I wrote the following article for the November edition of Pensions Management magazine
So, the Tories have done a U-turn by saying they will restore the link between the basic state pension and earnings broken by Margaret Thatcher in 1980. Not exactly! Rather they have adopted the tactic of pretending that they have espoused this principle, so cherished by pensioner campaigners. This is a ploy to win back the pensioner vote wooed away by the goodies bestowed on them by Labour – winter fuel allowances, free TV licenses and, for those that claim them, a significant increase in means-tested benefits. What the Tories have accepted is that to encourage maximum saving, the basic state pension must be set at a rate no lower than the pensioners’ means-tested benefit. This is currently a minimum of £102.10, some £24.55 higher that the maximum basic state pension a single person could receive. It is good that the Tories have accepted this principle but their spokesman, David Willetts, is clever enough to know that this alone will win few votes. As usual it is necessary to look behind the headlines to see what is going on.
Mention of the phrase “earnings-link” in the context of retirement brings an immediate association with a pension that will keep up with rising standards of living. But this is misleading unless the pension is first set at a decent level, with indexing for the long term. Mr Willetts realises that he cannot equalise the pension with the means-tested benefit by overtly reducing the latter. Instead he must find a way of letting the pension catch up. At present, the means-tested benefit, renamed the Guarantee Credit (short for Guarantee element of Pension Credit) rises with earnings, which is at a faster rate than the state pension is guaranteed to increase. The Tories would reverse this, holding down the Guarantee Credit until the pension catches up. In this way they hope that poorer pensioners that benefit under Labour’s policies won’t notice their losses.
Recent electoral battles have been for the swing voters – those epitomised by the terms Mondeo man and Worcester woman. Older people were regarded as set in their ways, mostly Tory - hence New Labour’s cynical decision to ditch its commitment in opposition to increase the basic state pension and restore the link to earnings. The old policy would win no new votes but would increase public expenditure, seen as a turn-off to younger voters.
How things change! We have an aging population and older people are now much more likely to vote. It is a foolish politician that does not seek their support.
The rise of “Grey Power” has helped put some sense back into Tory policy. Nevertheless, people should not be hoodwinked into believing that there will be any commitment from the Tories to increasing the value of the state pension once it has reached parity with the Guarantee Credit. At this point, incentives to save will have been properly restored but incentives to Tory politicians to increase pensioner benefits to the level campaigners want will have been all but removed. The Tories’ plan to abolish the State Second Pension is not to divert the money into better basic pensions, as has been proposed by others, but to save money and ensure that the only second pensions available are privately run. In contrast, Labour’s policies have been targeted at existing pensioners, who now have more money in their purses and pockets – though many would think not enough. As I have attempted to demonstrate, the Tories are trying to curry favour with this group but their real aim is to encourage more private saving amongst younger age groups to reduce reliance on means tested benefits in the future.
Both approaches are needed. By keeping up the fight for a substantial increase in the basic pension and for a commitment that they should share in rising living standards long-term, pensioners surely have a common cause with their grandchildren. Those newly on the electoral roll have not been given the same advantages received by post-war baby boomers like myself (surely the luckiest generation ever). Many start their adult life in debt from student loans and mortgages. They cannot look forward to the good occupational pensions their parents expected. Indeed they could well find that any contributions they make are diverted in order to bail out older scheme members! No wonder voting seems irrelevant. Whoever’s in power, they seem to lose out. The political party that can attract their vote will be the one that will win in the future. It should be Labour. A decent pensions’ policy would help counter voter apathy and the understandable cynicism caused by the ploys that I have described here.
Lynne Jones MP
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