Why rich pensioners’ benefits SHOULD be scrapped

In recent days, both Nick Clegg and Iain Duncan Smith have made clear their opposition to the universal pensioner Winter Fuel Payment (WFP). For those who doubted that a re-assessment of universalism for some of the pensioner benefits was politically feasible, this comes as a pretty clear message that WFP and others will be in play as the Government looks to make further economies.

In a piece on this website earlier this week, however, Jonathan Portes, Director of the respected National Institute of Economic and Social Research, criticised the growing number of commentators in favour of means-testing WFPs. Mr Portes argued that Winter Fuel Payments and, by extension other universal benefits for pensioners, are economically equivalent to the Basic State Pension (BSP). Consequently, he says, it makes no economic sense to be in favour of means-testing them without also advocating a means test for the BSP.

But the usually impeccable reasoning of Mr Portes doesn’t wash here. First WFPs are neither politically nor economically a simple extension of the BSP. Second they were introduced in 1998 as a means-tested benefit. And third, means-testing and universalism have long co-existed in the pension system, so there is no reason why a marginal shift to the former should necessitate a wholesale restructuring of the pensions settlement as he implies.

Winter Fuel Payments are neither economically nor politically “just an add-on to the Basic State Pension”. The claimant groups are not identical and the eligibility rules are different. The payments kick in once a person reaches 60, not the state pension age. Then there’s a higher level for pensioners over 80. What’s more, the payments, unlike the pension, aren’t taxable. It’s not tenable to argue that these are economically a simple add-on to the BSP just because there’s a large overlap in claimants. Nor were these hand-outs intended to be seen as part of the basic state pension: if they had been they would have been consolidated into it.

Nor does history offer support for the idea of immutably universal WFPs. Back at their 1997 introduction, Gordon Brown explicitly justified the need for the payments with reference to the poorest pensioners and “those on the margins of poverty”. And design followed that intent: in their original incarnation these payments handed £50 to pensioners on Income Support and £20 to others. I don’t recall anyone arguing that the logic of this policy necessitated means-testing of the BSP. Why should such reasoning apply now?

That highlights the third and most important point about means-testing. Mr Portes is right to say that there is, and always has been a fundamental tension between means-testing and universalism for both working age and pensioner benefits. There are trade-offs and neither approach can be said to be the “right” way to allocate support. That’s precisely why the current system already involves both universal and means-tested elements for pensioners. The basic entitlement is universal, while the £8bn Pension Credit system is there to top-up poorer pensioners’ incomes up to a minimum level.

This highlights the obvious practical solution to the means-testing versus universalism theoretical dilemma: to have a system involving some of each. It makes no more sense to say that means-testing WFPs must imply means-testing of the BSP, than it does to argue that the universal BSP implies that the Pension Credit must be made universal, at impossible expense.

Crucially, the point where means-testing begins and universalism ends is arbitrary, decided politically with reference to the pros and cons of the two approaches. Economic theory and logic have nothing to say about how we should value that trade-off. For universalism, the key negative is huge cost. Hence advocating the shift of WFP and other universal pensioner goodies into the means-tested part of the system is an entirely logical and reasonable reflection of the fact that, over the past 5 years, cost has come to weigh more heavily as a factor when drawing the arbitrary dividing lines of public spending. Mr Portes is right to argue that the system must be considered holistically, but doing so in the current fiscal environment is precisely what should lead us to a different balance between means-testing and universalism than the one we might have favoured when the good times rolled.

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• bogwart

  Very nice.  You’re as wet as us though, it seems.  But it’s a hot wet …

  The other people I know are well to the north-west of you, one in Guad and one in Ajijic, on the shores of Lake Chapala.  After all these years, they’ve started getting trouble from the narcotraficantes, which is a PITA.  The’ve always left gringos alone because it’s bad for business, but now anything goes, it seems.

  Tenga bien.

• BobMex

  Yes I heard about a few bodies being left by chapala. There are a few problems in Cuernavaca as well, but usually narcos against narcos.

  Subject: [independentblogs] Re: Why rich pensioners’ benefits SHOULD be scrapped

• http://truenewsuk.blogspot.com/ sarntcrip

  people who are not wealthy get means tested nobody worries about the affront to their privacy yet because there are hundreds of thousands of more than comfortably off pensioners BELIEVE BACKED BY THE CURRENT DIVISIVE GOVERNMENT THAT BECAUSE THEY ARE WEALTHY AND AS SUCH MORE THAN LIKELY TORY NOBODY SHOULD BE MEANS TESTING THEM SO ARROGANT ARE THEY THAT THEY WILL NOT ADMIT THE TRUTH MEANS TESTING IS THE FAIREST WAY TO ENSURE BENEFITS GO TO THOSE WHO NEED THEM  NOT AT BUNCE FOR TOPPING UP THE ROLLS

• http://www.facebook.com/people/Chris-Edwards/1135371937 Chris Edwards

  I did read somewhere that they were stopping divorcies from claiming,Legal Aid was a great idea for equality in Law but like nearly everything else including Social Security,Dole Money and mobility benefit it justs gets the arrse kicked out of it untill it bears absolutely no resemblence to its initial intent.It was supposed to help those in great need,now it´s a way of life!

• bogwart

  It’s not just divorces.  The law came into effect on 1 May and has chopped 16% off the legal aid bill.

  This despite great opposition from the Lords. Lord Bach, who was shadow Justice Minister, said that parts of the bill were “not just bad but actually wicked” and has quit his front bench duties.  Pretty strong language from the HoL. HMG just steamrollered the bill through anyway.

  Additionally of course there are stringent cuts going on with the Citizens Advice Bureaux, and now we are left with already stretched Law Centres and voluntary groups of solicitors.
  The people who will be most badly impacted are, as usual, the people who need the help most. The disabled, the elderly, people claiming benefits. Most cases involving those groups will be ignored, and now that we have the DWP and their minions lying and cheating deliberately to do people out of their benefits there has never been a time when help is more needed.

  Recently a man who has dialysis three times weekly, and is one of the longest survivors in the world of this treatment, a man who has suffered 14 heart attacks in the last few years, was told that he was fit for work.

  With opposition like that he needs access to legal help, instead of a bunch of over-zealous plankton standing around wringing their hands.