Pensions are going to be one of the key subjects of this election. The grey vote is just too important for any party to ignore. Pension policies are not easy to explain in a ten second sound bite, but if you study the small print you will discover that the three main parties are offering distinctly different policies for voters to choose from.

The Tories say they will give pensioners more money even if they have to change one of their key policies from the past to do it; the Lib Dems offer the most radical programme; while Labour is essentially standing on its record, with any radical reform well in the future.

Conservative
‘Action For Older People’ was the first chapter of the Conservative Manifesto 2005 to be published. It contains the usual rhetoric and the expected attacks on Labour’ record in power. But it does have positive plans for pensions. All are founded on what it calls the "fundamental truth" that "unlike the younger generation, pensioners can do little to improve their financial circumstances."

The Tories have reversed their controversial policy of 1980 which limited the annual rise in the state pension to price inflation rather than earnings. Pay of course rises faster than prices and the party which broke the link with earnings now says it will restore it. It says raising the pension in line with earnings rather than prices would boost the single pension by £7 a week after four years of a new Conservative government.

The Tories promise not to scrap the pension credit, the winter fuel payment, or free TV licences people over 75. But they claim that the rise in the state pension will release more people from the means-test of pension credit. Concern about means-testing is one reason that 1.6 million pensioners fail to claim it. However, a higher state pension will only lead to people coming off pension credit if the Tories reverse Labour’s policy which is to raise the mean-tested pension credit in line with earnings at least until 2008. The Tories say they will honour that so no-one will be floated off pension credit until 2008/09.

Two other proposed financial changes will please many older voters. At the moment people with a personal pension or some kinds of company scheme have to use their pension savings to buy what is called an annuity – an income for life from an insurance company. Normally you buy this when you retire, but you can put it off until 75 and from next April there will be some alternatives available even past 75. A Conservative government would go further and scrap these restrictions. As long as retired people did not squander their pension fund and then claim means-tested benefits they would be free to do what they wanted with it, though how this would be enforced is not clear.

The Tories also promise that people will only be expected to pay for long term care for a maximum of three years. After that the state will pay. The Tories hope this will remove the fear of having to sell your own home to pay for care. (412 words)

Labour
Labour claims that if you add up the winter fuel payment of £200 or £300, the free TV licence for people over 75, and a state pension rise in 2001 well above the rate of inflation, then a 75-year-old pensioner has actually done better than if it had just raised the pension in line with earnings. It is very proud too of the Pension Credit which has boosted the income of many women pensioners, even though nearly two million people fail to claim the money they could get from it. Labour pledges to increase the pension credit in line with earnings until at least 2007/08, halfway through the next parliament.

The Government is turning its mind now to improving the basic state pension. It wants to get a consensus among all parties for reform around a pension that will tackle poverty and give more to women and carers – who generally do worst from the state pension. It must also be affordable and more easily understood than the present system. But Labour remains vague about how it will achieve these aspirations. It is not committed to a Citizen’s Pension paid on residence rather than National Insurance contributions – even though Alan Johnson the Secretary of State for Pensions has indicated he is very interested in that idea – see his interview in Saga Magazine (February 2005).

Pensions Minister Malcolm Wicks says "I would have thought there’s an opportunity for a year or so to see whether or not we can get cross party consensus on what needs to be done. If we can’t get consensus, obviously the Labour Government will move forward as it has to do. If we could get some consensus, it would bring some stability to pension planning which I think would be a goal worth striving for." He assumes, of course, that Labour will win again.

Labour is also proud of what is has done to protect people in company pension schemes. If the company gets into difficulty, then the pension promises may not be met – even though pension fund money is held separately. The Government has introduced the Pension Protection Fund which began in April and promises to pay out 90 per cent of the pension promised up to a ceiling. This scheme will be paid for the industry and supervised by a new Pensions Regulator. A smaller scheme will give lower benefits to people who scheme was wound up before April this year. (408 words)

Liberal Democrat
A different approach is promised by the LibDems. The party would replace the state pension based on National Insurance contributions by a citizen’s pension paid on the basis of residence. The qualifying condition is not yet decided – it could be that you had lived in the UK for a total of 20 years since the age of 25 or that you had been here for 10 of the last 20 years. This citizen’s pension would be paid at the level of the pension credit - £109.45 for a single pensioner and £167.05 for a couple. And in future this amount would be increased each year in line with earnings.

If elected the partly would introduce that new citizen’s pension from April 2006 for everyone aged 75 or more who fulfilled the residence test. How long they had worked and how many National Insurance contributions they had paid would become irrelevant. This would be simpler. But a person who had worked and paid full national insurance contributions would be no better off than someone who had paid none.

The party says this is just "a first step to extending it to all pensioners. Older pensioners tend to be the poorest, and it is right that we start by addressing their needs."

The party is not completely clear how this radical change would be paid for. But it will look at raising the pension age from 65. The Lib Dems warn "The Government Actuary’s Department has projected that life expectancy will increase by four years between now and 2050. Clearly, if life expectancy continues to improve over coming decades, it would be sensible to review the age at which the state pension is payable." But they say nothing about when or by how much pension age would be raised.

Like the Tories, the LibDems would scrap the rule which makes people use their personal pension savings to buy an annuity. However, the LibDems point out that as they will guarantee a means-test free pension to everyone at 75, there would be a new market for a ‘ten year’ annuity to guarantee an income from age 65 until the citizen’s pension began. That they say "could offer twice the income offered by traditional annuities."

The LibDems also want company pension schemes improved. In future, everyone would be enrolled in their employer’s pension scheme automatically – though they could choose to leave it if they wanted. At the moment people have to choose to join. (410 words)

Many people complain that the main political parties are all the same – with converging policies on many issues. But on pensions at least there are big differences – and a clear choice to be made. You can find the policies of the three main parties on their websites