Pensioners give cautious welcome to £5 a week rise

Pensions

Plans to increase the basic state pension by twice the rate of inflation, boost the means-tested top-up for pensioners by more than the growth in earnings, and to introduce new rewards for people who save for retirement were announced.

Plans to increase the basic state pension by twice the rate of inflation, boost the means-tested top-up for pensioners by more than the growth in earnings, and to introduce new rewards for people who save for retirement were announced.

The total package will cost £2.6bn, of which £1.8bn will be spent in 2001-2002, and will increase pensioners' income faster than earnings for the first time in 20 years, Mr Brown said. Margaret Thatcher's government abolished the link between earnings and pensions in 1980, and since then pensions have risen in line with prices, leading to intense protests from pensioners' groups, trade unions and politicians.

As expected, the Chancellor announced a cash rise in the basic state pension of £5 a week (to £72.50) for a single person and £8 (£115.90) for a couple. He also said the pension would rise by a further £3 the following year for an individual, and by £4.80 for a couple. He pointed out this was a bigger increase than either inflation or earnings.

Mr Brown said he had rejected the idea of a flat rate for pensioners since this would favour the better off. It would mean that for those aged 45 today, for every £6bn extra paid out on pensions by the Government, £2bn would go to people on incomes of £20,000 and above, leaving less money available for those on middle and low incomes.

Instead the Government is increasing the means-tested top-up allowance, the minimum income guarantee (MIG), from next April, as well as introducing an entirely new pension credit in 2003. More than two million people will benefit from the increase in the MIG, said Mr Brown.

Mr Brown said that the current MIG rate of £78.45 will rise to £92.15 from next April, making a total payment of £700 a year. When the new pension credit scheme is introduced in 2003, the MIG will be worth £1,000, and "every year after that MIG will increase in line with earnings", the Chancellor said. Pensioners will be able to claim their new payments by phone, he added.

Mr Brown threw in other sweeteners. He said that he had received "representations" to abolish free TV licences worth £104 for the over-75s, Christmas bonuses and the winter fuel payment for pensioners, but had rejected them. These payments will be maintained, and the winter allowance will be increased from £150 to £200 for every pensioner household, benefiting over 11 million people.

The Government will also tackle the problem of pensioners with modest amounts of savings or occupational pensions who are excluded from receiving the MIG because their income is too high. Alistair Darling, the Secretary of State for Social Services, will announce today a consultation paper outlining a new pension credit scheme and a new set of pension tax arrangements, to be launched in April 2003.

In April's Budget Mr Brown said that the new pension credit would be aimed at helping people who had incomes of up to £100 per week, or couples with up to £150. Yesterday he increased these limits, to £135 for individuals and £200 for couples.

The aim of the pension credit is to reward savers, so people will not be tempted to rely on the minimum income guarantee, according to the DSS.

Gordon Lishman, director general of Age Concern England, gave a cautious welcome to the proposals. "Gordon Brown has taken a significant step in raising the basic state pension by more than the rate of inflation for the first time in 20 years. But he needs to build on this in future years so he can deliver what older people really want - a state pension which they can actually live on."

Mr Lishman said that up to three-quarters of a million of the poorest older people did not claim the income support they were entitled to, either for lack of information or fear of stigma. Six months into a £15m government campaign to encourage more pensioners to take up income support, only 5 per cent, or 25,000 people, had claimed successfully.

He also feared the potential for more red tape. "The introduction of pensioner credit will help those on modest incomes, but there is a danger this will add an extra level of complexity to an already complicated system."