The Times Opinion Piece – Means-testing pensioner benefits is a step in the wrong direction – 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

    The Times Opinion Piece – Means-testing pensioner benefits is a step in the wrong direction

    The Times Opinion Piece – Means-testing pensioner benefits is a step in the wrong direction

    The Times Opinion Piece – Means-testing pensioner benefits is a step in the wrong direction

    by Dr. Ros Altmann

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    David Cameron has vowed to keep his pre-election pledge to protect pensioner benefits. However, many of his colleagues believe we cannot afford to pay benefits to ‘rich’ pensioners and Nick Clegg has said we should means-test them.

    In these difficult times, with the Treasury desperate to find extra revenue from somewhere, the attraction of raiding this particular target is understandable, but extending means-testing for pensioners would be a move in the wrong direction. It would be impractical, expensive to administer and a further disincentive for moderate earners to save for old age.

    Of course there are some pensioners who do not need Winter Fuel Payments or free prescriptions or bus passes. But that does not mean they should not be provided.

    Universal benefits have an important purpose. Firstly, they ensure that all those who need money will actually get it. We know that many pensioners are too proud to claim means-tested payments and would sometimes rather starve or freeze than apply for what they see as hand-outs. By paying to everyone, this problem goes away. Secondly, the Basic State Pension is among the lowest in the developed world and the reason we have all these additional pensioner benefits is because our state pension is so low for so many people. Successive Governments have bribed pensioners with top-ups in the form of different ‘benefits’ so they can make ends meet.

    The notion of armies of very rich pensioners is not the reality. In fact, the vast majority of pensioners are not on high incomes. Average net income for all single pensioners is just £11,630 and for pensioner couples is £20,765 a year. Even the top 20% of single pensioners have an average income of just over £20,000 a year. The top 20% of pensioner couples have average net incomes of around £42,000 but only 2% of pensioners pay top rate tax, Therefore, the amount of money raised by taking benefits just from rich pensioners would not be significant.

    In reality, means-testing pensioner benefits would result in millions of eligible claimants. This would be complex, inefficient and involve extensive administration. It would also penalise those who have saved to provide a bit more income for themselves in later life.

    If we did go down this route, where would it lead? Our national insurance system ensures that all who contribute are entitled to their state pensions. But those with higher incomes don’t really need them. Should pensioners with good private incomes then not get a state pension either? This would amount to proposing that if you haven’t saved, you can get a state pension, but if you put money by for your future, you get nothing.

    Of course, it would save some money, but it would be a very short-sighted policy, with dangerous longer-term consequences. Millions of average earners would resent seeing colleagues who failed to prepare for retirement being supported by the state, while their own savings mean they are excluded from help. Where to draw the line would be almost impossible to determine.

    Indeed, the proposals for a flat-rate £140 a week state pension reform are based on the recognition that there is too much means-testing in the state pension system already, which undermines incentives to save. Especially as we start to automatically enroll all workers into a private pension scheme, it hardly makes sense to propose a massive extension of pensioner means-testing at the same time.

    Of course the fiscal pressures won’t go away and with an aging population the temptation to take money from this growing group will grow too. However, means-testing is not the way to do it.

    There are far more sensible ways to consider cutting costs. For example, I do not quite understand why Winter Fuel Payments and some other benefits are tax-free. Revenue could be raised by making them taxable. We could also increase the age at which eligibility starts, or restrict free travel only to off-peak times.

    The Prime Minister’s promise is likely to be kept at least for this Parliament and then we need a serious national debate about old-age support. It’s time for some joined up thinking on pensions policy. Radical state pension reform could facilitate a proper, comprehensive reconsideration of all pensioner payments. Alongside the introduction of a more generous state pension, we could consider rolling many of the extras into the state pension itself, rather than having to pay so many different bits of money to millions of people.

    In the meantime, pensioners who really don’t need their benefits can be encouraged to give them to others in greater need. For example, last Winter, Saga supported a marvelous campaign which enabled thousands of pensioners to ‘recycle’ their Winter Fuel Payments to help others struggling to keep warm. The campaign aimed to raise £1million and actually collected over £2million, which helped more than 20,000 people through the winter months. Such ‘fuel-anthropy’ shows how we can offer all those super-rich pensioners the mechanism to pass their benefits on to others. This is certainly superior to the draconian and hugely expensive policy of means-testing the millions with inadequate incomes.

    In future years, as pensioner numbers grow, taxation policy and age of entitlement adjustments can help control costs, but the principle of universal benefits is essential if we are to encourage later life savings. Means-testing pensioner benefits would be a move in the wrong direction.

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