Wednesday, 10 November 2010

How the Tories have hit pensioners incomes hard

Despite misleading comments towards pensioners such as Nick Cleggs ridiculous Triple Lock Guarantee, pensioners have been hit hard by this Coalition Government. The Tories have had little to say leaving it the the LibDems to do the explaining and carry the can.

To add to this list are Housing Benefit reductions. 2,000,0000 pensioners are currently in receipt of Housing benefit.

1. The Government’s actions so far for pensioners
• A VAT rise costing pensioners £2.40 a week
• An additional year of re-link to earnings that fails to make pensioners better off
• A cut of over £2.50 in real terms for the Savings Credit for pensioners on modest incomes (local statistics attached)
2.Key questions the Government must answer about plans for a “citizen’s pension” reported in the media
3. Labour’s record for pensioners

1. The Government’s actions so far

i) VAT – Pensioners hit hard with no compensation

When the Government decided to increase VAT, they also decided to increase the tax-free personal allowances for people of working age. But they made no similar change for pensioners, so that next year pensioners can be expect to be hit hard by the VAT rise without any compensation.

According to a Parliamentary Question answered by the Government, the VAT rise will cost

• £275 a year for a pensioner couple (£5.28 a week)
• £125 a year for a single pensioner (£2.40 a week)

Source: Figures for a one percentage point rise were given by Treasury minister David Gauke, on 5 July 2010

ii) The Basic State Pension – fine print reveals that pensioners set to lose out on Government plans

• At present, the Basic State Pension (BSP) is increased each year by either 2.5% or by the Retail Price Index (RPI), whichever is higher.

• Following the Turner Commission, all parties committed to linking the BSP to earnings. In Labour’s General Election Manifesto, we promised to do this in 2012/13.

• In the June Budget, the Government declared that it would bring forward the link to earnings to 2011/12. But, because earnings are forecast to actually be below prices next year, this will not give pensioners a boost at all. The Budget estimates that, for next year, no additional money will be allocated to pensioners (June Budget, Table 2.1, p40-401).

• However, the Government have also said that they will use the, normally lower, Consumer Prices Index to uprate the Basic State Pension, rather than RPI.

• Although the Government claim that bringing forward the earnings links helps pensioners, the total effect of implementing their plans a in 2011/12 rather than 2012/13 is that pensioners are around £2 a week worse off each year of this Parliament.
Level of the basic state pension, standard rate on own contributions, weekly amount (£)
Year of earnings link restoration
Level of BSP in: 2011-12 2012-13 Difference
Apr-11 £99.50 £101.85 £2.35
Apr-12 £101.50 £103.90 £2.40
Apr-13 £103.65 £106.10 £2.45
Apr-14 £107.70 £110.25 £2.55
Source: Parliamentary Answer given by Steve Webb, 6 September 2010
iii) The Savings Credit – a real terms cut for pensioners with modest savings

• The Savings Credit is a top up tax credit for pensioners with modest savings, worth £20.52 for a single pensioner and £27.09 for a pensioner couple.

• It goes to pensioners with a household income of up around £184 a week for a single pensioner and around £270 a week for a pensioner couple.

• In the Spending Review, the Government announced a cash freeze for the Savings Credit over four years, which means a real terms cut.

• That means, on average, more than £2.50 a week cut for everyone receiving Savings Credit .

• The attached file has a breakdown of local statistics on the number of savings credit recipients in each UK constituency.

2. Newspaper reports of a “Citizen’s Pension”

• The Government need to tell people exactly what they are planning on such an important issue. So far all we have seen are media reports.

• Of course we will look at what the Government propose, and there are many benefits to a simpler system, especially one that could be more generous to women. We were the Government that, from April 2010, cut the years that women need to qualify for a full Basic State Pension from 39 to 30. We were also the Government that introduced the non-contributory Pension Credit that helped lift over a million pensioners out of poverty.

• But there are many serious questions to ask of this proposal, which the Government don’t seem ready to answer yet. With the poorest pensioners already the hardest hit by the decision to increase VAT, many pensioners won’t just want to take this Government’s word for it that they aren’t just giving with one hand and taking with the other. For example:

Q. Will it do anything for the poorest pensioners?

• The poorest pensioners are already guaranteed an income through Pension Credit Guarantee. Currently that is £132.60 for a single pensioner. So increasing their income to £140 a week will not be much, if anything, over the standard uprating.

• For those on a little more than £132.60, they will lose over £2.50 a week because of the real terms cut in the Savings Credit (see above), so could end up being worse off.

Q. What would it mean for State Second Pensions and National Insurance Contributions?

The Government have not said who will pay for this plan. The Turner Commission, when it looked at the issue of a similar scheme but did not advocate it, specifically cited the loss of National Insurance rebates for people who contract out of the State Second Pension as the likely revenue source. It also raised the question of what would happen to people with accrued SERPS or S2P rights.

3. Labour’s record on pensions

• Average pensioner incomes have increased by 25 per cent since 1998-99, more than the rise in average earnings over the same period (11 per cent).

• Targeted measures like the Pension Credit, have lifted 900,000 pensioners out of relative poverty since 1998

• Labour ensured that no pensioner need live on less than £130 per week (compared to £69 per week in 1997). This is an increase of over a third in real terms.

• From April 2010, Pension Credit will be £132.60 a week (or £202.40 for couples).

• We introduced the Winter Fuel Allowance which has benefited 12 million pensioners.

• Under Labour the basic state pension has risen 12% above earnings since 1997. Labour’s march Budget increased the basic state pension by 2.5% so that from April 2010 the basic state pension is £97.65 a week or £156.15 for couples

• 60 per cent of pensioners do not pay any tax because of increased tax thresholds for pensioners.

• We introduced free loft and cavity insulation for everyone aged over 70 to help insulate people’s homes.

• Labour Introduced free off-peak travel on local buses anywhere in England for 11 million over-60s and eligible disabled people.

• We introduced free TV licences for over-75s.

• We legislated to tackle unfair age discrimination in the workplace.