"We should not have to go cap in hand to the Government for a handout at our age. In Britain we have one of the biggest economies in the world and we cannot provide enough for our pensioners."

2. How it works

1. Anomalies

1. Problems
2. Conclusions

1.0 Currently two thirds of Britain’s 11 million pensioner population live in poverty.

1.1 In 1980, the Conservative administration broke the link between state pensions and average earnings and introduced means testing. In doing so, they changed the definition of the state pension from a civic entitlement to almost a charity handout. Since then, government policy on pensions has been a mixture of private pension and state benefit. Under the current system, pensioners are made to jump through administrative hoops before they can receive payments from the state, and are in some circumstances financially penalised. This reflects the ethos of the current system: that state benefits are a concession rather than a right.

2.0 The basic state pension today is £77.45 for an individual and £123.80 for a couple.

2.1 The state pension is paid according to how many national insurance contributions you have made. If a person has been working for 44 years, then they are entitled to a full state pension. This is problematic for many women, of course, where for much of their adult lives they have been housewives or homemakers engaged in unpaid domestic labour, childcare etc, rather than in paid employment. From 1978 onwards, caring for children or relatives has qualified as a ‘job’ with full National Insurance contributions. But this means that any years spent in unpaid domestic labour before 1978 are not covered.

2.2 For these reasons there is a ‘Minimum Income Guarantee’ (sort of a pensioner’s poverty level) of £100 a week. So if you were a housewife for 60 years and only receive £10 a week state pension, your money will be topped up by the government to £100 a week, after much means testing.

3.0 At the moment people are encouraged to have private pensions through tax relief schemes. But under the current means-tested rules, every £1 extra from a private pension results in a £1 reduction from their income support. So people are effectively penalised for having a private pension.

3.1 A pensioner can have up to £6,000 savings without any reduction in pension, but a pensioner with savings of £12,000 cannot receive income support. Moreover, the interest rate is worked out at a ludicrous 20.8 percent.

3.2 The means testing and complexity of the scheme are so off putting, that up to one third of eligible pensioners are not receiving the benefits they are entitled to.

3.3 Basic state pension is based on National Insurance contributions, this discriminates against the older generation of women who did not make contributions before 1978.

4.0 The pensions credit scheme is basically a response to the above anamolies.

4.1 The present rule is that for every £1 of private pension, £1 is deducted from the pensioner’s income support. From now on, people will be entitled to have 60p of every additional £1 above the basic state pension (£77) disregarded when applying for their Minimum Income Guarantee (MIG) benefits. That is, for every £1 of extra income the pensioner receives, the government will count it as only 40p of extra income.

For example: a pensioner with £77 a week state pension and private income of £20 a week has an income of £97 a week. Under the new rules, 60 percent of his private pension income (= £12) will be ignored, and he will be treated as as though his total income was only £85. He will then get an MIG top-up of £15 a week, to make his income up to £100. But in fact, because £12 of his private income has been disregarded, his actual total income will be £112 a week.

4.2 The £12,000 savings limit on benefit will be abolished, and assumed income from savings over £6,000 will be halved. However, assumed income will still be calculated on the basis of a whopping 10.4 percent interest rate.

5.0 The Pension’s Credit is really just an extension of the old scheme. It does nothing to adress the underlying flaws in the system and will in fact exacerbate some of the problems.

5.1 Pensions Credit is even more complicated than the current system, and will bring half the 11 million pensioner population into means testing. This will put even more pensioners off claiming the benefits they are entitled to, a fact which the government acknowledges with it’s dismal 73 percent take-up target.

5.2 The minimum level for the 60 percent disregard is fixed at the £77 a week full state pension level, any private income below that level will still be subject to the pound- for-pound benefits reduction. Thus women and other groups who do not qualify for a full state pension, will still lose out. See footnote below for example of how this works.

5.3 This 60 percent disregard level will be fixed by regulations, it will change over time and will not necessarily remain as high as 60 percent.

5.4 The National Pensioners Convention estimate that the new scheme will cost £55 a head to administer. This money could be spent instead on a decent pension.