Even Labour has set its sights on pensioners

by Dr. Ros Altmann

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Thanks to Ed Balls’s proposed welfare shake-up, pensioners no longer have a political party on their side…

Ed Balls’ suggestion of removing winter fuel payments from all higher rate taxpaying pensioners would hardly make any dent in overall spending.’ Photograph: Murdo Macleod for the Guardian.

It is a worrying time to be a British pensioner. As all political parties are looking for ways to cut public spending, the huge pensions budget is a tempting target to raid.

The latest furore surrounds shadow chancellor Ed Balls’s suggestion that Labour will include pension expenditure in any short-term welfare spending cap after the 2015 election. Given the demographics, with record numbers of post-war babyboomers reaching pension age, capping pensioner spending must imply less generous state pension payments per person than currently expected. Until now, Labour had seemed solidly on the side of pensioners.

Liam Byrne, shadow secretary of state for work and pensions, recently called for more generous treatment of women in the new state pension reforms, which will involve higher spending from 2016. This disarray on pension spending will further add to confusion among older voters and the party needs a more consistent, coherent policy on pensioner policy.

A similar failure was evident recently with the Tory call for wealthy pensioners to voluntarily hand back their winter fuel payments. The Lib Dems have talked about extending means-testing of pensioner benefits too, which would undo the principles of universality of national insurance and also undermine the benefits of removing mass means-testing of pensioners that the new single-tier state pension is designed to achieve.

The reality is that pensioner numbers will continue to rise and the state pension age should have been increased long ago. But policymakers have been far too slow to adjust to demographic realities. With pensions policy, however, it is not possible to suddenly catch up in the short-term.

Having paid national insurance all of their lives, built up the economy, not taken on large debts and saved for their future when they could, pensioners have a right to expect fair treatment. However, they do not have high-profile lobby groups, do not normally march on the streets, cannot really go on strike and are unlikely to cause high-profile economic damage.

The reality is that pensioners should not just fear Labour. Worryingly, in one way or another, all political parties seem to have them in their sights and are trying to find ways to try to reduce their incomes. Yes, the Tories have promised to protect spending on pensioner benefits for this parliament, but there is no commitment beyond 2015.

Looking at the small print of the coalition’s new state pension shows that it ultimately involves reduced pensioner spending in the long-term. Even the much-vaunted “triple lock” on basic state pensions has actually resulted in a lower basic pension than would have been achieved by just retaining the old retail price inflation link.

The Lib Dems would means test pensioner benefits and possibly link them to receipt of pension credit. This is a superficially attractive headline policy, however extending means-testing would undermine the principles of the new single-tier state pension. It sends the message that if you bother to save, you’ll lose pensioner benefits. Pensioners should be encouraged to work longer and save for their own future, but means testing penalises them for that.

There are no quick fix solutions. Balls’s suggestion of removing winter fuel payments from all higher rate taxpaying pensioners would hardly make any dent in overall spending. The estimated &pund;100m it might raise amounts to less than one hundredth of one per cent of total pensioner expenditure, so far more would be needed to cap spending.

The popular perception of armies of rich pensioners is a myth. Yes, there are some very well-off older people, but the vast majority of pensioners do not have high incomes. Pensioner living standards are still below other groups, but by less than before, and it is no longer the case that being a pensioner is more likely to mean living in poverty. This rise in relative living standards is a major social success of the past two decades, as a result of a better basic state pension but also private savings too. Cutting state pensions would be a retrograde step.

Increasing the age of entitlement to pensioner benefits is a better way to save money than cutting pensions or trying to means-test universal payments. Future rises in state pension age are inevitable but cannot happen at short notice. Pensions policy needs to be considered carefully, not adjusted in knee-jerk fashion. We have a principle of national insurance that buys entitlement to certain benefits, which are a basic universal right. We are also trying to encourage people to save privately to top up the state base. Those are sound principles and I fear they may be at risk as pensioners continue to be used as a political football.