TACKLING POVERTY AMONG TODAY'S PENSIONERS
78. The urgency attached to this inquiry concerns
the position of today's pensioners, where the latest figures show
that the numbers living in poverty are increasing.
'Today's pensioners' encompasses a group which stretches some
distance into the future. Baroness Greengross pointed out, "if
we are going into an age when people provide more towards their
own retirement, and that is accepted, ...then you cannot expect
people who are now over, maybe even 40, certainly 45, to be able
to do that, because they just will not be earning for long enough
to avoid the problems that today's pensioners are facing."
Our analysis of long-term pension reform shows that it will be
25 years at least before the new state second pension will have
halted the decline in SERPS which has begun for people retiring
after 1999. New stakeholder pensions, yet to come on to the market,
will take many years to mature. Meanwhile the value of the state
retirement pension is declining as a proportion of average earnings.
For the current generation of pensioners, and those retiring in
the next 20 years or so, more immediate measures are needed if
the problem of pensioner poverty is to be addressed.
79. The National Pensioners Convention argued that,
"whatever advantages may accrue in the distant future from
the development of occupational and stakeholder schemes, only
the state scheme can deliver short-term improvements."
We agree that only the state is in a position to respond to the
current problem of pensioner poverty. The question we have grappled
with is, until the Government's wider pension reforms take effect,
how best can the state ensure that present day poverty among pensioners
is overcome? The arguments put to us can be distilled into two
distinct approaches. The first is the case for raising the basic
state retirement pension. The second is the case for a means-tested
approach to target the poorest pensioners. The arguments for and
against these different approaches are discussed below.
Raising the state retirement pension
80. "In our view, improving the basic retirement
pension is the quickest way of substantially relieving poverty."
The view of the National Pensioners Convention is representative
of the many contributions to the inquiry we have received from
pensioner organisations, both local and national, supporting the
case for raising the basic state retirement pension as a means
of tackling pensioner poverty. Age Concern commented, "What
pensioners consistently tell us is that they want a decent level
of non-means-tested income and the choice of how to spend their
81. Many of the arguments in favour of using the
state retirement pension as the basis for improving the incomes
of pensioners draw on a belief in the principles of National Insurance,
which were explored by us in our last inquiry into the Contributory
Principle. Mr Jack Jones of the National Pensioners Convention
was the clearest exponent of the value of the contributory system
of benefits. He said, "When the pension came in, the objective
was to take people out of pauperism...it was introduced as a contributory
scheme, backed by the nation, and with a contribution from the
nation... Attlee (when Prime Minister)....promised that the pension
would be adequate to live on without means-testing, that was the
purpose. ...The idea that everybody contributes compulsorily to
a state scheme, backed by the state, the employers all contribute,
and the state makes a contribution, is a very good conception,
that ensures that the bulk of people are covered by it. ...It
does seem to me that if everybody is going to be protected against
poverty in retirement you cannot do without a very good National
Insurance scheme and Fund."
82. The argument, put most strongly by the National
Pensioners' Convention (NPC), was that the basic state retirement
pension, paid for by National Insurance contributions, provided
the best system for government whereby poverty could be prevented
for everyone, rather than simply alleviated for the poorest through
means-testing. In the words of Mr Tony Lynes of the NPC, "we
are concerned about having a decent pension system which is going
to guarantee everybody who has been in work a pension which is
above means-testing level."
An intrinsic part of the National Insurance principle is that,
not only does everybody pay towards the benefits, but everybody
is entitled to draw benefits on an equal basis as of right, regardless
of means, because they have paid for them. Mr Jack Jones confirmed:
"the principle of everybody paying and everybody drawing
is vital, it ensures that everybody gets something in their retirement."
83. The virtual unanimity among pensioner organisations
of the need for a rise in the basic state pension comes against
the background of the continuing erosion of its value compared
to living standards as a whole, since the upratings link with
earnings was abolished in 1980. Between 1975 and 1982, the basic
state pension was consistently around 22-23 per cent of average
If paid at the same proportion of average earnings today, it would
be worth £97.60.
The latest uprating of the basic pension in line with prices,
which resulted in a rise of 75 pence, was a particular source
of anger. One local pensioner group appeared to sum up the general
feeling among pensioners:"rising costs that are met with
paltry amounts of 'help' such as this year's 75p state pension
increase create a deep sense of older people feeling disregarded."
Mr Jack Jones of the National Pensioners Convention made the point
that the problem was related to the low underlying level of the
basic pension: "[pensions] are not related to prices, they
are related to the prices index as a percentage of a very, very
low base....it is a fact that, if you apply a low amount on a
percentage basis to a very low base, you get a very low increase."
Mr Jones expressed a common grievance of pensioners that "we
contributed over all our working lives," yet in old age they
find themselves relatively poor.
84. A key argument put forward by those in favour
of an increase in the basic pension was that a rise would reach
the large group of poor pensioners who are not in receipt of Income
Support. It would reach those pensioners - estimated by DSS to
be 500,000 to 870,000 in number 
- who fail to claim means-tested assistance and who are thus living
at incomes below the Minimum Income Guarantee level. A rise would
also reach pensioners, who although still poor, do not qualify
for Income Support due to small amounts of income which take them
above the MIG level, or with savings in excess of the capital
limit. The National Pensioners Convention told us, "poverty
is not just confined to those who apply for mean-tested benefits,
there is massive poverty above the limit of the means-tested benefits."
