1. In 1997 the pension system was failing
to provide enough support for today's pensioners and failing to
provide security in retirement for future pensioners. The key
problems the Government sought to address were as follows:
The gap between better-off and poorer
pensioners was growing. On average, pensioner incomes have been
increasing faster than the incomes of those in work, but too many
were left behind. Between 1979 and 1997, the incomes of the richest
fifth of pensioners rose by 80 per cent but the incomes of the
poorest grew by only 30 per cent.
Too many pensioners were living in
poverty. At least two million over-60s were living at or below
income support rates. In 1997 the minimum income for a single
pensioner (aged 60-75) was set at £68.80 a week.
Too many people of working age were
heading for poverty in retirement. Many of those who could afford
to save were not doing so, or were not saving enough. Roughly
two in five workers were not making any voluntary provision for
2. The Government's first priority was to
address the immediate problem of pensioner poverty today by introducing
the Minimum Income Guarantee along with a range of other measures.
Pension Credit is the crucial next stage of a comprehensive Government
strategy for older people. Pension Credit, together with the introduction
of the Pension Service, seeks to address and remedy a number of
failings in the current system of support noted in the Seventh
Report of the Select Committee on Social Security (Pensioner Poverty)
The need to boost the incentive for
future pensioners to save at the same time as tackling poverty
amongst today's pensioners.
Saving is not rewardedmillions
of pensioners living on low or moderate incomes, and who had saved
something for their retirement, found that they were little or
no better off than people who had saved nothingit is estimated
that in 2001-02 around 460,000 pensioners will have an income
up to only £10 above their Minimum Income Guarantee level
and around 580,000 will have an income no less than £10 below
The system is regarded as intrusive
and bureaucratic, pensioners do not like it. The Government wants
to improve the co-ordination of services for pensioners, making
it easier for them to get their entitlements and to better tailor
the services they use to meet their needs. The Pension Service
will play a crucial role in encouraging pensioners to claim their
Pension Credit will be of particular help to
women and older pensionerstwo groups about whom the Select
Committee expressed particular concern.
3. The overall growth in pensioner incomes
over the last 20 to 30 years conceals serious and growing income
inequalities among pensioner households. Detailed discussion was
set out in the Seventh Report of the Select Committee on Social
Security and the Department of Social Security's response.
4. Based on research carried out by the
Family Budget Unit, Age Concern proposed in 2000 that a single
pensioner needed at least £90 a week and a couple £135
a week (plus rent and council tax) to avoid living in poverty.
An estimated 52 per cent of single pensioners and 24 per cent
of couples had net incomes after housing costs of less than these
amounts. The Select Committee for Social Security felt that the
Age Concern figure of £90 for a single pensioner constituted
a good starting point for an absolute poverty "target".
Minimum Income Guarantee levels have now outstripped this target
and, with the introduction of Pension Credit, the guarantee credit
will be no less than £100 for single pensioners and £154
for couples, in 2003.
5. However, in its Seventh Report, the Committee
noted the difficulties associated with developing such a concrete
definition of what constitutes poverty. Mr Andrew Dilnot of the
Institute of Fiscal Studies told the Committee, "if we
assert that we have been able to define a particular level as
being the poverty level, we have almost certainly misled ourselves."
6. The Government agrees that there is no
single research method which can be used to assess the adequacy
of benefit levels. What people need to live on varies greatly
depending on their needs, and a range of factors such as proximity
to friends and relatives. The Government, therefore, considers
a range of research when setting benefit rates and commission
a wide range of research into pensioners' incomes, lifestyles,
attitudes and aspirations and will continue to do so.
What has already been achieved?
7. As a result of the Government's tax and
benefit reforms already introduced, pensioner families will on
average be better off by over £16 a week (around £840
a year) in real terms by April 2002 compared with 1997. When Pension
Credit is introduced in addition to these policies single pensioners
will find themselves on average at least £23 a week better
off in real terms and couples will be on average at least £32
a week better off than in 1997.
8. The Government's low-income indicators,
as set out in Opportunity for all, Making Progress
show the following developments since 1996-97:
Around half a million fewer pensioners
are living in households with low income in an absolute sense
(below 1996-97 real terms thresholds);
The proportion of pensioners living
in low-income households has fallen from 21 per cent to 17 per
cent on the before housing costs measure and from 27 per cent
to 19 per cent on the after housing costs measure;
The 1999-2000 data for relative low
incomes does not show improvements against the baseline, suggesting
that the incomes of the poorest pensioner households have not
kept pace with average increases in incomes for all households.
