension is much less than the tax-free benefits it is replacing. The Conservative plans include a pledge to "adjust tax allowances for older people to compensate pensioners for the extra tax they would have paid." There are no details of how that will work.

· Means-tested benefits

The extra pension will also have to be added to all means-tested benefits to make sure that what is given with one hand is not taken away by the other. The Conservative plans include a pledge to do that and the costs are worked out on that basis. But without the details it is hard to make an assessment of how it will work or if there will be unexpected losers.

In any major change there are bound to be uncertainties and anomalies. David Willetts, the Conservative Shadow social security secretary told Saga Magazine "my view is that we are removing the complexities, the winter fuel payment has been hideously complex and so are free TV licences. This is a major simplification". And he and his Party have at least posed the bold question

Certainly many older people and the pressure groups that represent them have been critical of Labour’s winter fuel payment and free television licence calling for the extra money to be added to the weekly pension. There is one good reason to prefer a weekly amount. It will rise with inflation every year. Bonuses have a habit of being frozen. In October 1972, when the Christmas bonus was introduced, the basic retirement pension was exactly a tenth of what it is now - £6.75 a week. So the £10 bonus was equivalent to £100 now – exactly the same amount as the winter fuel payment in 1999. It has never been increased. On the other hand, even the addition of an amount to the pension is no guarantee it will rise in future. The 25p a week extra which was first paid to the over 80s in 1971, has never been increased – it should be £2.80 a week now to have kept up with inflation.

The Conservative plans are a bit of a gamble. In the general elections of 1987 and 1992 Labour went to the polls promising to raise the basic retirement pension by £5 a week They lost both.

August 2000

e-mail Paul Lewis on paul@paullewis.co.uk