The NPC argue that pensioner poverty covers those with incomes
up to 50 per cent above Income Support level.
However, those dependent on MIG would see little, if any, benefit
from an increase, which would be offset against their MIG entitlement.
It would also benefit (subject to tax deductions) those in the
top brackets of pensioner income who may not need the increase
so much as those at the bottom (see paras 99-100 below).
85. Various proposals were put forward to increase
the level of the State Retirement Pension. The most popular was
to restore the upratings link with earnings because, in the words
of Mr Jack Jones, "it is the only way you maintain a level
which is relative to the rest of the population...whether we get
a large increase now or not, it has got to be linked to the average
standard of living."
The Government Actuary explained to us that the cost of restoring
the earnings link would be cumulative. He estimated that the cost
in the first year would probably be half a billion pounds, rising
to £10 billion by 2010.
86. Most pensioner organisations also wanted to see
a substantive rise in the level of the basic state pension level.
Mr Jack Jones told us, "many pensioners who have contributed
all their working lives are relatively poor, and that ought to
be dealt with by an immediate increase of a substantial amount
in the basic pension."
He said that, in terms of an immediate increase, the NPC would
be happy to begin with a 'one-off' increase, financed by the current
surplus in the National Insurance Fund.
The Government Actuary told us that the National Insurance surplus
stood at £3 billion in April 2000. Using that surplus to
fund a one-off increase in the value of the basic state pension
would allow a rise of £6 in the basic amount,
though the issue remains of how much an increase, if it were to
be sustained, would be funded. We return to this at paragraph
97 below. Age Concern made the case for a substantial rise in
the basic state pension, on the basis that the best way to address
poverty in retirement was to provide a basic pension that covered
essential living costs.
Their estimate was that the cost of raising the basic pension
to the £90 level which they estimated was needed to support
a low cost but adequate life-style was £10.5 billion, or
just over £8 billion when the resulting reduction in the
numbers on means-tested benefits were taken into account.
In its 1997 submission to the Government's Pension Review, the
National Pensioners Convention had also proposed that not only
should the earnings link be restored, but that the Government
should move over a five year period to restoring the value of
the basic state pension to its 1980 level.
The Minister of State estimated the cost of this would be £13
87. It was suggested to us that older pensioners
were a priority when considering higher pensions, due to their
greater poverty. Ms Holly Sutherland commented, "if you are
particularly concerned about the elderly pensioners being the
ones who are poorest, it makes sense to target in that way, simply
by age, which is very easy, and to work downwards by age as time
Currently the basic pension does have an age increase at age 80,
worth 25 pence - an amount which the Minister of State admitted
was insulting and "a festering sore in the system."
The Government Actuary has estimated that the cost of raising
the state retirement pension awarded to pensioners aged 75 or
more to the level of the MIG for this age group as £3.6 billion
gross in the current year or £2.6 billion taking account
of resultant savings in means-tested benefits. The gross costs
would rise to £5.8 billion by 2010. If an increase were awarded
to pensioners aged 80 or more to bring the state retirement pension
up to the level of the MIG for this age group, the immediate gross
cost would be £2.4 billion with a net cost, after taking
into account the savings on means-tested benefits, of £1.6
billion. The gross costs would rise to £4.2 billion by 2010.
88. One of the difficulties with the debate on the
state retirement pension is the strong feeling of many pensioners
that they have been cheated out of something they have paid for.
As we discovered in our inquiry on the Contributory Principle,
it is a common belief among many pensioners that the money they
have paid into the fund has been stored for them as a sort of
In fact, the National Insurance Fund works on a pay-as-you-go
system. Moreover, the point was made to us by Mr Andrew Dilnot,
Director of the Institute for Fiscal Studies, that pensioners
who say they want their contributions back in the form of a decent
state pension might be disappointed. He said, "I do not think
that you would find your pensioner in favour of that, because...he
or she would have paid contributions that would entitle her or
him to a lower benefit than is currently available from the state,
because the characteristic of state benefits of the post war period
and the reason the [contributory] principle has been eroded is
that benefits have been made more and more generous repeatedly.
If your pensioner had the benefit that Beveridge intended for
him or her, he or she would be a great deal poorer than they are
89. The Government has made it very clear that it
does not see the State Retirement Pension as the means to overcome
pensioner poverty. The Green Paper, which set out the Government's
plans for pension reform stated, "Relying on universal state
provision to provide decent pensions would be unaffordable and
poorly targeted as the numbers of pensioners increase."
90. Although the Minister of State's figures were
slightly different from the Government Actuary's, he confirmed
that one of the reasons the Government would not restore the earnings
link, let alone raise the basic pension to its 1980 level, was
partly due to the cumulative cost:
"...one of the great problems of looking at
this is that you have to look ten, twenty, thirty years ahead
because you have to manage the National Insurance system...Doing
it [restoring the earnings link] and just for 2010 we would be
up to £7.5 billion, so you can imagine by 2030 it is up to
a much bigger figure...If it had been restored earlier on, back
to what it would have been with all those years missing, it would
be £13 billion. I do not think anybody is asking for that."
Similarly, when asked for his response to the suggestion
of a higher rate of state retirement pension for older pensioners,
his response was that it would be "enormously costly."
