View the article online at http://citywire.co.uk/money/article/a549334
Pensioner benefits: why means testing won't work
Having survived the Autumn Statement with the CPI-linked rise in the state pension intact, pensioners now face a threat to universal benefits, warns Lorna Bourke.
Plans to means test universal pensioner benefits may be sensible in theory, but the expense of identifying better-off pensioners would likely offset the savings, says Lorna Bourke.
Pensioners' benefits in the firing line
Nick Clegg’s call for means testing of universal pensioner benefits such as the winter fuel allowance, bus passes and free TV licences, will infuriate the 12.6 million beneficiaries – a lot of pensioners to antagonise ahead of any election.
There is no doubt that this universal largesse is an inefficient use of government funds at a time when the Treasury is aiming to cut an estimated £30 billion before the end of this parliament in 2015. The cost of tax-free pensioner concessions is an estimated £16 billion. The exact figure will depend on what use is made of the free travel concession.
Pensioners have so far escaped relatively unscathed from the cuts compared with families with children. Parents who are higher-rate taxpayers are to lose child benefit, and there have been reductions in working tax credits and child-care allowances. But the over 65s – who already receive a higher personal tax allowance of £9,940, or £10,090 for those aged 75 plus – will receive the full 5.2% CPI-linked uprating in the state retirement pension at a time when many other benefits are frozen.
State pension rise maintained
In his recent Autumn Statement the chancellor confirmed that the basic state pension, currently £102.15 a week for a single person, will be increased by the full 5.2% rise in the September’s CPI inflation figure, an increase of £5.30 a week to £107.45 a week.
But deputy prime minister Nick Clegg told the BBC ‘We should be asking millionaire pensioners to perhaps make a little sacrifice on their free TV licence or their free bus passes.’ This has been opposed by Tory ministers, who are fearful of upsetting a large number of voters.
The problem is that unless wealthy pensioners can be persuaded to give up these tax-free benefits voluntarily, the cost of means testing will probably wipe out much, if not all, of the savings.
There are around 12 million people in the UK who are eligible for free bus travel, and an estimated 9 million have a free bus pass. For Londoners, where travel on the tube costs as much as £5 for a single journey, the free travel pass could easily be worth more than £1,000 a year, depending on how many journeys are made.
Arguably, the unemployed are more in need of free travel. They can easily run up travel costs of £25 a week if they attend several job interviews.
This winter, those aged 80 or over will receive a £300 winter fuel payment, compared with the £400 they received last year. Younger pensioners will get £200 instead of £250. Last year, more than 12.6 million people received this benefit. On top of this, giving free television licences to all people over 75 costs the taxpayer more than £550 million a year.
One way to means test pensioners cheaply would be to remove these concessions from higher-rate taxpayers – those with taxable incomes of £35,000 or more, who can easily be identified from their tax returns. However, only 450,000 pensioners are higher rate taxpayers, so the saving would be relatively small.
Donate your winter fuel payment
Saga, the over-50s group, is running a campaign to persuade wealthier pensioners to forgo their winter fuel payment – worth £200 for those aged 60 and over and up to £300 for people aged 80 or older – and donate the money to help poorer old people pay their fuel bills.
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