Earlier in December, Nick Clegg called for the introduction of means-testing for UK pensions. The proposals were met with widespread criticism by industry observers, quick to argue any reduction in pension payments would be a “slippery slope” to further cuts. The Deputy PM’s plan is designed to ensure every member of society is playing a part in the austerity effort. Critics of universal benefits point out that pensioners seem unfairly protected, while others see their child benefits and other means of support disappear.
“I just don’t think it’s justifiable, when so many people are tightening their belts, to say multi-millionaire pensioners still receive universal benefits” said Clegg.
Clegg’s comments come at a time when many other pensioner benefits are in the firing line. While David Cameron remains committed to universal benefits, Clegg has promised to “look again” at the system which provides millions of pensioners with free bus passes, medical prescriptions, television licenses and winter fuel allowances. The winter fuel allowance has become a particularly contentious part of the current benefit system – as new figures revealed an additional 300,000 people are facing fuel poverty this winter.
Saga Director General, Ros Altmann, has led the dissent against Clegg’s proposals. Rather than the introduction of means-testing, argues Altmann, the pensions system would benefit far more from a “radical reform of the current system”. Like many critics, Altmann thinks means-testing would be detrimental to the push to encourage retirement saving and avoid a looming pensions crisis.
“It would punish those who have tried to be self-reliant and give much more money to those who have not saved for their future” said Altmann. “And then what’s next? Will he tell us rich pensioners don’t need a state pension either?”
One of the major problems facing the implementation of means testing, Altmann points out, is the sheer cost of administering it to the millions of occupational pension schemes across the country. With trustee service organisations already struggling to cope with the burdens placed on pensions by the European Commission’s on-going Solvency II regulation process, imposing means-testing would be like “kicking the industry when it’s down”.
Altmann does propose alternative solutions to the benefits crisis, which include: taxing pension payments, phasing back pension eligibility to later life (a move that could lead to a need for an online cash loan ) – and imposing wider reforms to streamline the system and eliminate costly red tape. She also points to community -based schemes like the Community Foundation Network’s ‘Surviving Winter’, which let pensioners who do not need the money, to donate it to those who do, helping pay for fuel throughout winter.
A government spokesperson responded to Clegg’s statement by reaffirming the Tories commitment to universal benefits:
“The Prime Minister made a commitment to protect those benefits and he believes in keeping his promises.” said the spokesperson.
With benefits in the spotlight at every level of society, the retirement row has the potential to split the Coalition and shake wider confidence in the pensions system – a system in which, Altmann argues, people shouldn’t have to “rely on freebies to avoid poverty.”