91. The Minister also argued that the decision to
link the basic retirement pension to earnings in 1975 was intended
to get a faster boost for the basic pension in advance of the
gains which the State Earnings Related Pension Scheme (SERPS),
also introduced at that time, would eventually deliver.
He suggested that, had the earnings link not been cut, SERPS might
have faced abolition rather than simply being reduced: "The
two things would not have worked, I suspect. SERPS might have
gone altogether, not just been interfered with in 1985 and 1986."
92. But is an increase in the basic state pension
really unaffordable? Mr Andrew Dilnot of the Institute of Fiscal
Studies told us:
"The public finances at the present time in
the United Kingdom are in a very good position... We could, if
we wanted as a society, move back towards earnings indexation.
That is, we could choose to spend money on increasing the basic
state pension...Would the economy fall apart? Would everybody
stop working? I have never found those arguments very persuasive...the
economic difficulties associated with it would in my view be very
93. We asked the Government Actuary to explain the
implications of paying for restoring the earnings link in terms
of higher National Insurance contributions. In his view, contributions
would not need to rise until "somewhere in the second half
of the next decade" ie. at some point between 2005 and 2010.
He has calculated that National Insurance levels paid jointly
by employers and employees would have to rise by 4.1 percentage
points in the next twenty years, and by 9.4 per cent over the
next 40 years.
When considering the rise needed on an annual basis, restoring
the earnings link would mean an overall increase in contributions,
split between employers and employees, of 0.2 per cent per annum
over twenty years, or 0.23 per cent over sixty years. This compares
with the Treasury assumptions of real earnings growth during the
same period of 1.5 per cent per year. The net effect is that the
rate of growth of real earnings is likely to be much higher than
the growth required in the contribution rate. The Government Actuary
said in his latest quinquennial review of the National Insurance
Fund, and confirmed to us in oral evidence, "real earnings
growth will result in working people being relatively better off
in future even if National Insurance contribution rates were to
be increased to meet the cost of increasing flat rate benefits
in line with earnings."
94. Expenditure from the National Insurance Fund
(over 80 per cent of which is pensions) currently represents around
5.5 per cent of GDP, and is predicted to fall from around 2030
to between 4.5 and 4.7 per cent. The Government Actuary told us
that restoring the earnings link would mean that NI expenditure
would instead rise as a proportion of GDP by around 2.5 per cent.
He commented, "even if we had earnings upratings, that would
only be an increase of something like 1.5 per cent a year on average
over the period from a fairly low base. The decision is on how
governments wish to spend money and what are the priorities, but
relative to other countries we are in quite a favourable position."
95. At our request, the Government Actuary also estimated
the increase in National Insurance contributions required if the
basic state pension for pensioners aged 75 or over or those aged
80 or over were increased to the level of the Minimum Income Guarantee.
He estimated that, in the case of a rise to the MIG level for
pensioners aged 75 and over, the increase in the joint level of
employer/employee contribution rates would be 1.6%, rising to
7.1% by 2050. To raise the basic pension for pensioners aged 80
or more to the MIG level would require a rise on 1.2% in contributions,
rising to 5.2% by 2050.
96. Mr Andrew Dilnot suggested that if the basic
pension were to be increased, he would favour doing so by means
of raising income tax rather than national insurance contributions.
His argument was that the NI contribution system had a narrow
funding base, with certain groups, notably self-employed people
and people over pension age with private pensions, not required
Ms Holly Sutherland has also suggested widening the base from
which the state retirement pension is financed, by means of a
'citizens pension contribution'. This would be levied as a uniform
proportion of all current earned income (from employment and self-employment),
all second tier pensions (SERPS, occupational and personal pensions)
and income from capital.
97. There was considerable debate about using the
surplus in the National Insurance Fund. Mr Andrew Dilnott, who
told us he was not a "big fan" of the National Insurance
Fund, said that the surplus was simply a question of accounting,
and should be ignored.
In contrast, the National Pensioners Convention suggested that
the surplus in the National Insurance Fund would have risen to
around £10.8 billion by April 2002, and that there was therefore
scope for funding a pensions rise.
The Government Actuary put the current surplus in the Fund at
around £3 billion.
The difference in the figures reflects different definitions of
'surplus.' The National Pensioners Convention figure was based
on the amount by which the balance which has accumulated in the
National Insurance Fund over recent years was expected to exceed
the minimum balance recommended by the Government Actuary at the
end of the financial year 2001-2002.
The Government Actuary's figure (given in the context of estimating
the value of a one-off (but then sustained) rise in the basic
pension using the surplus) was based on the estimated excess of
contribution receipts over benefit payments in 2001-02 alone.
98. The surplus in the National Insurance Fund also
featured during our previous inquiry into the Contributory Principle.
The Secretary of State told us then, "some people have said
that if you increase the state pension by a little more this year,
you will use that surplus and that is fine. However, that would
take the surplus away in two years and you would then be left
with a National Insurance deficit. You cannot make long-term decisions
on benefits based on what could be a temporary surplus."
Our conclusion then, based on discussions with the Government
Actuary, was that unless there was a significant change in policy,
there was likely to be a growing surplus in the National
Insurance Fund, as a result of benefits being linked to prices
and contribution income, based on earnings, rising at a faster
rate. But the use of any surplus had to be sustainable in the
99. The point made to us repeatedly by the experts
was that increasing the state retirement pension, and in particular,
restoring the earnings link, was certainly affordable but that
it would require political choices to be made. The political context,
said Mr Andrew Dilnot, was, "a world where governments seem
committed to either not increasing the tax burden or being very
embarrassed when they are discovered having increased the tax
burden, so that there is some constraint on overall revenue."
