The state pension goes up - what the Press say

Posted on: 25 October 2010 by Alexander Hay

As news abounds that the state pension will go up to £140 a week and be based on residence rather than NI contributions, what does the press think so far?

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The Guardian leads with the news that the government is proposing to end means testing and pay pensioners a yearly income of £14560 if they are a couple:

Everyone will receive the same £140-a-week payment and there will be an end to means-tested top-ups.

Under the current system, a single person can receive £97.65 a week and a couple £156.15, with an extra means-tested amount available for the poorest pensioners...

...Ministers believe that removing means testing and the resulting reduction in bureaucracy will save around £6bn a year. They believe a single-tier system would also reduce reliance on benefits.

The Telegraph adds that the proposal will be outlined in a Green Paper to be published later this year, with Work and Pensions Minister Iain Duncan Smith playing a major role in the proposal. What's most interesting, however, is how much the government hopes to save in bureacracy:

Administering the means-tested pension credit – which 50 per cent of pensioners are entitled to – costs £54 per person each year, while the basic element of the state pension costs just £5.40.

It is estimated that eliminating means-testing will save hundreds of millions of pounds a year in administration alone.

This Is Money, meanwhile, warns that even such a generous new scheme will have its pitfalls for the poorest or those who have saved for old age:

While the reform will need approval from the Treasury, Chancellor George Osborne has already given the go-ahead to a similar 'universal benefit' for the out of work, whose up-front costs will be funded by long-term savings.

But there is a political risk that the scheme will be seen to be unfair to the poorest as richer pensioners will also have their income boosted - at a time when child benefit has been axed for those earning more than £45,000.Pensions are subject to tax, however, so anyone who has savings, investments or private pensions which puts their annual earnings above the income tax allowance - currently £9,490 for those over 65 - would lose 20% of the boost in their income.

The Independent reports that Vince Cable and the Liberal Democrats are claiming credit for the idea, whilst adding that pensioners may have to wait for the scheme to be set up:

Business Secretary Vince Cable said today that it was a Liberal Democrat idea that had been developed by the party over several years in opposition.

"This is a big idea that my colleague, the Pensions Minister Steve Webb, has been working on and indeed, we worked on it for years in opposition," Mr Cable told BBC Radio 4's Today programme.

"It's to make sure people can look forward in retirement to a good state pension without means testing. We need something people can rely on.

"What he's proposing is very radical. It will take time to introduce."

Interestingly, the BBC reports that the actual amount to be paid to pensioners hasn't been officially confirmed, and that any rise would simply reflect the declining value of pensions in the last few decades:

Business Secretary Vince Cable said today that it was a Liberal Democrat idea that had been developed by the party over several years in opposition.

"This is a big idea that my colleague, the Pensions Minister Steve Webb, has been working on and indeed, we worked on it for years in opposition," Mr Cable told BBC Radio 4's Today programme.

"It's to make sure people can look forward in retirement to a good state pension without means testing. We need something people can rely on.

"What he's proposing is very radical. It will take time to introduce."

Finally, blogger and commentator Tim Worstall welcomes the new proposals, noting that they will be good news for pensioners who want to top their pensions up with private schemes, but also because it may mean an end to National Insurance in place of a rationalised income tax system:

But much more importantly for the long term, by decoupling the pension eligibility from national insurance contributions over the years they remove the last major barrier to abolishing national insurance.

No, of course this won’t mean that what is snaffled from paycheques in NI payments (two of them remember, amounting to some 25% in total of wages between, what is it, £70 off a week and £600 odd a week? 13% on more than that?) but it will allow the whole system to be folded into the income tax system.

Desirable for two reasons. Firstly reducing complexity, thus costs of administration, is a good idea. Secondly, as a political aim.

It’s generally accepted by economists that some or all of “employers’” national insurance is in fact paid by the worker in the form of lower wages (quite how much is a matter of heated empirical argument but the arguments run from much to most to all, no one who can count even trying to argue for none). Making this clear, as NI is folded into income tax, helps to place an upper bound on how much can actually be raised in income tax.

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Alexander Hay

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