THE Autumn Statement confirmed several things about George Osborne. His inability to hit even his own targets, for instance, and his dexterity at performing U-turns and climb-downs without entirely shredding his credibility as Chancellor.
Also, that one thing he won’t do is risk upsetting the grey vote. True to form, it was confirmed on Wednesday that the triple lock on the basic state pension ensures it will rise 2.9 per cent in April, to £119.30 a week. It may sound modest, but it’s the biggest increase in 15 years and the consumer prices index measure of inflation is currently negative.
Of the £251 billion the UK spends on welfare, some £83bn is on state pensions. Add other forms of pensions and old age benefits and the portion of the pie that goes to pensioners rises to more than £131bn.
The problem is not so much that it’s big, but that it’s only going to get much bigger as life expectancy increases. The Office for Budget Responsibility predicts that retaining the triple lock – the guarantee that the state pension will rise each year in line with whichever is highest of earnings, inflation or 2.5 per cent – will add up to 1 per cent of GDP to the annual cost of paying state pensions.
So you might expect the government and other policymakers to be looking at ways of reducing the dependence on state pensions. Not a bit of it. In fact the Autumn Statement contained measures that will only make it harder for people to build their own savings (including low income workers still bearing the brunt of his spending cuts despite the tax credits delay).
Osborne has decided that the most successful initiative in recent times in boosting pensions provision is now fair game for more revenue raising. He is making the Treasury around £840m by pushing back the planned (and vital) increase in the minimum contributions employers have to give staff that have been automatically enrolled into pensions.
Now:Pensions, a workplace pension provider, estimates that the delay will cost average earners nearly £800 of pension savings. In fact the very future of auto-enrolment is being questioned due to the pressure on small employers struggling to cope with demand.
Pensions “freedom” simply shifts the risk to individuals, many of whom will pay too much tax and find there’s too much life left at the end of the money. But it’s bringing in plenty for the Treasury – in the short-term at least – and it went down well with the grey vote.
But what of tomorrow’s pensioners? This is where things get messy for the government, thanks to the flat rate pension taking effect in April. This will start at £155.65 a week, Osborne confirmed, but nearly 70 per cent of new claimants over the first four years of the flat rate pension will receive an amount below the flat rate, according to the Institute for Fiscal Studies.
The problem is compounded by the shambolic communication of the changes. Six in ten people aren’t aware that those who contracted out won’t get the full amount, according to new research for the Open University Business School.
Those affected will feel confused, angry and shortchanged. The greying vote might be up for grabs over coming years after all.