The National Pensioners Convention want to challenge this context:
"We reject the idea that there is a fixed total
of public expenditure (including expenditure from the National
Insurance Fund) to be allocated to people over pension age. It
is clearly not possible to abolish pensioner poverty without allocating
a larger share of the national income to pensioners. There are
fundamental political choices to be made about both the amount
of expenditure and the way in which it is financed."
100. So would people be prepared to pay more for
a better basic state pension? Age Concern made the point that
"in order to achieve better pension provision, as a society,
we must pay more towards pensions."
DSS research does suggest that the public at large would be prepared
to pay something towards an increase in the basic state pension.
A study based on 16 group discussions with 97 members of the public
found that, when given the figures on how much it would cost in
terms of higher National Insurance contributions, they were certainly
willing to fund to a level which would add another £10 to
the basic single pension, and probably to add another £20-£30.
The provisos were that young people had to be reassured that the
system would continue, so that they were making an investment
in their own future as well as supporting today's pensioners;
that the extra money should be seen to go to pensioners; that
reassurances could be given that increased NI charges would not
reduce employment; and that people's attitudes might be different
if it was part of a larger package of charges.
101. It is also the view of the Government that increasing
the basic state pension is an inefficient method of helping poor
pensioners, because the money is poorly targeted. The Minister
of State told us:
"A simple rise in the basic state pension gets
everyone a big cheer, it is a bit like restoring the earnings
link, a typical big cheer, but it does not do anything for today's
poorer pensioners. ...Overall pensioner incomes have gone well
ahead of earnings on average, but people do not live on averages.
It is that bottom fifth, and probably the fifth just above that,
that we have to get more help to fast, not something we can plan
for a decade's time. The basic state pension will not help them
because they literally would not get any more because they would
be on the means-tested benefit and we would be wasting money,
if you like, out of the system by not targeting it. The central
issue at the moment is to get money to the poorer pensioners fast.
We cannot do that by lifting everybody up at the same rate.
102. The figures show that, of the nearly 11 million
pensioners currently in receipt of state retirement pension, around
1.3 million are in receipt of Income Support and therefore would
receive no immediate financial benefit from a rise in the basic
pension (unless, due to other income, the rise was sufficient
to float them above IS level). There are other pensioners who
would not receive the full benefit of an increase in the basic
state pension. Pensioners in receipt of Council Tax benefit would
lose 20%, whilst recipients of Housing Benefit as well as Council
Tax benefit would lose 85%. A Parliamentary written answer stated
that 40% of pensioners pay income tax. Estimates for the number
of pensioners paying taxes at differing marginal rates were as
Number of Pensioners (in millions) by
marginal tax rates
|22%, 23% or 24%
103. Four main counter-arguments were advanced by
organisations representing pensioners to refute the Government's
approach. Firstly, they argued that, in focusing on channelling
money to the poorest pensioners through the Minimum Income Guarantee,
the Government was simply alleviating present day pensioner poverty,
not creating a system which would prevent it.
By allowing the basic state pension to decline in value relative
to the MIG, the Government was creating a system where more and
more people were locked into the means-tested system. Putting
money into the basic state pension was not a waste of money; quite
the contrary, it was the main means of enabling millions of pensioners
to have an income which took them above means-testing level, thus
allowing them to get the full advantage of any additional income
or savings achieved by their own efforts.
104. Secondly, the Government approach ignored the
fact that, although pensioners' incomes had grown, the majority
were still in the bottom half of the income distribution (see
paragraph 9). Mr Tony Lynes of the National Pensioners Convention
said: "If you...look at what has happened to people above
Income Support level, the debate tends to be very much in terms
of, on one side, the poorest pensioners, and, on the other side,
a relatively small number of rather rich pensioners...but, of
course, the vast majority of pensioners are somewhere in the middle
and they tend to be much nearer the lower end than they do the
On this argument, although not paid on the basis of a means-test,
the basic state pension does in fact go to the less well-off.
Moreover, if a higher rate of the state retirement pension were
paid to older pensioners at the age of 75 or 80, that increase
would go to a group already identified as likely to be poor.
105. Thirdly, the point was made that the income
tax system provided the fairest method of recouping money from
the better-off. On this analysis, the Government were to be criticised
for wasting money in giving tax-free Winter Fuel payments and
television licences to people rich enough to pay tax.
The same criticism, though, could apply to an income in basic
state pension which is taxable. The Government's answer is that
by making such payments universal, they benefit all pensioners,
including those on MIG, as to pay the money otherwise could result
in a reduction of MIG, as it would be taken into account in the
106. Fourthly, the Government's claim to be helping
the poorest pensioners was undermined by evidence that a considerable
proportion of the Government's target group - pensioners eligible
for Income Support on low income grounds - were not claiming the
assistance on offer. The reasons for this are discussed further
below. Because the state retirement pension had virtually 100
per cent take-up, it was a more effective means of improving the
living standards of those pensioners living below the Minimum
107. Mr Andrew Dilnot summed up the conflicting viewpoints
"If our only concern is targeting the standard
of those living on the lowest incomes, then we will always be
driven towards relying more on means-testing and less on universalism.