However the 1999-2000 data does show encouraging signs that the
rising trend is being stemmed; and
The Government also monitors persistent
low incomes: 18 per cent of pensioners lived in a household with
a low income in at least three out of the four years between 1996
9. In addition, Opportunity for all,
Making Progress highlights significant progress in other areas:
Working-age people are contributing
£19 billion more in real terms to non-state pensions and
the proportion of people making continuous contributions has increased.
The proportion of older people being
helped to live independently at home has increased.
10. The latest data for the income indicators
is for the year 1999-2000 and does not reflect the effect of several
policies, either already introduced or recently announced, that
would improve the incomes of pensioners, particularly those at
the bottom end of the income distribution.
MIG improvements: the continuing
rise of MIG in line with earnings so that by April 2003, no pensioner
will have to live on less than £100 a week, and pensioner
couples will receive £154 a week; doubling of the lower capital
limit from £3,000 to £6,000 and increase in the upper
limit from £8,000 to £12,000 in April 2001existing
MIG recipients who benefit from this change will gain an average
of £6.30 a week;
above-inflation increases in the
basic state pension of £5 a week for single people and £8
a week for couples in April 2001 followed by increases of £3
a week for single people and £4.80 a week for couples in
April 2002; and
Winter Fuel Payments of £200
in 2000-01 and 2001-02.
The Next Step: Pension Credit
11. By the time the Pension Credit replaces
the MIG in 2003, it is estimated that 4.1 million (includes 200,000
residential care and nursing home cases) pensioner households
stand to gain. This corresponds to 5.3 million pensioners.
12. On average, pensioners will gain just
over £400 per year. This is the average gain from the savings
credit and changes to the income assessment (like the new capital
rules) and includes the average gain in Housing/Council Tax Benefit
as well as Pension Credit.
Help for older pensioners
13. The Select Committee on Social Security
noted, in its Seventh Report, that generally, older pensioners
face greater challenges than those who are recently retired. The
Government has promised and delivered help to all elderly pensioners.
Free TV licences will provide £2 a week to pensioners aged
75 and over.
14. However, there is a wide range of incomes
even among older age groups. Evidence from the Family Resources
Survey shows that the biggest gap in pensioner incomes is between
people in the same age group rather than between different age
groups. Among single pensioners in the "over 80s" group,
average weekly incomes ranged from £69 for the poorest fifth,
to almost three times this level (£203) for the richest fifth.
Table 1 shows that the difference in average income between age
groups is relatively small for both pensioner couples and single
pensioners. In comparison, within age groups the gap between the
bottom fifth and the top fifth is much larger. This is shown by
the ratio of the medians in the final column.
|Table 1: Net income of pensioner benefit units, by age, 1998-99
|Pensioner couples:||Average income
||Radio of medians
||Top fifth||Top fifth/Bottom fifth
|80 or over||243
|80 or over||132
|Source:Family Resources Survey 1998-99
All incomes are expressed in £ per week at July 1998 prices.
15. The Government believes that it is right to confront
income inequality and continues to target resources at the poorest
pensioners regardless of age. Of the 4.1 million pensioner households
who will be entitled to Pension Credit in 2003-04, over a quarter
(28.5 per cent) are age 80 and over.
Help for women pensioners
16. The Select Committee on Social Security found, in
its Seventh Report, that women pensioners are at particular risk
of poverty. They are at greater risk from the relative decline
in their pension income over retirement because they tend to live
longer than men; and women tend to have smaller occupational pensionsthey
are likely to have had a more intermittent, lower paid work history
than men. Pension Credit will be of particular help to women.
17. Of the 4.1 million pensioner households who will
be entitled to Pension Credit in 2003-04just over half
(53 per cent) will be single women and around 30 per cent will
be women and men in a couple. Moreover, half the women entitled
to the Pension Credit will be aged 75 or over.
Pensioner households entitled to Pension Credit as a proportion
of total entitlement
||Per cent||Per cent
|Single men||60-74 75-79 80+
||9 3 4||16
|Single women||60-74 75-79 80+
||22 12 19||53
|Couples||60-74 75-79 80+
||20 6 5||31
Third Annual Report 2001, Cm 5260. Back
Overall changes in the indicators will also depend on factors
such as the value of occupational pensions, earnings growth, changes
in employment and changes in the income distribution. All of these
can act to dampen or enhance the positive effect of policy changes. Back