Hammering pensioners and savings is neither right nor fair

Tuesday, 21 February 2012

In a report published today: Osborne's Choice: combining fiscal credibility and growth, Ian Mulheirn of the Social Market Foundation, has recommended removing free bus travel for pensioners, scrapping Winter Fuel Payments and TV licences to the better-off pensioners, halving higher rate tax relief for pension savings and capping ISAs to £15,000. All this will save £9.4 billion or 63 per cent of the savings required by 2016.

Roger Turner General Secretary of the National Federation of Occupational Pensioners has responded to the suggestions by saying:

“Free travel for pensioners was a hard fought concession. Take it away and many older people will be condemned to staying at home, often isolated socially.

Rather than paying for the economic stimulus that the SMF wants to see, removing the ability for pensioners to get out and about will inevitably increase public spending and put more pressure on social services and the NHS. It will also take money out of the economy as pensioners will spend less if they cannot afford the bus fare. These cuts would be scrooge like and the savings made illusionary”

"The proposal to restrict the Winter Fuel Payments and free TV licenses to “better-off pensioners” sounds reasonable, but no one has defined better-off. This infers a massive increase in means testing and therefore in public expenditure, with the result that many who are eligible will not claim, as highlighted in the recent Public Accounts Committee Report into Means Testing published only one month ago. Again a saving of £1.7bn is mean and could seriously back fire.”

“Restricting ISAs to a £15,000 cap will greatly restrict peoples’ flexibility in choosing a savings vehicle for their retirement and therefore reduce their income when they retire, adding potentially more pressure on State benefits.”

The SMF report suggested that the Government should remove higher rate tax relief on pensions claiming “Government spending on a measure that only pays out when people take cash out of the economy is precisely the kind of contractionary policy that should urgently be cut.”

Roger Turner challenged the logic of this statement by saying:

“If this is true, why is it not extended to all tax reliefs? How does this square with the Government’s policy of Automatic Enrolment into NEST? Higher rate tax payers, particularly those with very large salaries, will always be able to negotiate alternative means of being rewarded and continue to avoid paying tax. The people who will be hurt are the increasing numbers of those brought just over the higher rate tax threshold as the Government has sought to increase revenues by not increasing the 40 per cent band to take income growth into account. They will be less likely to find spare cash to make up for the cut in this tax relief and will see their pension savings hit”

“Hammering pensioners and savings is neither the right way nor the fair way to get the economy moving. Pensioners are already struggling with smaller increases in pensions with the switch to the CPI and historically low interest rates. People retiring this year with DC pensions have seen their pensions decimated from very low annuity rates caused by Bank of England Quantitative Easing.”