If our key concern is upholding the dignity of the elderly, then
we are driven towards universalism."
Ultimately he said, "whether we should have
an entirely means-tested or universal pension, that is entirely
a question of resources."
108. We have concluded that, whatever the merits
of the argument as to whether this is the way we should to
go, a rise in the level of the state retirement pension by index
linking it either to an index based on the FBU/Age Concern concept
of low cost but acceptable income or to earnings is affordable,
but only in the context of people being prepared to pay higher
taxes and national income contributions in the long run.
The Minimum Income Guarantee
109. The Government has targeted assistance to the
poorest pensioners by raising Income Support levels, through the
Minimum Income Guarantee. An initial rise above price inflation
in April 1999 (£4.55 for single pensioners and £7.35
for couples) was boosted by the commitment to increase the MIG
in line with earnings for the rest of the Parliament. The DSS
told us, "this means that the Government has been able to
increase the income of the poorest pensioners at a faster rate
than would have been possible through the basic state pension."
110. The Government argues that through the MIG,
it is targeting substantial extra money at pensioners in greatest
need. During the lifetime of this Parliament, the Government would
have spent £4.2 billion if it had uprated the basic pension
in line with earnings.
This compares with £2.2 billion extra spending on Income
Support through the Minimum Income Guarantee.
It has spent a further £3.8 billion on Winter Fuel Payments
and £0.7 billion on TV licences, which go to all pensioners
regardless of means.
The Minister of State told us: "In the main we have put money
in right across the pension population, tax-free and we put a
big piece in for the MIG at the bottom end of it, to target that
group, so more to poor pensioners fast."
111. Mr Tom Ross of the Pension Provision Group endorsed
the Government's approach. He said, "in the short term...unless
state pension rights can be improved to a level which I feel probably
would be very difficult to meet the cost of, then it is inevitable
if you are going to help people that more people will be eligible
for Income Support. We should be saying that is a good thing,
not a bad thing."
112. Those critical of the Government's decision
to prioritise means-tested assistance as the best means of providing
for poor pensioners point to the savings disincentives inherent
in the means-tested approach. They refer to the bitterness felt
by many older people with modest savings or additional pensions,
who find that as a result of their financial efforts during their
working lives, they are little better off than people who have
never made such self-provision. Age Concern gave several examples
of the problem, including a couple with a full basic pension on
the husband's contributions, receiving partial help from Housing
Benefit and Council Tax Benefit, who could end up with an income
of less than £6 more than the Income Support level, despite
an occupational pension of £50 a week.
One woman wrote to Age Concern:
"I am in my eighties and worked to receive the
basic pension. I never worked for a firm that had a company pension
but I did save extremely hard for my retirement. But I now see
how stupid I was because I get 75 pence increase and cannot claim
benefits because my savings bring me over the limit."
113. Mr Tom Ross told us, " I do sense... that
there is a very strong feeling among older people about the unfairness
of the current system, and quite rightly so. It does seem to be
extremely unfair that those of very modest means who have scrimped
and saved get nothing for it."
The Minister of State described the problem as "the second
festering sore in the whole system". He said that "these
people have a small pension, maybe not more than £8 or £9
a week, which would stop them getting the MIG...which they have
saved for over their working life."
It is estimated that 515,000 pensioners have an income up to £10
above the Minimum Income Guarantee level.
114. The Government is trying to address the problem
of the 'savings trap' in two ways. The higher capital limits for
Income Support to be introduced next year (see paragraph 63) will
benefit an estimated 500,000 pensioners who have savings by £5
a week on average.
The Government has also announced that it intends to consult on
the introduction of a 'Pensioner Credit' aimed at helping those
with incomes just above the current Income Support level.
115. The Committee recently visited Australia where,
in the absence of a contributory benefits system, more generous
rules exist within means-tested benefits regarding the treatment
of income and assets.
Recipients of the Australian 'Age Pension' have a certain amount
of income disregarded (called the 'free area') before a pension
is reduced. Income above this free area is reduced by 50 cents
in the dollar for single people and 25 cents each in the dollar
for a couple. A 'deeming' provision regarding income from investments
is set at a level which enables those who invest wisely to 'beat'
the deemed income taken into account. Assets, generally a person's
property excluding their main home, are taken into account above
a generous threshold,
with a tapered reduction of $3 per $1000 above the threshold.
This more generous treatment of income and assets may have lessons
for the UK, although one contributor to our inquiry from Australia
complained of "regular and intrusive" requirements for
the Age Pension regarding changes of circumstances, and the rise
of "complicated schemes" designed to circumvent the
income and asset tests and concomitant measures to foil such schemes.
116. The Minister of State described the pensioner
credit as "the missing link" between the Government's
programme to deal with pensioner poverty in the short-term and
its long-term strategy for pension reform: "we are trying...to
make sure what we do for today's pensioners does not wreck the
long-term policies for tomorrow's. We have to do it in a way that
we do not say to people, 'It does not pay to save'... Whatever
we do today for today's pensioners has to work to send the right
signal to today's twenty and thirty year olds. The present system
sends the wrong signal."
The importance of the pensioner credit in reconciling the Government's
short-term and long-term plans cannot be underestimated. The Minister
told us: "we have to send that signal across the generations.
