Pension plan aims to take a million off means testing

The Tories targeted the grey vote yesterday when they released detailed plans to take more than a million pensioners off means-tested benefits and increase all pensions by £7 a week.

But the policy was attacked by Labour and the Liberal Democrats as Michael Howard, the shadow Chancellor, admitted those claiming the Government's new pension credit would not benefit from the plan.

The row came as Iain Duncan Smith's plans to cut taxes were criticised by several of his own MPs worried that the Tories would be accused of threatening public services.

The pensions policy will be announced today to coincide with the launch of the pension credit, which is designed to allow more elderly people to keep their savings while receiving a means-tested minimum income of £102.10 a week. Old people's groups will be protesting about the complicated nature and means-tested element of the Government's scheme.

Under the Tory proposals, pensions will be increased in line with earnings instead of prices at present, giving single pensioners £7 a week and couples £11 a week extra. It would lift one million pensioners out of means testing by 2006 and increase the basic weekly pension from £77.45 a week to £92.40 in four years.

David Willetts, the shadow Work and Pensions Secretary, who will deliver a speech on the plans today, said that the aim was to phase out a means test that deterred up to a million people at present from claiming money owed to them. Despite an expensive advertising campaign, even the Government admits it expects only 73 per cent of those eligible to claim the pension credit. Mr Willetts said that the £5bn to £7bn cost of the Tory scheme over the course of the first Parliament would be met from phasing out the means-tested pension credit and from scaling down the New Deal for the unemployed.

But the Work and Pensions Secretary Andrew Smith told Sky News' Sunday with Adam Boulton: "The Tory sums simply don't add up. They've made the classic budgeting mistake of imagining you can go on providing extra money year-on-year by scrapping a programme which only gives a flat forward expenditure." Restoring the pensions link with earnings would cost £1bn in the first year, £2bn in the second, £3bn in the third and so on, while scrapping the New Deal would save only £800m a year. This would leave a growing gap between the cost of the policy and the money available to pay for it, Mr Smith said.

Mr Howard later acknowledged that poorer pensioners claiming the pension credit would be no better off under his party's proposals. He told ITV's Dimbleby programme: "Those who are entitled to the pension credit and do claim the pension credit ... will not be better off. But there are many pensioners who aren't entitled to pension credit who will be better off."

The Institute of Fiscal Studies also said yesterday that the poorest pensioners who claim all their benefits will actually be worse off because the Government proposes to link the pension credit to earnings whereas the Tories assume that the pension credit will be linked to prices.