Pension Credit Could Destroy Pensions – Pensions Week – Ros Altmann

    Ros is a leading authority on both private and state pensions,annuities and
    retirement policy. Numerous major awards have recognised her work to
    demystify finance and make pensions work better for people.

  • Ros Altmann

    Ros Altmann

    Pension Credit Could Destroy Pensions – Pensions Week

    Pension Credit Could Destroy Pensions – Pensions Week

    Credit Could Destroy Pensions – Pensions Week

    by Dr. Ros Altmann

    (All material on this page is subject to copyright and must not be reproduced without the author’s permission.)

    This week, the government has introduced
    its long awaited policy for tackling pensioner poverty. The Pension
    Credit is yet another means tested benefit, supposedly designed
    to ensure that people who save will not be penalised by losing entitlement
    to benefits. We are told that individuals will now be rewarded for
    their saving, so that ‘it always pays to save’. This
    is not true – the policy is being mis-sold!

    There are several problems with
    this new policy initiative, apart from its complexity and high administration

    For anyone who does not have a full
    Basic State Pension (and most women, for example, don’t) any
    private pension they receive will still be lost pound for pound.
    For example, a typical woman with £15 per week less than the
    full BSP will lose the first £15 a week of her private pension
    completely. This is the equivalent of £20,000 worth of pension
    savings, which will have been totally wasted! Any adviser who advises
    them to contribute to a pension would be potentially liable for

    Even with full BSP, people still
    lose 40% of their pension. Since around 75% of future pensioners
    are forecast to be entitled to Pension Credit, pensions may now
    be unsuitable for most people. Unless individuals can be sure that
    they will be in the top 25%, they may be best advised not to save
    in a pension. In particular, without an employer contribution, most
    individuals would probably be better off with an ISA, which can
    be cashed in at any time, rather than locked into a pension which
    must be used to buy an annuity on maturity.

    Pension Credit will only help those
    who actually claim it. Government assumptions of 70% take up, mean
    that 1 million people will not receive their entitlements. As the
    population over State pension age will increase by nearly 50% by
    2050, even if take-up of benefit rises to 80% the number of people
    in poverty could actually rise.

    There are several ways in which
    the policy could be changed, to alleviate some of these problems.

    1. Government could announce Pension
    Credit would only be temporary, and would be phased out within,
    say, 10 years. Anyone contributing to pensions, who is under 50
    now, would then not lose out in the means test when they retire.
    2. The means test calculation could disregard the first £15
    of weekly pension income, allowing people to benefit fully from
    these pension savings.
    3. Government could allow people to ‘undo’ their pension,
    if they end up worse off when they retire. Providers would keep
    a separate record of tax relief within the pension and deduct this
    amount from the pension pot, paying the balance to the individual,
    as if the pension had been an ISA instead.

    Any of these proposals could alleviate
    the damage which Pension Credit is doing to future pensions. The
    policy is well-meaning but extremely dangerous and must be changed.

    An even better solution would be
    to end means testing for such a large proportion of the population.
    Perhaps pay the Minimum Income Guarantee amount to all those over
    age 75, without the need to claim. It is the oldest who are most
    in need of the benefit, yet find it hardest to claim. The damage
    to pensions would be lessened and this Government could claim to
    have ended poverty for the ‘elderly’.

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