BUDGET 2009 – Pensions and pensioners will continue to suffer
by Dr. Ros Altmann
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22nd April 2009
No help for pensions: The measures in the budget will take money away from pensions – at a time when everyone knows that we are already putting too little aside for retirement. There are no new measures to encourage anyone to put more money into a pension, to help companies struggling with their pension deficits, or to help the nearly 500,000 people buying annuities this year get better value from their pension funds.
Nothing now for pensioners either: The Chancellor has promised more help for poorer pensioners, but nothing will happen until the end of 2009. There is no sense of urgency at all, but pensioners are struggling to make ends meet every day. There is also no help at all for middle income pensioners – the treatment of this section of our population is shameful. Some are going without food because their savings income has disappeared or because the inflation rate they face is much higher than for other groups. Pensioner inflation is well above 6%, even now. They do not benefit from the falls in interest rates and reported inflation which the Chancellor declared would ‘make people’s incomes go further’. In fact, falling interest rates have taken away their income!
BUDGET MEASURES FOR PENSIONS – no good news, despite pensions crisis
- Take away top rate tax relief for top earners over £150,000 – this is not about farness, it’s about raising money! Fairness would mean using the revenue raised to help other people achieve better pensions. I could support that and have sympathy with the view that top rate tax relief could be better targeted by improving incentives for ordinary people, but the proposal amounts to taking money away from pensions and not putting anything back. We need a proper assessment of incentives to save in a pension, but this measure will merely tinker at the edges and add more complexity without any benefits
- Nothing to help pension funds struggling with deficits – they desperately need more long-dated inflation linked gilts and mortality or longevity gilts
- Nothing to help the nearly 500,000 people buying annuities this year who will be locked into a lower pension for the rest of their life as a result of the dramatic falls in interest rates and investment markets
- Increasing the ISA limits is obviously welcome news, but will also damage pensions. Iincreasing the limit for over 50’s from £7,200 to £10,200 is likely to mean money that would otherwise have gone into pensions being diverted to ISAs
BUDGET MEASURES FOR PENSIONERS – help in future, not now, they can’t wait!
- Pension Credit capital disregard increased from £6,000 to £10,000 – good but not till November this year! What are pensioners supposed to live on in the meantime? Many will have died by then. (see note 1)
- Basic State Pension will be increased by at least 2.5% next year, even if inflation is negative – great but pensioner inflation is well over 6% and has been for some time, so their real incomes are still falling and there is no sense of urgency to help them, even though they are suffering so much now. Middle class pensioners have been hit terribly by the credit crisis and by the measures to combat it! (see note 2)
- Winter Fuel Allowance will be paid at the higher 2008 level for 2009 as well – i.e. £250 for over 60’s and £400 for over 80’s. Good news.
- Grandparents can earn credits for the National Insurance pension if they care for grandchildren before pension age. Great, but it does not help grandparents over pension age, nor does it help those who would be on pension credit in retirement
Dr. Ros Altmann
NOTES FOR EDITORS:
- Pension Credit changes welcome but needed now! Making pensioners wait till November to replace lost savings income! Many will have died before then. Many pensioners have seen their savings income disappear in the past year and are suffering as a result. Nothing has been done to help them yet. The Budget offers the prospect of help for some in November this year, but nothing before that and nothing for most other middle income pensioners who are outside the pension credit zone. How will the changes to pension credit work? For the past few years, pension credit has assumed that poorer pensioners are still earning over 10% interest on any savings in excess of £6,000 (the so-called ‘capital disregard’). Even after the dramatic falls in interest rates, pension credit was not increased to reflect the fact that anyone with £10,000 extra savings has lost £10 a week of their interest income as rates fell from 5.5% to 0.5%. Survey evidence has shown that pensioners are now doing without meals and cutting their spending to make up for this lost income. The Chancellor has proposed increasing the capital disregard from £6,000 to £10,000, so that pensioners with savings of between £6,000 and £10,000 will receive higher pension credit. But this measure won’t come in until November 2009! By then, many pensioners will have died. Many more will have had to draw on their savings and will see their capital eroded. And of course this provides no help at all for any pensioners with savings above £10,000. Help for banks and mortgage holders has been quick, but there seems no sense of urgency when it comes to pensioners. They are very much the forgotten victims of this crisis.
- Increasing Basic State Pension is obviously good, but is not enough. The increases do not reflect the fact that pensioner inflation is still over 6%. We still have just about the lowest state pension in the developed world. The Government has really ignored the plight of pensioners struggling to make ends meet and its treatment of this group in society is shameful. The Chancellor said that inflation has fallen and interest rates have fallen which ‘makes people’s incomes go further’. This is simply not true for pensioners. Their incomes have actually fallen as interest rates have declined. In addition, their inflation rate has increased as retail price index (RRPI)measures have gone down. The RPI falls mostly reflect lower mortgage and interest rate costs, but this does not in any way help a pensioner’s income go further unless they have a mortgage or debts! The Chancellor’s announcement that state pensions will rise by 2.5% even if RPI is negative is scant comfort for a pensioner who is still struggling to cope with the price rises faced last year and this year. Even the latest rise in the Basic State Pension to £95.25 a week only reflects the high inflation from last year – and not even in full. In reality, pensioners’ real incomes are still falling sharply and the Budget has offered them no help now, only some time in the future.