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Time to rethink payouts to pensioners

Brown envelopes normally signal bad news, so the one that landed on my mat yesterday was a pleasant surprise: the Department for Works and Pensions inviting me to apply for my tax-free winter fuel payment.

Filing it for future attention, I grabbed my travel pass and headed for the bus stop. At work my payslip showed a nice fat zero beside National Insurance. (Since qualifying for the state retirement pension last year, I no longer pay it.) You'll have got my drift by now.

Four decades ago the words "pensioner" and "penury" were welded together. The elderly were seven times more likely to be living in poverty than any other age group. Now, according to the latest report from the Institute for Fiscal Studies (Living Standards, Poverty and Inequality in the UK: 2013), pensioners are at a lower risk of poverty than anyone else, once housing costs are taken into account.

Thanks to the protection of pensioner benefits and index-linked occupational pensions, the over-60s have continued to see a rise in their real incomes of nearly 3% since 2008. This triumph of social policy is something to celebrate. Pensioners have never had it so good. But has it all gone too far? Who is paying for middle-class pensioners like me to heat my home, travel free and get out of NI contributions? Younger workers. And, as the Institute for Fiscal Studies (IFS) identifies, they are the new face of poverty.

Since the 2008 crash, the median incomes of those in their 20s have fallen by 12%, the largest cut in living standards of any age group.

Isn't this unfair? My generation benefited from student grants, final salary pension schemes and massive house price inflation. Today many of us are either mortgage-free or paying next to nothing on trackers. Compare that with our kids' generation, saddled with student debt, dubious money purchase pensions, high rents and such anorexic pay packets that they'll be lucky to reach the bottom rung of the housing ladder by 35.

It's about to get worse because, while the Government has guaranteed pensioner freebies and pensions are subject to a triple lock against inflation, the benefits that the low paid and unemployed rely on are subject to a 1% cap and child benefit is frozen. Nor do the IFS calculations take account of the hated bedroom tax, from which pensioners are exempt, even though they are more likely to have a genuinely spare room after grown-up children have flown the coop.

When ministers talk about the "unsustainable welfare bill", they always omit to mention that half of it (more than £80 billion a year and rising) goes on pensions and pension credit. The politics of all this is obvious. Pensioners are more likely to vote and more likely to vote Conservative.

Even so, it's a Tory Minister, David Willetts, who first raised the issue of intergenerational fairness, in his book The Pinch: How the Baby Boomers Stole Their Children's Future and Why They Should Give it Back. Lots of them do, of course: all those grandparents who provide free childcare and the Bank of Mum and Dad that clears student debts and helps with mortgage deposits. But that merely adds class to generational injustice for those who don't have parents with deep pockets or don't have parents at all. Result: widening inequality.

There are still poor pensioners. They are still more likely to be in the poorer half of the population. The numbers on low fixed incomes, in poorly insulated homes (especially in chilly damp Scotland) that they do not leave to go to work, mean pensioners are still more likely than others to live in fuel poverty. And quantitative easing has forced down interest rates for those relying on savings or attempting to buy annuities.

However, though means testing is clumsy and demeaning, I've reluctantly come to the conclusion that middle-class pensioners like me should be paying more in tax. At the very least, it could claw back the cost of pensioner freebies that we can easily afford to pay for. And the link between NI and social security is so tenuous now that those of us still working (including more than a million over-65s) should be paying that too. Meanwhile, I plan to file my winter fuel payment form in the bin.

Contextual targeting label: 
Finance

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