Ros Altmann: Means testing’s taking us off a path to opportunity

Pensioners are at the centre of a political tussle. David Cameron says he will keep his pre-election pledge to protect pensioner benefits such as Winter Fuel Payments, free prescriptions and TV licences, while Nick Clegg wants to means-test them.

In these difficult times, with politicians desperate to find extra revenue from somewhere, the superficial attraction of raiding this particular target may be understandable, but extending means-testing for pensioners would be a massive mistake.

Of course there are some who do not need Winter Fuel Payments or bus passes. But that does not mean they should not be provided. Universal benefits have an important purpose – they ensure all those who need money will get it. We know that many pensioners are too proud to claim and some would rather starve or freeze than apply for what they see as hand-outs.

Every winter, more than 20,000 older people die of cold in the UK. Shamefully, we have more excess winter deaths than in other European countries with far worse winter weather than ours. Taking away Winter Fuel Payments would leave many more pensioners at risk.

In fact, the reason we have all these additional pensioner benefits is because the UK’s Basic State Pension is among the lowest in the developed world. Instead of increasing the state pension, successive Governments have bribed pensioners with top-ups in the form of different ‘benefits’ so they can make ends meet. These benefits are really part of the state pension entitlement.

The notion of millions of very rich pensioners is not a reality. The vast majority of pensioners are not on high incomes. Average net income for all single pensioners is just £11,630 a year and £20,765 for pensioner couples. Only 2 per cent of pensioners pay higher-rate tax, Therefore, the amount of money raised by taking benefits away from high-income pensioners would not be significant. Millions of people would be eligible to claim these payments, which would be extremely complex and costly to administer.

And, of course, means-testing particularly penalises those thrifty pensioners who have saved to provide more income for themselves in later life.

In fact, means-testing pensioner benefits is like proposing that people who don’t save get a state pension – those who put money by get nothing.

Of course, taking away some pensioners’ benefits would save some money, but it would be a very short-sighted policy, with dangerous longer-term consequences. Millions of average earners would resent seeing colleagues who failed to prepare being supported by the state, while their own savings mean they are excluded from help.

If we did go down this route, where would it lead? Our national insurance system ensures that everyone who pays their contributions will be entitled to their state pensions. But those with higher incomes don’t really need them. This could be the slippery slope to future calls for pensioners with good private incomes to lose state pensions.

We need less means-testing not more. Indeed, the proposals for a flat-rate £140 a week state pension reform are based on the recognition that there is already far too much means-testing in the state pension system, which undermines incentives to save. And as we start automatically enrolling employees into a workplace pension scheme, it hardly makes sense to propose an extension of means-testing.

The fiscal pressures won’t go away but there are far more sensible ways to consider cutting costs. For example, Winter Fuel Payments and some other benefits are tax-free. Revenue could be raised by making them taxable just as state pensions are taxed. The elegibility age could be increased to save money.

The country really needs a more comprehensive national debate about old-age support. Radical state pension reform could facilitate a proper, comprehensive reconsideration of all pensioner payments. If there was a more generous basic state pension, many of the extras could be rolled into it.

In the meantime, the richest can be encouraged to give payments to others. For example, Saga is supporting the Community Foundation Network’s ‘Surviving Winter’ campaign, which gives money to those struggling to keep warm. Last Winter, the campaign (www.survivingwinter.co.uk) raised more than £2million, which helped more than 20,000 people.

In future years, as pensioner numbers grow, taxation policy and age of entitlement adjustments can help control costs, but the principle of universal benefits is essential, particularly if we are to encourage saving.