MEMO To: Tony Blair From:
Jack Jones
Subject: Pensions policy in the second term
Britain has nearly eleven million pensioners – most of whom regard the basic state pension as a major source of their income. But since 1980, when the link between the state pension and average earnings was broken, the real value of the pension has been falling. If I were pensions minister I would, therefore, persuade the Treasury to restore the link with earnings as the best way of ensuring that pensioners share in the growing prosperity of the nation.
I would also consider the recent evidence from the Family Budget Unit, which suggests an acceptable pensioner income be set at around £90 a week. Treasury estimates show the cost of raising the state pension from the existing £67.50 to over £90 would amount to some £6.3 billion. This is less than half the current usable surplus in the National Insurance Fund. As pensions minister, I would persuade the Chancellor to use that money accordingly.
I would also seek to arrest the massive extension of means-testing that is currently planned under the new Pension Credit proposal. Means-testing fails on three main counts: it is more costly and bureaucratic to administer than a universal scheme; it demeans those who are forced to jump through hoops in order to receive additional income; moreover, it is ineffective at getting money to those in need. Even after a £15 million advertising campaign, around 600,000 pensioners who are eligible do not claim the means-tested Minimum Income Guarantee. As this compares to a 95 to 100 percent take-up of the state pension, I would persuade the Government to reverse the policy that places means-testing over universalism.
Of course, paying a higher state pension to all does mean that even the very rich pensioners would qualify, but if I were pensions minister I would promote the idea of redistributive taxation as a way of redressing this anomaly. I would also argue for a reintroduction of the Treasury contribution to the NI fund, phased out by the Conservatives, and a scrapping of the upper earnings limit on NI contributions. This would allow higher earners to contribute a fairer proportion of their income and add an extra £4 billion a year to the fund.
We should also remember that the poorest pensioners in our society tend to be the oldest and the majority of those are women. At present the age addition on the state pension, given to those aged 80 and over, is a mere 25p. This has not changed since it was first introduced in 1971. As pensions minister I would call for that figure to be an additional £20, phased in from the age of 70.
These changes are both achievable and affordable, and after five years with me as pensions minister, the outlook for our older generation would be transformed. The basic state pension would be significantly higher, the contract between our pensioners and the state would be honoured and the reliance on means-testing would be ended. Additionally, a fairer taxation system would be in place, the principles of social insurance would be strengthened and Britain’s elderly would be guaranteed dignity and security in retirement. That is real social justice.