APPENDIX 3
Memorandum submitted by the North East
Pensioners Association (PC 03)
The objectives of the Association, which was
inaugurated in 1977, are to promote the welfare of pensioners
in the North East of England in any manner, which is now, or hereafter
deemed by law to be charitable and as such ensure choice, dignity,
independence and security.
SUMMARY
— The overall strategy will fail to
achieve the Governments objectives.
— Number of individuals who will be
subjected to means testing is projected to increase significantly
in 2003 as a result of the savings credit part of the Pensions
Credit.
— What is the projected total expenditure
of carrying out means testing on this number of individuals (circa
5.5 million people).
— Further erosion of the State Retirement
Pension (SRP) will further increase the number of individuals
requiring means testing.
— The individual faces increasing uncertainty
regarding his future income in retirement. The retirement age
for the qualification of the SRP is projected to increase to 70
years of age in the year 2020.
— The SRP must form the foundation
of current and future pension provision for the individual but
linked to Average Earnings not as currently with the Retail Price
Index (RPI).
— The SRP is up rated with RPI the
Pension Credit will be up rated with average earnings.
— The introduction of the Pension Credit
has not maintained the differential for the individual over the
age of 80 years.
— It must be remembered the SRP is
a contributory pension fund.
— Currently 3.5 million women do not
receive a full SRP ie 51 per cent of women pensioners. Clearly
they will be discriminated against by the proposals.
— The assumptions in the savings part
of the pensions credit are clearly erroneous. Where can an individual
currently obtain a 10 per cent rate of interest on a minimum risk
investment?
— The proposals will fail to relieve
pensioner poverty.
ROLE OF
THE NEW
CREDIT IN
THE GOVERNMENT'S
OVERALL PENSIONS
STRATEGY
We believe the overall strategy will not achieve
the government's objectives.
A large number (500,000 plus) have been shown
consistently not to "take up" the Minimum Income Guarantee
(MIG) the reasons for this are varied but some of the points put
forward in mitigation are:—
(a) Loss of dignity, fear of officialdom,
lack of sympathetic treatment;
(b) Complexity of the form;
(c) Stigma and uncertainty associated the
interface of government departments;
(d) Belief that having contributed for a
working lifetime to the National Insurance Fund it should be theirs
of right to receive a pension fit to live on without being subjected
to interrogation and means tested claims.
Numbers which will be subjected to means testing
will increase very significantly in 2003 as a result of the savings
credit part of the Pension Credit.
The projected figure of 5.5 million is equivalent
to half the entire pensioner population.
What is the projected total expenditure of carrying
out means testing on this number of individuals?
The State Retirement Pension (SRP) is a contributory
pension unless an individual has contributed the benefit will
not accrue eg 3.5 million women do not receive a full SRP.
THE METHOD
OF UPRATING
THE PENSION
CREDIT AND
THE LONG
TERM IMPLICATIONS
OF THE
METHOD CHOSEN
We believe the erosion of the SRP will further
increase the number of individuals requiring means testing. The
maximum benefit quoted is £13.80 pw to make it more attractive
the benefit should be increased to £25 pw. The proposed disregard
of £1 per £250 should be increased to £1 per £1000.
We have noted the alteration from 20.8. per cent as a return on
capital to a 10 per cent return on capital over £6000-£10,000
in the case of people in residential homes/the original figure
was not realistic and the amended figure is not achievable for
minimum risk investment for pensions.
It is incorrect to generalise eg basic pension
in receipt of £57 pw would require additional £20 of
income to bring the individual to full pension rate and will not
qualify for the 60 per cent reward.
Recent figures published by Oxford Economic
Forecasting for GDP per CAPITA from 1991 to 2001 show that in
the UK it was 16 per cent higher than the European Average. This
shows that the Treasury can afford to allocate more than the circa
5 per cent of GDP allocated to the pensioner population.
THE EFFECT
OF INCREASED
MEANS TESTING
ON INCENTIVES
TO SAVE
The Institute of Actuaries estimate the main
means tested benefits, MIG, Council Tax and Housing Benefit, were
worth the equivalent of £92,000 of life savings to someone
aged 65 whilst the SRP is worth £47,000 the gap of £45,000
for a saver to bridge before any benefit is received, is such
to dissuade anyone from contributing to second pension.
THE ABILITY
OF PEOPLE
ON LOW
AND MODEST
INCOMES TO
MAKE THE
CORRECT DECISION
REGARDING FUTURE
PENSION PROVISION
The final salary pension scheme (defined benefit)
provided the best guarantee for all future pension provision.
The Chancellor's decision to remove ACT credits coupled with FRS17
new accounting standard has removed the savers guaranteed income
to one of potential risk through to one of uncertainty due to
the increased closure of (defined benefit) schemes and the increased
provision of high risk money purchase schemes, in which the individual
cannot estimate what his final pension will be. Since the Pension
Green Paper was written the Pensions Provision Agenda has altered
considerably.
THE IMPACT
OF PENSION
CREDIT ON
PENSIONER POVERTY
Only individuals who apply for means tested
benefits will potentially receive an improvement in their circumstances.
Individuals who do not apply for means tested benefits will be
further penalised in the case of those not receiving a full SRP.
Therefore, since all individuals have not been
accounted for by MIG, clearly they will not be any better off
under the Pension Credit proposals.
The SRP is only up rated with RPI creating a
gap between the Pension Credit, which will be up rated with average
earnings.
The introduction of the Pension Credit has not
maintained the differential for the over 80's. This is contrary
to high profile statements made by the Secretary of State for
Pensions and the Minister of State for Pensions.
A higher rate differential should be maintained
for the over 80's.
THE IMPLICATION
OF THE
PENSION CREDIT
FOR THE
PRIVATE PENSIONS
AND INSURANCE
INDUSTRIES
We have no comment to make at present.
THE PROPOSED
METHODS FOR
CLAIMING/ASSESSING
ENTITLEMENT TO
THE CREDIT
INCLUDING THE
FREQUENCY OF
REASSESSMENT AND
THE LIKELY
LEVELS OF
TAKE-UP
The upper and lower limits of the Capital Limit
system needs to be modified and substantially increased and the
Tariff set for benefit reduction should be changed to a more realistic
figure.
Janice Craig
January 2002
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