If we send the wrong signal we are in real trouble."
117. Contributors to the inquiry could only give
us their initial thoughts on the proposed pensioner credit, because
few details are yet available. The opportunity of the pensioner
credit, said Mr Andrew Dilnot, was that it raised the possibility
of introducing tapering rates of withdrawal into Income Support,
thus introducing saving incentive advantages. He also reminded
us that, whilst the change of name might make it easier to allocate
money to the new payments, "we should be very careful that
we do not get confused about what is happening to the overall
level of taxation as we make the transition."
Age Concern was worried that the pensioner credit could add further
complexity to the range of means-tested assistance available to
pensioners, whilst a taper could make eligibility difficult to
predict and hence lead to under-claiming.
Age Concern also raised the difficulties of using the Inland Revenue
to pay a pensioner credit, because only a third of pensioners
118. Several contributors to the inquiry made the
point that, although the pensioner credit would raise still further
the threshold for eligibility for means-tested assistance, there
would still be the problem, intrinsic to the structure of means-testing,
of those just above the threshold limit.
Ms Holly Sutherland explained it thus:
"I think there is a general problem with being
worried about people who are just above whatever level we set
at the moment, so worrying about people who are just above the
MIG and doing something for them will leave another set of people
who are just above the new credit and we may start worrying about
them...I think the idea that there is always a group who feel
neglected, who are just above the target group, does dictate that
the group as a whole needs to be thought of together."
119. As was discussed earlier (paragraph 84) the
Government's concentration on means-tested assistance as the best
means of targeting poor pensioners has also been criticised on
the grounds that there are serious problems with the take-up of
Income Support among this age group. The Government's own research
identified two main 'dimensions' to the barriers to claiming Income
The first was the stigma felt to be attached to claiming Income
Support among some pensioners. The National Pensioners Convention
argued that this was a major inhibiting factor for many pensioners:
"means-testing ...is the wrong approach, because you put
people as paupers...it is divisive and it is demeaning, and that
is why a lot of old people will not claim, although they would
be entitled to."
It was put to the National Pensioners Convention that the 'stigma'
attached to claiming means-tested benefits might diminish, as
folk memories of the harsh means-tests of the 1930s died out.
This view was disputed. Mr Jack Jones said that in his experience,
younger pensioners felt equally strongly about means-testing.
Mr Tony Lynes thought that, in the future, when it was increasingly
expected that people should make their own provision for retirement,
those who had been unable to do so were going to feel that they
If though, all pensioners were subject to means-testing, Mr Lynes
said that the stigma would not attach to some pensioners and not
others, as all would be in the same position: "if you are
living in a system where everybody is means-tested, whether it
is for income tax or whether it is for pensions, then, obviously,
there is not a stigma about going through the means-test".
120. The second aspect identified in the DSS research
consisted of objections to, or negative perceptions of, various
aspects of the claims process. The size and complexity of the
application form was cited as one obstacle pensioners faced, as
well as problems of physical access to the office and transport
to and from it. There was a strong perception of a lack of privacy
in Benefits Agency (BA) offices and that BA staff who dealt with
pensioners were too young and had the wrong attitude.
The research found that those with the highest resistance to claiming
were generally older and had significantly lower incomes, even
though they reported themselves as managing well.
The researchers commented "the idea of having to admit to
'not managing' is an anathema to high resisters and they therefore
place high priority of stringent management."
121. In response to the problem, the Government has
recently launched a Minimum Income Guarantee take-up campaign.
Measures include a television advertising campaign launched on
30 May 2000, and sending individual letters to over 2 million
pensioners who have been identified as possibly entitled to the
MIG. A new Tele-Claim Centre has been established which allows
a claim made by telephone, with a tailored form then sent to the
pensioner for signature.
At the date of the Minister of State's appearance before us, nearly
417,000 letters had been issued and 123,000 responses had been
received. Figures were not yet available on the numbers of pensioners
who had successfully claimed.
122. Despite their preferences for a higher basic
state pension, most pensioner organisations have welcomed the
Government's take-up initiative.
But reservations were expressed as to whether all those eligible
would claim. Age Concern said. "whatever efforts are made
to encourage claims and improve the process, in our view, take-up
of means-tested benefits will always be incomplete. Unfortunately,
many still feel there is a stigma attached to claiming means-tested
benefit as opposed to the pension that they have 'paid in for.'"
123. We were concerned at criticisms made of the
detail of the take-up campaign being carried out by the Department.
These included an over- emphasis on use of the telephone, when
many pensioners either did not have access to a telephone
or were uncomfortable with prolonged telephone contact;
a lack of personal contact and outreach work as part of the take-up
strategy which local authorities in particular emphasised was
and a lack of co-ordination by the Benefits Agency with local
authorities and other organisations coming into contact with pensioners
on a local basis doing, what one respondent described as "the
nitty-gritty slog of identifying and persuading reluctant pensioners
to claim what is rightfully theirs."
The Minister appeared to think that the take-up exercise launched
by his Department was a one-off exercise. He told us, "Hopefully
we are going to deal, if you like, and solve that problem. This
is not something that the Government want to do and repeat every
year once we have got people into the system."
Yet the experience of local authority welfare rights units appears
to suggest that one-off campaigns have built-in limitations.
The Department's own research suggested the need for "sustained,
systematic and co-ordinated activity for the various agencies
coming into contact with pensioners."
