FINANCIAL ADVISER
SEPTEMBER 2000
Government’s Pensions Strategy Sparks Outrage
The Government last week opened up a new political front on pensions. Or that is how it was billed. The statement on the pension credit was first trailed at the Budget. What was new this time was that pensioners with small savings should be rewarded rather than penalised as they are under current policy.
Soon after the election the Government announced the Minimum Income Guarantee (MIG). In reality the MIG is income support re-badged with the rate of the benefit raised. But here the trouble began for the Government. MIG is linked to earnings while the standard state retirement pension is raised in line with prices only.
Last year the state pension was raised by 75p per week while the MIG was increased by £3.45p. Not only did this difference rub salt in the 75p wound, but it made the MIG a political issue amongst pensioners – as I found out canvassing in the local elections.
Once on the MIG pensioners get their rent and council tax paid in full – a bonus often of £70 to £80 per week in my constituency. But those who have saved, or voluntary joined a works pension scheme can find themselves penalised. If their additional income takes them above the eligibility level for MIG they lose out not only of the extra £10.95 MIG pays above the state pension but with the automatic passport to free rent and nil council tax.
Pensioners have not been slow to pick up on the black hole at the centre of the Government’s pensions strategy. MIG sends out the most powerful of messages. If you save you will be penalised. If you join a company or private pension scheme you may make yourself worse off. With a strategy like this Yeats’ phrase ‘the centre cannot hold’ comes to mind.
It is unsustainable in the long run for the Government to run MIG increases in line with earnings and the state pension in line with prices. Increasingly it makes a nonsense of trying to sell Stakeholder pensions to workers – especially older workers – who probably will not be able to makes themselves better off even if they start saving now. If the Government does not understand this, potential Stakeholder buyers certainly do. And each year the non-contributory MIG will move further and further ahead of the contributory National Insurance pension.
Last week’s pensions credit announcement attempt to buy time by extending the olive branch to those pensioners who feel that their modest savings and pensions have been thrown back in their faces. A close look at the speech suggest that only a consultation will occur before the election. The pensions credit will not therefore buy off the pensioners’ lobby for the next election. Nor will the proposed consultation in the autumn cut much ice amongst those pensioners who found their own third way in the local election and refused to turn out for Labour.
Canvassing in most elections is a pretty ordinary business. This year’s local elections were very different. It was exciting. It was clear that something new was happening. Without any organisation pensioners had come of age politically.
Pensioners are the fastest growing group of the electorate. ‘Grey Power’ decided the outcome of the local elections. Lifelong Labour voters, who are now pensioners, abstained in huge numbers.
We all know the outcome of this spontaneous coming together of the pensioner vote. The Government would be unwise to gamble on pensioners automatically returning to the Labour fold at the next election. New policies have to be announced and implemented before the polls open again next time. Next month I will argue for one such approach.
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