Lynne Jones MPIf we are to truly ‘tackle
exclusion in all forms’ (Tony Blair’s introduction), members of every sector
of society must feel they have a stake in the modern, progressive welfare state that,
according to the section on ‘Vision and Values’ we aspire to. Yet the
main thrust of Government policy on pensions and other benefits, uncritically endorsed in
the document, has been to substantially increase the amount of means testing in the social
security system. This would not be acceptable in policies relating to other aspects of the
welfare state, particularly health and education services, which are available free even
to the very wealthy, who contribute through taxation. It is therefore disappointing that
the document fails to give any analysis of the role of means testing and consists largely
of a restatement (repetitively) of existing Government policies.
Whilst the Government is to be praised for the additional help given to pensioners and
families, there is a failure to recognise that the complexity of the system we are
creating will render it extremely vulnerable to erosion by less generous governments that
may follow. (Even Labour Governments have been known to freeze benefits, for example.) A
system that cannot be understood is not sustainable and will not allow people to plan into
the future with confidence.
Given these general comments, I feel there are only three specific questions worth
commenting on:
1.Are we right to focus on work as the best form of welfare
(repeated in Q12)
No. Work is important not just as a source of income but also as a source of
well-being. However, I reject the implication in the document that there are able people
who are unwilling to work. Many people in work still live in poverty. Means-tested tax
credits are not the most efficient way of helping them given that 69% of those on two
thirds average earnings still pay tax (parliamentary question). A better approach would be
to increase the minimum wage and radically increase the income at which workers start to
pay tax. Better still would be to roll up the personal tax allowance into a Citizen’s
income. Help to overcome barriers to work is also important but compulsion is
counter-productive, particularly for mentally ill and other disabled people.
18.How do we best meet our commitment to let pensioners
share in rising national prosperity?
and
22.What further improvements may be necessary (for
tomorrow’s pensioners) to encourage everyone who can afford to save for their
retirement to do so?
I was pleased at the recognition that it is ‘crucial’ that the
pensions system is ‘sustainable in the long term’ but no policies are put
forward that will actually achieve this! It is highly doubtful that the complex system
that has built up on a piecemeal basis over the last five years will stand the test of
time. No wonder ministers have refused to consider providing information to workers about
the impact of any personal or occupational pension they have on their entitlement to state
pensions or benefits (parliamentary questions). The interaction
between state and private provision is crucial for those on modest incomes. Even if it
survives, the pension credit is insufficient ‘incentive’ to them given the poor
performance of personal pension schemes (including Stakeholders) and the demise of defined
benefit occupational schemes as well as the fact that any private pension is still taxed
at 40%. At full maturity, the combination of the basic state pension (BSP) and the state
second pension (SSP) will be worth less that the value of the BSP alone as a proportion of
earnings when it was linked to earnings (Pensions Provision Group). Furthermore, because
the SSP is not earnings-linked, its value will be eroded with the consequences that older
pensioners will be forced back onto means-tested benefits.
It is essential to remove perverse incentives to save within a system that people can
understand. This will require a basic pension set at least at the level of the MIG
together with the restoration of the earnings link. Such a move would do away with the
need for the Pension Credit and flat rate SSP, simplifying the system at a stroke.
Proposals to achieve this at no extra cost than in Government plans, provided the official
retirement age is increased to 67 by 2030, have been put forward by the Institute for
Public Policy Research. Further support for a more generous state pension has come from
the Pensions Policy Institute and private sector pension advisers like Watson Wyatt and
Mercer.
Under such a policy, people know that saving for an additional pension will not affect
their entitlement to state benefits, which will retain their value. It will then be
necessary to consider how best to promote further saving. At present the most affluent get
the greatest tax incentives. Resources could be switched to those of more modest means by
limiting tax relief on pensions saving to the basic rate and using the £1.7 billion thus
released (parliamentary question) to provide an incentive
payment to match an initial proportion of pension savings. The practice of many
occupational schemes of reducing pensions by the BSP should be outlawed and those without
access to a good occupational pension should be given the option of contributing to a
state supplementary scheme operated at arms length from Government and part funded. This
is a modification of a proposal put forward by Frank Field.
Lynne Jones 3/10/02