The Chancellor of the Exchequer, Gordon Brown, announced to Parliament the results of the Government's Comprehensive Spending Review (CSR) on 14 July 1998, this included details of a special £2.5 billion pensions package. The package consists of three elements:
It is noteworthy that the CSR describes the means-tested income support payable to pensioners as providing a 'minimum pensions guarantee'. The concept of a minimum pensions guarantee has gained support during the last decade. For example, the Report of the Commission on Social Justice, published in 1994 introduced the idea of a pensions guarantee. Everyone reaching pension age would claim the State retirement pension in the usual way. All their pensions - the basic pension, SERPS and any occupational or personal pension - would be aggregated and, if there was a shortfall, an extra amount would be added to their basic pension to bring them up to the level of the pension guarantee.
Unlike income support, the guarantee would only take into account extra earnings from employment if they exceeded a reasonably substantial amount. The minimum pensions guarantee would also ignore savings and assets although it could take account income from savings once it reached above a certain level.
The distinction to be made is that the proposal was for a minimum pensions guarantee rather than a minimum income guarantee. This concept of a minimum pensions guarantee was reinforced by the Retirement Income Inquiry which reported in 1996. The Inquiry team recommended an assured pension where the pensioner's assets would be ignored although earnings and income from non-pension savings would be taken into account subject to a modest disregard.
Under the current legislation, however, the CSR uprating of income support levels for pensioners is fully means-tested by looking at assets and income from all sources. It therefore differs from the minimum pensions guarantee proposed by the Commission for Social Justice and the Retirement Income Inquiry. However, the CSR move to grant pensioners who qualify for income support three times the increase they would have received under the usual income support uprating rules closely follows one of the main assumptions of the Pension Provision Group which reported in June 1998 (see above) i.e. that means-tested benefits for pensioners would have to increase faster than the rate of price inflation. It is noteworthy that it was also a key characteristic of both the pensions guarantee of the Commission on Social Justice and the assured pension of the Retirement Income Inquiry that the level of these minimum pension guarantees must keep pace with earnings growth.
It is probable that the Government will want to examine the disincentive effect that extending the importance of means-tested pension provision will have: the obvious solution is to extend the level of compulsion on the making of private pension provision but this has several difficulties. The Pension Provision Group gave the following warning:
'In our opinion a means-tested safety net for those who cannot build up good second pensions is inevitable. Nevertheless, the key question for policy makers is how to achieve the right balance of compulsion and incentives to ensure that those who can avoid reliance on means-tested benefits do so while avoiding the position where significant numbers - encouraged, if not compelled, to make their own provision - find themselves no better off than if they had not done so.'
For further information please contact Jane Marshall, e-mail: Click Contact Link , 7 Devonshire Square, Cutlers Gardens, London EC2M 4YH, UK, Tel: + 44 171 655 1000
This article was first published in the Winter 98/99 Hammond Suddards Pensions Newsletter
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
- from April 1999 those pensioners who qualify for income support will receive three times the increase they would have received under the usual income support uprating rules
- a new delivery system using data-matching and personal advisers will be put in place to begin to help the estimated one million poorest pensioners who are currently entitled to income support but have not claimed it
- all pensioner households will receive an annual payment of £20 for fuel bills, free eye tests and concessionary travel rights.
It is noteworthy that the CSR describes the means-tested income support payable to pensioners as providing a 'minimum pensions guarantee'. The concept of a minimum pensions guarantee has gained support during the last decade. For example, the Report of the Commission on Social Justice, published in 1994 introduced the idea of a pensions guarantee. Everyone reaching pension age would claim the State retirement pension in the usual way. All their pensions - the basic pension, SERPS and any occupational or personal pension - would be aggregated and, if there was a shortfall, an extra amount would be added to their basic pension to bring them up to the level of the pension guarantee.
Unlike income support, the guarantee would only take into account extra earnings from employment if they exceeded a reasonably substantial amount. The minimum pensions guarantee would also ignore savings and assets although it could take account income from savings once it reached above a certain level.
The distinction to be made is that the proposal was for a minimum pensions guarantee rather than a minimum income guarantee. This concept of a minimum pensions guarantee was reinforced by the Retirement Income Inquiry which reported in 1996. The Inquiry team recommended an assured pension where the pensioner's assets would be ignored although earnings and income from non-pension savings would be taken into account subject to a modest disregard.
Under the current legislation, however, the CSR uprating of income support levels for pensioners is fully means-tested by looking at assets and income from all sources. It therefore differs from the minimum pensions guarantee proposed by the Commission for Social Justice and the Retirement Income Inquiry. However, the CSR move to grant pensioners who qualify for income support three times the increase they would have received under the usual income support uprating rules closely follows one of the main assumptions of the Pension Provision Group which reported in June 1998 (see above) i.e. that means-tested benefits for pensioners would have to increase faster than the rate of price inflation. It is noteworthy that it was also a key characteristic of both the pensions guarantee of the Commission on Social Justice and the assured pension of the Retirement Income Inquiry that the level of these minimum pension guarantees must keep pace with earnings growth.
It is probable that the Government will want to examine the disincentive effect that extending the importance of means-tested pension provision will have: the obvious solution is to extend the level of compulsion on the making of private pension provision but this has several difficulties. The Pension Provision Group gave the following warning:
'In our opinion a means-tested safety net for those who cannot build up good second pensions is inevitable. Nevertheless, the key question for policy makers is how to achieve the right balance of compulsion and incentives to ensure that those who can avoid reliance on means-tested benefits do so while avoiding the position where significant numbers - encouraged, if not compelled, to make their own provision - find themselves no better off than if they had not done so.'
For further information please contact Jane Marshall, e-mail: Click Contact Link , 7 Devonshire Square, Cutlers Gardens, London EC2M 4YH, UK, Tel: + 44 171 655 1000
This article was first published in the Winter 98/99 Hammond Suddards Pensions Newsletter
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
