Practically every pensioner in the country will be reading Gordon Brown’s lips when he addresses the Labour Party conference. With the postwar baby boomer coming up for retirement, pensioners are the fastest-growing group of voters – and it will not be enough to recite what the government has done for them: free TV licences for the over-75s and a £100 winter fuel bonus. Every pensioner I have spoken to is grateful, but they all refer to “handouts”. These are no substitute for a “proper” (their phrase again) pension increase. Pensioners hotly dispute the argument that, because some of them are well off, it does not make sense to award an inflation-plus increase in the basic state pension of £67.50 a week.
They are supported by the government’s own data. Occupational pensions – the outstanding welfare success of the past century, according to the most recent pensions green paper – deliver, on average, £33 a week. But only a little over half the population are in occupational pension schemes. Equally important, a recently retired single pensioner picks up £44 a week from their occupational pension, while pensioners over 75 receive an average of just £28.
The record of the state’s earnings-related scheme (Serps) is not much better. The current average payment is £53 a week for single male pensioners and £27 for females. Nor does investment income, largely from personal pensions, help much. The recently retired gain, on average, £24 a week, while the over-75s pick up £12 a week.
Recent developments reinforce low incomes among the elderly. Occupational schemes are being remodelled from generous ones based on final salaries to typically much less generous arrangements based on what contributions have been amassed. The Tories cut Serps entitlements, only to cut them again for future pensioners. For personal pensions, the annuity market now delivers half the weekly pension gained a decade ago. Second-tier pensions are therefore delivering a comfortable retirement only for the few.
The most vocal pensioners are those who saved what they could for retirement, and then found that this disqualified them from receiving means-tested assistance. In some cases, these people are worse off than if they had not saved at all.
It is these crucial voters whom the Chancellor will try to appease at conference, when he unveils the “pensions credit”. How this will work remains murky. Press releases suggest that pensioners will have to give details of what income they derive from savings and investments. They may then be eligible for a top-up on each pound they have saved.
The aim is to abolish means testing and reward savings. Some pensioners will gain, but my guess is that many will bitterly resent being asked about how they organise their finances. More generally, credits are complicated. There comes a point when the cleverness of a scheme confuses those who are the supposed beneficiaries.
So what should the government do? As we have seen, pensioners’ incomes vary significantly by age. Typically, the older the pensioner, the smaller the value of any savings or second pension. Hence the Lib Dem call for a higher state pension, graded according to age. But the government argues that any such increase will be lost to many of the poorest pensioners, who will simply see a corresponding amount taken off their means-tested benefits.
The way round this, I propose, is to make a slight remodelling of what is called the attendance allowance. This is paid to people who need extra help and, crucially, it is disregarded when entitlement to means-tested benefits is calculated. Thus, the attendance allowance is not clawed back from the minimum income guarantee.
If the Chancellor introduced a new level of attendance allowance (say, £10 a week), paid automatically to every pensioner aged 75, and a slightly larger one (say, £15 a week) for pensioners aged 80 or over, he would satisfy the government’s understandable wish to target help on the poorest pensioners. Unlike the means-tested strategy, it offers an automatic 100 per cent take-up. And none of the increase is clawed back from any means-tested help that the government has already provided for the pensioner population.
A government seriously wishing to shed the label of arrogance, tied around its neck by crucial parts of the electorate, could do no better than begin listening on this front.
The writer is MP for Birkenhead, and former minister for welfare reform
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