Pensions are not like any other benefit. We raid them at our peril

Pensioners have had a raw deal from the financial crisis, though a different raw deal from that suffered by those in work

Mary Dejevsky
Wednesday 23 March 2016 19:08
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Many insiders say it has been clear for a number of years that the Government was laying the ground for an effective abolition of pension plans in their current form
Many insiders say it has been clear for a number of years that the Government was laying the ground for an effective abolition of pension plans in their current form

When George Osborne told MPs that his plan to cut disability payments had been “a mistake”, he completed the U-turn that had seemed inevitable after the resignation of Iain Duncan Smith and the back-stabbing that followed. But the Chancellor’s retreat also opened up a new conversation: if not with an adjustment to the disability points system, designed to save £4.4bn over the lifetime of this parliament, then where was the axe going to fall?

There were those who argued there was no need for an axe to fall anywhere, if only the Chancellor would reconcile himself to borrowing (a little) more. Almost everyone else, though, homed in on what seemed to them a layer of societal fat that positively cried out to be slimmed. Osborne, they proposed, could balance his Budget for the Next Generation by stripping away universal benefits from the nation’s pensioners.

He should start by unpicking the so-called “triple lock”, which stipulates that the state pension must rise annually by whichever is highest: the rate of earnings growth, price inflation, or 2.5 per cent. He could continue by means-testing pensioners’ winter fuel allowance and their bus passes, and then – though it might have been forgotten that this will soon be the responsibility not of the Chancellor, but of the BBC – he could end the extravagance of all those free television licences.

It is surprising, in a way, that such a mass of helpful advice did not extend to removing free prescriptions and flu jabs. Given that the only reason pensioners supposedly get such a “cushy” deal is that so many of them vote (and vote Conservative), the move could have had the double benefit of limiting the numbers. But everyone has a granny, don’t they? And that just might be a step too far.

Even the advice as it stands, however, is built on so many resentful myths that it is hard to know where to begin. Start with the voting. There is nothing to stop younger people from voting, if they think that would strengthen their political clout. But the modicum of protection afforded to pensioners – not just by this Conservative government – has less to do with voting patterns than with morality and a small contribution to social justice. Most pensioners have no way to increase their income; people of working age, however, still do.

The argument is made by respectable think-tanks, such as the Resolution Foundation and the estimable Institute for Fiscal Studies, that pensioners have never had it so good. Their figures show that the incomes of retired people have risen faster in recent years than those of younger people in work. But this does not mean that retired people are, even on average, well-off. The statisticians are talking percentage rises from a disgracefully low base.

The income of most pensioners, in real money, is still considerably lower than that of most working people. Nor are their outgoings automatically lower. Indeed, an OECD report published late last year found that the UK state pension was “one of the worst in the world”, with only Mexico and Chile coming lower among industrialised countries.

Pensioners have also had a raw deal from the financial crisis, though a different raw deal from that suffered by those in work. While wages have, until very recently, stagnated or fallen, pensions have slowly risen. But the savings that today’s pensioners were encouraged to make while they were working to supplement their still-paltry pension now produce almost no income at all.

The low interest rates that allow working people to take out higher mortgages (and fuel higher house prices) penalise pensioners who saved – whether in bank accounts, Isas or private pensions. If interest rates go into negative territory, their plight will be even worse. Contrast this with the Lifetime Isas announced by the Chancellor in his Budget. These will pay an effective interest rate of more than 20 per cent (£1,000 for every £4,000 saved for a house or a pension). This is a rate most pensioners – told to “shop around” for a rate higher than 0.5 per cent – can only dream of.

Oh yes, it is said, but look at the equity in their houses. By no means all pensioners are home-owners, though, and everyone has to live somewhere. If there were more, or better, sheltered housing or retirement schemes, the complaint about elderly retired people rattling around selfishly in vast family houses might have some substance. But practically every developed country has better provision for housing elderly people than the UK does.

Yes, there are wealthy pensioners. But secure final-salary schemes are ever fewer; and the gap between those with public-sector pensions and the rest grows ever wider. Paring back the state pension or means-testing universal benefits to maintain payments at the current level for all disabled people is to correct one injustice by exacerbating another.

With a husband who has Parkinson’s, I have no doubt whatsoever that help for disabled people could be much better than it is – and I am not talking only money. Provision is poorly organised, hard to navigate, haphazard and, seemingly at times, even wasteful.

But the best single change that could be made to the state pension and associated allowances would be to remove them from the same spending box as “benefits”. It is not a “hand-out”; it is an entitlement to which every recipient has contributed.

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