Means testing state pension would only deter saving, says ROS ALTMANN

Baroness Altmann is a former Pensions Minister who campaigns for the elderly and sits in the House of Lords.

It is only right to properly protect state pensions in the midst of a cost-of-living crisis, especially after last year’s real cut.

The criticism of the 10.1 percent inflation increase for the state pension is disappointing, and the call from some quarters to introduce income-dependent benefit recipients is not the answer.

This would undermine private pension provision.

The Labor government in the early 2000s significantly extended pensioner income testing when it introduced pension credit.

That today brings the income of the poorest single pensioners to a few pounds a week below the level of the full-rate state pension, and much less than double that of couples.

It is a valuable safety net to prevent the elderly from falling into absolute poverty.

However, it is also important to recognize that in the years following the launch of pension credit, private retirement savings plummeted.

Any plausible system of income testing of state pensions would produce the same result.

If people find themselves penalized for having a private pension, more and more people will not bother to save.

And when it comes to intergenerational equity, testing means that younger workers, our country’s future state pensioners, will harm more than anyone else.

It will now be those in their 20s, 30s and 40s who will lose out if it is introduced because it will inevitably mean they miss out on the pensions older generations receive.

They are the ones who will not benefit from the protective measures that are ultimately used for those nearing retirement or already retired.

Today, millions of retirees live on state pensions alone – about £10,600 a year for newer retirees, or £8,100 plus second state pension or Serps supplements for older people – which is the lowest in the developed world.

Last April, the AOW rose by only 3.1 percent, despite an increase in income of more than 8 percent.

The government broke its triple lock state pension promise just as inflation hit 9 percent that month and hit double digits last summer.

In April, critics suggest retirees should not have been protected with a 10.1 percent increase, mainly because wages have risen less over the past year.

Such comments ignore the realities faced by millions of retirees in this country who were shortchanged and abandoned a year ago.

There are some well-to-do pensioners, who have enough income or other assets to supplement their state pension, but many live on very low incomes.

More than £50bn a year is also spent on private pension incentives, which are supposed to supplement the minimum state benefit – that’s how our National Insurance welfare state has always been meant to work.

However, today’s retirees did not all have the opportunity to accrue private pensions when they were younger, so they are completely dependent on the state pension, which they have often paid contributions to for decades through the national insurance schemes.

The current state pension is hardly a king’s ransom, and pensioners will not be able to earn more in the future to make up for today’s low incomes.

Older generations have also received assurances from successive prime ministers and opposition parties that their small state pensions will be protected.

Without proper inflation protection, promises to take care of retirees are worthless.

This is a political choice about spending priorities. It is also a matter of morality and social responsibility.

Our welfare state is based on people working and contributing to society for most of their lives, their contributions ensuring them a basic pension – not a fortune, but enough to pay essential bills in return, when they are too old to Get on.

The government’s energy price cap may make it easier to budget for heating bills, but it doesn’t cover rising food costs, insurance, over-the-counter pharmacy supplies, and more.

Retirees are still important members of our society and our contract with the welfare state requires that they be treated fairly.

After breaking the solemn promise to protect the state pension last year, it was only right to ensure a decent increase this time.

Millions have little more than this minimum to live on and the government’s decision to give them a 10.1 percent wage increase was the right one.