This piece first appeared in The Daily Telegraph on 7 October 2000
The text here may not be identical to the published text

Big change may leave small change

Pensioners could be worse off under Government plans for a pensioner credit

The Government is planning major changes to boost the incomes of pensioners with modest savings or small pensions from their jobs. The details of the new scheme will be announced when Parliament re-assembles in the autumn. But the Secretary of State for Social Security Alistair Darling gave two new pledges in a speech to a think-tank in London earlier this month. He said that he would scrap the £8000 limit on savings which prevents more than half a million pensioners getting extra income to boost their pension. And he also promised to reverse a fifty year old rule which penalises older people who have a small pension of their own. Instead, people who had saved for a pension will get a top-up from the state.

He told the Institute for Public Policy Research that a new ‘Pension Credit’ would help "those with modest occupational pensions and those with modest savings…For the first time in the history of the welfare state, people will get something more for saving…for every pound saved, pensioners receiving the Credit will get a cash addition…they will earn a top-up that gives them a higher weekly income than if they were relying on the minimum income guarantee alone."

The Minimum Income Guarantee is the government’s new name for income support. It pays out extra cash to boost the income of a single pensioner to £78.45 a week and a couple to £121.95 – and there’s a few pounds more a week for the over-75s. So a younger pensioner on the basic state pension of £67.50 can claim another £12.95 a week minimum income guarantee. However, this extra money is means-tested. So if they have an occupational pension of, say, £10 a week, they only get £2.95 extra from the state. In other words, someone who has put money by for their retirement ends up no better off than someone who has saved nothing.

It is that apparent unfairness that the Pension Credit would address by adding to the small pensions people had earned.

"For the first time in the history of the welfare state, people will get something more for saving"

The current rules penalise couples like Maurice and Florence Elliott (subs: 2 Ls, 2 Ts correct) from Derbyshire. Maurice worked as a painter and decorator, on relatively low pay but he did manage to put aside a small amount for a pension. Florence, who also worked and paid National Insurance Contributions, explains what that means

"He had to draw it at 60 because he couldn’t work after that. It’s only £53.90 a month and with the state pension we both get that takes our income up to £125.90 a week, that’s just enough to stop us getting income support. If anybody can live on that they’re welcome - I wish they’d tell me how. There’s teeth to pay for, glasses, even a haircut is expensive now. He’s 68 and I’m 65. They should give you a proper living wage. The only holiday we can have is a five-day coach trip in England, never go abroad. We moved and made a bit of money and he got a lump sum at as well, about £2000, but we have to draw on that whenever we want to do anything. It’s down to a bit over £3000 now, you just keep drawing on it but it won’t last forever."

Under Mr Darling’s plans, the Elliott’s would not only qualify for the minimum income guarantee they would get extra because of Maurice’s pension. No figures are available, although in the Budget Chancellor Gordon Brown promised the Credit to any pensioner whose income was less than £100 a week and any couple with less than £150. Mr Darling said this month "I am confident…we are now able to do better than that."

He promised to tackle the savings trap too. At the moment any pensioner or couple with more than £8000 in savings can get no help from the minimum income guarantee, however low their income. And if they have savings between £3000 and £8000 the amount they get each week is reduced. For each £250, or part of £250, of savings above £3000, their weekly benefit is reduced by £1 a week. Once savings exceed £4000, the deduction is more than can be earned in interest. For example, someone with £6000 in savings has £12 a week deducted from their benefit. That £6000 would have to be earning around 10.5% interest to produce an income of that size.

In the Budget in March, the Chancellor announced that in April 2001 the £3000 limit would be doubled to £6000 and the upper limit raised to £12,000. Now Alistair Darling has said he will scrap these limits altogether.

"We should get rid of capital limits and look at the income pensioners receive from their savings. That would be a fairer and more realistic way of deciding who receives extra help. It would cost around £300mn. But I believe the case for it is made."

If he does go ahead with these plans, possibly from April 2002, he will have to make sure he does not leave some pensioners worse off. Those with savings below around £4000 can get more from their interest than the amount that is deducted from their benefit. Under Mr Darling’s plans some could be left up to £100 worse off over the year. And once the limits are raised next April the losses for some will be even bigger.

More from Brown

Gordon Brown added one new fact to his plans for pensioners in his much-trailed speech to the Labour Party Conference on Monday. The new pensioner credit (now announced three times) would not be introduced until 2003, safely after the date of the next Election. He also confirmed that the minimum income guarantee for single people over 60 would be raised to £90 (first announced the week before) – though he did not specifically say that would happen next April. If it did, that would boost the incomes of the poorest pensioners by £11.55 a week, a rise of nearly 13%. That is more than double the rise in average wages and four times the expected rate of inflation on prices. If hints from spin doctors are correct and the basic pension – paid to almost all pensioners –rises by £5 a week in April (and £8 for a married couple) that would be a rise of 7.4% - more than the 5% rise in wages and more than double the rate of price inflation. Having raised all these expectations, it will be hard not to deliver on them when the pre-Budget Report is published in a few weeks time. 

7 October 2000

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