The article reproduced below was published in the December 2001 edition of Pensions Management magazine

In his 1989 book, Where There is Greed, Gordon Brown urged that "In a rational world, basic pension arrangements would be characterized by a strong Government role and generous basic provision". He added:" Tory policy is one of fragmentation via company schemes and personal equity based arrangements, with a gradually dwindling state-provided minimum as a safety net for the thriftless". Now that he is effectively in charge of the Labour Government's pensions policy, he appears to have abandoned the rational world and adopted the policy previously condemned, albeit that the minimum safety net is no longer declining. On the contrary, in line with the stated aim of targeting extra help to the poorest pensioners, the Minimum Income Guarantee (MIG) for pensioners is now £20 more a week than the contribution-based basic state pension, a differential set to increase substantially as the means-tested benefit increases in line with earnings but the basic pension is linked only to inflation.

No one would argue that more should not be done for the poorest. Their numbers swelled in the eighties and nineties. But to do so by increasing means-testing (against the stated aim of reducing it) not only ignores the poorest pensioners who do not claim means-tested benefits (even after a major take-up campaign) but sends the wrong message to pensioners with small private pensions or savings who are no better off than had they relied entirely on the State. Policies to address pensioner poverty today, which perpetuate poverty and dependency in the future, deserve no accolades.

Nevertheless, the Government's welfare reforms confirmed the decline of the basic state pension and created the State Second Pension, geared towards the low-paid. By 2040, after a lifetime's work, they would receive combined state pension 30% above the MIG but linked only to inflation and thus declining in value thereafter. Those on moderate incomes (stated to be between £10,000 and £20,000) were to be offered generous rebates to opt out into a private pension, specifically the Stakeholder Pension, a new type of private pension regulated to reduce charges. Whilst accepting that personal pensions are inappropriate for the low-paid, the aim was to reverse the 60:40 split between state and private provision. But far from being a robust policy for the long-term, scarcely was the ink dry on the proposals, than the tinkering began.

Stung by the outcry following the 75 p state pension uprating and accusations that perverse incentives were being intensified, the Government announced a short-term uplift for the basic pension and devised the Pensions Credit to "reward" thrift, making the system even more horrendously complicated and subjecting even more pensioners to means-testing. The Credit (hardly a name to endear itself to pensioners) is a 60% disregard for the purpose of assessing entitlement to the MIG on pensions other than the basic state pension below an upper limit. Entitlement will taper out at incomes of £135 a week for a single pensioner, £200 for couples. If the mind is boggling already, just try working out what happens when interaction with existing disregards, for example on earnings, and other means-tested benefits like housing and council tax benefits is included. Added complexities are the treatment of couples with individual pension entitlements (being means-tested jointly) and the withdrawal of any gain from those in residential or nursing homes. The Institute for Public Policy Research must surely be right when they say that the Government's policy is a muddle, unraveling and something needs to be done about it quickly. The Pension Provision Group of experts points to potential mis-selling claims for Stakeholder providers and the very real risk that the Government's proposals could result in many people actually saving less! They have done their best to improve the Scheme by suggesting it should only be transitory but this hardly makes for stability and certainty.

If it is time to go back to the drawing board, surely it is also time to challenge the accepted wisdom supporting greater private provision in pensions. The stock-market model of pensions has already failed by its own criteria of improving savings, investment and economic growth. A nationwide poll carried out earlier this year for the Post Office, found that 63% of people want the Government to improve the current state pension, eliminating the need for Stakeholders. As a long time advocate of this, I was heartened by the fact that, in a recent parliamentary debate, there was much cross-party recognition that generous tax benefits available for Stakeholders Pensions were largely being directed at affluent groups and, more importantly, calls from all sides for improvements in the state pension. Only a decent state pension offers the security that people need to plan for their future. Ironically, it also provides the surest foundation for private schemes to prosper. The pensions industry should make common cause with the Pensioners' Convention and support a return to the rationality once advocated by our Chancellor of the Exchequer!

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