|What exactly are the Conservative's proposals for Pensions?
16 Oct 2003
At our Conference last week, we announced radical proposals to tackle the pensions crisis. They get to the heart of the problem by reversing the spread of means-tests and offering new incentives to save.
With the introduction of the Pension Credit, half of all pensioners are now eligible for means-tested benefits. Many pensioners dislike these intrusive and complicated means-tests. Indeed, the Government estimates that almost one-and-a-half million pensioners, one-third of all those eligible, will be missing out on the Pension Credit even by 2006. And of course the savings industry say they canít sell their pension products when so many people will be on means-tests that penalise saving.
We have to reverse the spread of means-tests but without taking any money off pensioners. .The only way to do this is to increase the value of the basic state pension until it catches up with the means-tested benefit. A powerful way of signalling our intention to increase the value of the basic state pension is to increase it in line with earnings not prices. We estimate that after our first parliament this would mean for a single person their pension was £7 a week higher and for a couple £11 a week higher than with simple price indexation. This will take more than one million pensioners off the means-test. No pensioner will lose and many pensioners will gain.
We have produced detailed costings showing how we can pay for this. First, there is now so much spending on means-tested welfare that the offsetting savings are much greater than they used to be. We have also taken tough decisions to abolish the New Deal and tighten up Income Support rules for lone parents. We are confident that we will be able to identify the savings that will enable us to carry on with this process. Provided that these are achieved, successive Conservative Governments will raise the basic pension up to the value of the means-tested benefit.
Rolling back the means-test on its own transforms incentives to saving. But we have gone a step further by proposing to replace contracted out rebates with new incentives to save. Contracted out rebates are a burden on business as they are insufficient to cover the cost of pensions that companies are obliged to provide. They are so complicated that very few people appreciate them. We will be consulting the industry on an alternative scheme -perhaps an up-front incentive such as buy one, get one free -BOGOF for short. This might mean that for the first few hundred pounds which an individual or employer puts into a pension there would be a similar contribution from the government.
Our vision is of a simple basic state pension which is not topped up with elaborate means-tests or indeed the complexity of the new state second pension. This provides a solid foundation on which people can build - knowing that for every pound they save they are a pound better off in their retirement.
Our policies provide a fair deal for pensioners and strong new rewards for saving. It is a radical approach to tackling the pensions crisis that offers a better deal for pensioners and better incentives for the next generation to save.