124. We recommend that the current campaign to
encourage take-up of the Minimum Income Guarantee should not be
a one-off exercise, but part of a longer term, sustained strategy
to improve take-up among all those who are eligible .
125. There were two particular groups of pensioners
with potential MIG entitlement about whom we became concerned
during the course of our inquiry. The first were pensioners with
care needs, whose entitlement to Income Support was dependent
on a prior successful claim for Attendance Allowance. The Money
Advice Unit at Hertfordshire County Council, drew our attention
to the link between the two benefits: "Many of the pensioners
we have seen are entitled to Income Support by virtue of being
severely disabled. In order to prove this, they have to be assisted
to claim Attendance Allowance as a prelude to an Income Support
claim. The MIG adviceline will miss this approach entirely. This
will severely disadvantage the most disabled pensioners, who will
be told that they are not entitled to Income Support, when they
may be once Attendance Allowance is claimed. It will also make
them more resistant to future efforts by organisations such as
As was discussed earlier, the problem of non take-up of Attendance
Allowance among pensioners is seen as a serious problem by a number
of disability organisations.
126. A take-up campaign for Income Support among
pensioners cannot fully succeed unless undertaken in tandem with
identification of those eligible for Attendance Allowance. We
recommend that the DSS work more closely with local government
and local pensioner organisations to identify pensioners who are
eligible for Attendance Allowance and who therefore qualify for
Income Support, and to encourage them to claim both benefits.
127. The second group of pensioners with potential
MIG entitlement whom we felt were at risk of being overlooked
were pensioners from ethnic backgrounds. There is some evidence
that take-up of benefits is lower among ethnic groups. A study
among Greek Cypriots in the London Borough of Islington in the
1980s found out that two-thirds of elderly Greek Cypriots were
not claiming what they were entitled to.
Research also indicates that how people go about getting the information
they need varies from one ethnic group to another. For example,
a 1993 study
found that the use of translated leaflets was especially low among
Bengali groups, where there was often low levels of literacy in
their first language. At that time, the Benefits Agency ran an
Ethnic Freeline Service. This was valued by Punjabi and Urdu speakers,
but was not seen as an effective way to reach the Chinese community
who had a preference for face to face oral information. Overall,
the majority of Chinese, Bengali, Turkish and Punjabi speaking
people with experience of claiming used at least one oral information
source on benefits.
A study in Leeds on the effect of ethnicity on claiming benefits
found significant underclaiming, partly due to a lack of knowledge
but also due to inaccessibility arising from language problems,
fears about residence status, and also stigma within the particular
communities. The authors of the Leeds study argued, "if Ministers
do approve the instigation of a serious and determined campaign
to improve take-up, that campaign will have to be sensitive to
the complex and diverse needs of minority ethnic communities."
128. The DSS carried a pilot take-up exercise for
the MIG in nine areas of the country. Manchester City Council
commented, "there were established minority ethnic communities
within some of the pilot areas in the Minimum Income Guarantee
campaign, but this aspect received little attention in the evaluation
Language barriers, in particular, are a potential problem in encouraging
take-up. Manchester drew on its own experience of take-up work
among ethnic communities to recommend that translated messages
in ethnic languages should be included in take-up letters, leaflets,
booklets, separate sheets or envelopes. They suggested that such
messages should be brief, specific and practical, ideally offering
people a phone number for further help or for an interpreter facility.
This was a similar recommendation to one we made in a recent report
concerning letters sent out by Medical Services in connection
with medical examinations for benefit purposes.
The response from the Government was that such a notice "would
not be consistent with current practices in other parts of the
We know that the Parliamentary Under-Secretary of State has since
acknowledged the unsatisfactory nature of this response, which
failed to address the question of whether the current practices
of the Benefits Agency need to change.
129. We note the comments of Manchester City Council,
based on long experience of take-up work, that'development and
outreach work is one of the most crucial ways to reach members
of minority ethnic communities."
This accords with what we were told on an informal visit made
to ethnic pensioner groups in the London Borough of Barnet. It
would appear that many ethnic pensioners value face to face contact
as the main means of communication, and are keen to see outreach
workers from the Benefits Agency at their local centre to help
them claim their entitlements.
130. In relation to take-up of benefits by pensioners
from ethnic groups, the Minister acknowledged the importance of
getting information to those groups and he undertook to look further
at the possibility of advertising in the specialist press. He
called such work "absolutely crucial."
We consider that more needs to be done to ensure adequate take-up
of the MIG among ethnic groups. We recommend that the DSS should
conduct research into take-up of the Minimum Income Guarantee
among ethnic pensioners and into the best means of encouraging
people from different ethnic communities to claim.
