'Grey voters' are winners with guaranteed £100-a-year increase

Pensions

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Britain's 11 million pensioners were among the biggest winners yesterday with the announcement of a guaranteed £100-a-year rise in the state pension and plans for a new £2bn tax credit.

In a clear signal that the Government will never again repeat the political blunder of its infamous 75p-a-week rise of the last Parliament, a range of income-boosting measures have been tailored specifically for the elderly.

A new Pension Credit for those on middle incomes, the retention of the £200 Winter Fuel Allowance and a rise in the Minimum Income Guarantee were all designed to appeal to the powerful "grey vote".

Most important of all, Gordon Brown revealed that the state pension would rise by at least 2.5 per cent, or more if inflation was higher, every year for the next five years.

As a result of the unprecedented pledge, all single pensioners will "always" receive an extra £100 a year, while all couples will get £160 a year, he told MPs. The guaranteed increase replaces the long-held practice of putting up pensions only by the rate of inflation, the very policy that backfired when a low RPI in 1999 resulted in the "miserly" 75p rise.

The Winter Fuel Allowance, which goes to all pensioner households, will be kept at £200 for each and every year of this Parliament, Mr Brown confirmed. The Chancellor also gave the first details of his long-awaited Pension Credit, a £2bn fund which is aimed at offering extra help to those senior citizens considered too wealthy to qualify for the Minimum Income Guarantee (MIG).

The MIG, paid to 1.8 million households, tops up the basic pension for the poorest so that no pensioner will have an income lower than £98 a week from April 2002 and £100 a week from April 2003.

However, current rules mean that it excludes a further 3.6 million people who receive income from modest savings or a private pension. To ensure that this swathe of middle income pensioners are not penalised, the Chancellor announced that a new Pension Credit will be paid out from 2003.

The Pension Credit was aimed specifically at those whose "hard work has secured a small occupational pension or modest savings but who have in the past been penalised for their thrift", he said.

Under the scheme, anyone with retirement income of under £135 a week, or a couple with income of £200 a week, would be eligible for the new cash. A single pensioner on the basic pension with £1000 a year in an occupational pension would received an extra £600 a year. A couple with a private pension of £1500 a year would get an extra £900 a year.

For those pensioners who pay tax, Mr Brown offered a third guarantee that he would raise the tax allowance in line with earnings when the new system is introduced in two years time.

Mr Brown said that some 5.4 million pensioners would benefit from both the MIG and the Pensions Credit. He was giving "more help to every pensioner in Britain, most help to those who need it most".

"The guarantees we propose not only tackle the poverty faced by the poorest, weakest and frailest but also reward rather than penalise the modest savings and occupational pensions of the majority," he said. "Every pensioner in Britain will be better off."

However, the Tories and Liberal Democrats both attacked the rise in means testing associated with MIG and the Pensions Credit. Gordon Lishman, Director General of Age Concern England, said: "The Pension Credit is well-intentioned and will for the first time reward savings.

"However, it will add yet another layer of complexity to the already complicated benefits system and will result in more than a half of pensioners being on means-tested benefits."

Rodney Bickerstaffe, president of the National Pensioners' Convention, said that freezing the Winter Fuel Allowance at £200 would mean its real value would fall every year.