122 Households Below Average Income 1994-95 to 1998-99,
DSS, 2000. Back
Q 20. Back
Ev., p. 33, para 3.1. Back
Q 58. Back
E., p. 5, para 6.2. Back
Q 71. Back
Q 96. Back
Q 64. Back
Ev., p. 34, para 3.3. Back
Official Report, 25 May 2000, col 613W. Back
Ev., p. 100. Back
Q 58. Back
Q 69. Back
Income Related Benefits Estimates of Take-Up in 1996-97 (revised)
and 1997-98, DSS, 1999. Back
Q 58. Back
Ev., p. 34, para 4.1. Back
Q 67. Back
Q 144. Back
Q 64. Back
Q 77. Back
Q 145. Back
Ev., p. 5, para 6.5. Back
Q 25. Back
Q 79. Back
Q 261. Back
Q 238. Back
Q 257. Back
Social Security Committee Fifth Report, Session 1999-2000, The
Contributory Principle, HC 56-1. Back
Ibid, para 55. Back
Q 197. Back
A new contract for welfare: Partnership in Pensions, Cm
4179, p.30, para 8.. Back
Q 263. The figures cited by the Minister to restore the earnings
link were: £1 billion in the first year, and £7.5 billion
by 2010. Back
Q 257. Back
Q 262. Back
QQ 187-188. Back
Q 146. Back
Appendix 19. Back
Government Actuary's Quinquennial Review of the National Insurance
Fund, July 1999, Cm 4406. See also QQ 157 -161. Back
Q 164. Back
Q 165. Back
Ev., p. 173. Back
Q 189. Back
Ev., p. 76. Back
Q 186. Back
Q 96. See also Age Concern, Ev., p. 9, para 10.5. Back
Q 143. Back
Official Report, 16 February 2000, col 609W. In a written
answer the DSS said that the balance in the Fund over and above
the minimum level recommended by the Government Actuary was likely
to be £10.5 billion by April 2002. Back
Social Security Committee Fifth Report, Session 1999-2000, The
Contributory Principle, HC 56-1. Back
Ibid., para 142. Back
Q 185. Back
Ev., p. 38, para 7.6. Back
Ev., p. 9, para 10.4. Back
A Hedges, Pensions and Retirement Planning, DSS Research
Report No. 83. Back
Q 259. Back
Official Report, 8 June 2000, c 381W. Back
Q 61. Back
Q 97. See also Age Concern, Ev., p. 7, para 8.5 and the National
Federation of Post Offices and BT Pensioners, the National Association
of British Steel Pensioners, and the Civil Service Pensioners'
Alliance, Ev p. 147, para 24. Back
Q 61. Back
Q 238. Back
Q 76. Back
NACAB, Ev., p. 116, Age Concern, Q 28. Back
Q 197. Back
Ev., p. 81, para 33. Back
Official Report, 11 April 2000, c 144W. Back
Ev., p. 96. Back
Q 283. Back
Q 128. Back
Ev., p. 7. Back
Q 128. Back
Q 286. Back
Official Report, 4 May 2000, c 213W. Back
Ev., p. 83.. Back
The information in this paragraph draws on The Australian system
of social protection - an overview, Australian Department
of Family and Community Services, 2000. Back
The threshold for a single homeowner in December 1998 was $125,750:
around £50,000. Back
Mr James Nelson, Vice-President of the British Australian Pensioner
Association, Ev., p. 98. Back
Q 256. Back
Q 279. Back
Q 193. Back
Ev., p. 8, para 8.7. Back
Ev., p. 7, para 8.6. Back
Age Concern Ev., pp. 7- 8, para 8.7; National Federation of Post
Office and BT Pensioners, National Association of British Steel
Pensioners, and the Civil Service Pensioners' Alliance, Ev., p.
147, paras 21 and 23. Back
Q 226. Back
Overcoming Barriers: Older People and Income Support, DSS
Research report 100, 1999. Back
Q 74. Back
Q 101. Back
Q 102. Back
DSS Research Report 100, section 5. Back
Ibid., section 3. Back
Ibid., page 32. Back
Ev., p. 82, paras 34-38. Back
Q 246. Back
For example, Age Concern, Ev., p. 6, and the National Federation
of Post Office and BT Pensioners, National Association of British
Steel Pensioners and the Civil Service Pensioners' Alliance, Ev.,
p. 147. Back
Ev., p. 6, para 7.7. Back
Ibid., para 7.3. Back
Mr Jack Jones, Q 87, Hertfordshire County Council Money Advice
Unit, Ev., p. 110, para 14(a). Back
See Hertfordshire County Council Money Advice Unit, Ev., p. 110,
NACAB, Ev., p. 116, and Manchester City Council, Ev., p. 124. Back
Evidence submitted by Mr Gary Vaux PP8, not printed. See also
Appendix 4 and Appendix 7. Back
Q 259. Back
See Appendix 4 and Appendix 7. Back
DSS In-House Report No. 60, p. 193, 1999. Back
Ev., p. 11, para 14(b). Back
Gary Vaux PP 8, not printed, NACAB, Ev., p. 116, Age Concern,
Ev., p. 5, Disability Alliance, Ev., p. 131, and RNIB, Ev., p.
Tarpey, English Speakers Only: a report of work on take-up
of social security benefits with people whose first language was
not English, Islington Peoples Rights, 1984. Back
Bloch, Access to Benefits: the information needs of minority
ethnic groups, Policy Studies Institute, 1993. Back
Law, Deacon, Karmani and Hylton, 'The Effect of Ethnicity on Claiming
Benefits: Evidence from Chinese and Bangladeshi communities',
Benefits, January 1994. Back
Ev., p. 124. Back
Social Security Committee Third Report, Session 1999-2000, Medical
Services, HC 183, para 66. Back
Reply by the Government to the Third Report of the Select Committee
on Social Security, Session 1999-2000, Cm 4780, para 39. Back
Official Report, 6 July 2000, c 512. Back
Ev., p. 124. Back
Q 250. Back