Seniors Network

Budget Briefing April 2009

courtesy of NPC
 

On 22 April 2009, the Chancellor Alistair Darling presented his Budget to Parliament. The main items affecting older people were as follows:

• A guarantee to increase the basic state pension by a minimum of 2.5% next April, equivalent to £2.40 a week for those with a full national insurance contribution record, and £1.45 for those, mainly women, receiving a reduced pension.

(Note 1: This 2.5% figure was first introduced following the 75p debacle in 2000/1 to ensure that it never happened again. The need to use it now is because the Retail Price Index in September 2009 is forecast to be minus 3%, and would therefore have led to a £0 increase in next year’s state pension, just weeks before a possible general election)

(Note 2: The Institute of Fiscal Studies showed the pensioner RPI in January 2009 was 3.9% for those aged 60-69, 5.6% for those aged 70-79 and 7.1% for the over 80s).

• A freeze in the winter fuel allowance of £250 per pensioner household aged under 80 and £400 for households aged 80 and over, for another year.

(Note: In last year’s Budget the Chancellor originally announced that the increase on the winter fuel allowance of £50 for the under 80s and £100 for the over 80s last November would be a one-off).

• An increase in the autumn (likely to be October) in the Pension Credit savings’ threshold from £6000 to £10,000. This will mean that those with savings up to £10,000 will have them disregarded when being assessed for their entitlement to the Pension Credit. It is unclear at this stage whether this increased threshold will also apply to housing benefit and council tax benefit.

(Note: The Chancellor has stated that this change will benefit around 540,000 pensioners by £4 a week. However, he did not alter the rule that assumes an income of £1 for every £500 or part thereof of savings above the threshold (equivalent to an interest rate of 10%).

• An increase from 6 October in the tax-free ISA savings allowance from £7200 to £10,200. The rest of the population will receive the same benefit from April 2010.

• From 2011, grandparents of working age will be eligible for credits towards their national insurance contributions (NICs) when they are looking after any grandchildren aged under 12, for at least 20 hours a week.

(Note: Those grandparents already in receipt of a state pension will not be eligible to receive additional years added to their record of NICs).

In addition, the official Treasury statement also contains some useful pieces of information:

• National Insurance (NI) contributions will rise by 0.5% for both employers (currently 12.8% on all salary) and employees (currently 11% of salary up to the upper earnings limit and 1% thereafter) from April 2011. This is expected to raise an extra £4.6bn a year for the NI Fund.

• From 2011, those earning more than £150,000 a year will have the tax-relief on any contributions they make to a private (personal or occupational) pension reduced from 40% to 20%. This is expected to affect around 450,000 high earners.

(Note: Whilst the NPC has been calling for tax relief to be reduced, this announcement still means that those earning between £37,400 and £150,000 will continue to receive tax relief at the higher rate, and there is no guarantee that the £3bn saving will be used to improve the state pension).

Both prior and after the announcement, the NPC made a series of public statements. These are reproduced below for information. Media coverage of our comments included statements in the Daily Mirror, Daily Express, Daily Telegraph, Independent, Mature Times, Morning Star, a host of regional newspapers and numerous news websites. Representatives also featured on Budget coverage programmes on BBC, ITV and Sky TV.

Call for Budget to tackle impact of the

economic crisis on older population
 

A new report from Britain’s biggest pensioner organisation, the National Pensioners Convention (NPC), is calling on the Chancellor to use his Budget on April 22 to introduce a series of measures to help hard-pressed pensioners who are struggling as a result of the recession.

The report entitled The Retired Recession - How the economic crisis affects older people outlines four key areas of concern amongst older people and proposes a number of measures that would both boost pensioner incomes and stimulate local economies. The report focuses on:  

• Loss of income for pensioner savers

The drop in the interest rate over the last 12 months has severely affected around 5m older people who have modest savings of £10,000 or more. Over this period they could have lost between £10 and £20 a week (up to as much as £1000 a year).

Recent research suggests that because pensioner poverty is so finely balanced (with a large number of people just above and just below the poverty threshold) a small difference in income can have a dramatic effect on people.

NPC Recommendation: Introduce combined tax allowances enabling pensioner couples to be assessed on a joint income rather than individually. This would mean that in most cases, older people would be exempted from paying any income tax.

• Rising costs of living

Older people face annual inflation rates around ten times higher than the rest of the population, according to a recent report by the Institute of Fiscal Studies. Pensioners spend a larger proportion of their income on those items whose prices are rising fastest. Therefore, rising costs of food and fuel, combined with record lows in savings returns and underperforming pensions, mean that pensioners will suffer a disproportionate increase in the cost of living.

The scale of pensioner poverty is rising - 822 pensioners fell into poverty every day last year. 2.5m older people now live below the official poverty line. Means-tested benefits fail to reach almost 2m of the poorest pensioners.

 NPC Recommendation: Increase the state pension to £165 a week (official poverty level) as a way of tackling pensioner poverty and boosting local economies. 

• Rising fuel poverty

One in three pensioners is estimated to be spending more than 10% of their income on energy bills, placing them in fuel poverty. Average annual energy bills now exceed £1,000 and this absorbs 16% of the income of a single pensioner in receipt of the pension credit minimum guarantee. The Winter Fuel Allowance originally covered one third of the average bill, now it covers a fifth. Every year over 20,000 pensioners die of cold related illnesses.

NPC Recommendation: Increase the Winter Fuel Allowance to £500 for every pensioner household.

• Cuts in essential services

Over the next few years the case will be made for public spending cuts and/or rises in taxation in order to pay for the bail out of the banking industry. This will mean benefits and services to older people may be under threat. One of the key areas will be social care, which is already in crisis and chronically under funded.

NPC Recommendation: The forthcoming Green Paper on social care should include additional public spending of at least £2bn to meet growing demand and improvements in the quality and availability of care services.

Dot Gibson, NPC general secretary said: “Very few recognise the terrible effect that the recession is having on those in retirement. Pensioners urgently need a boost to their income to help them through the current economic crisis. Millions have lost money from their savings, others are struggling with the rising cost of living and some have seen cuts in the care they receive. This generation has tried to put money aside for a rainy day – but no-one warned them of a monsoon. Increasing the state pension, tackling fuel poverty, improving care services and helping older savers would not only put money into pensioners’ pockets in the short-term, but they would also ensure that local economies benefited, because pensioners would go out and spend their extra money. Budgets can’t just be for bankers – they must help older people as well.”

ENDS

Chancellor’s state pension guarantee is “virtually worthless”

Those in fuel poverty and pensioner savers have little to cheer
 

Britain’s biggest pensioner organisation, the National Pensioners Convention (NPC), has described the Chancellor’s announcement that he would guarantee the state pension will increase next year by 2.5% as “virtually worthless”.

The NPC has calculated that the proposed 2.5% increase will give a rise next April of £2.40 a week – with millions of older women getting just £1.45. The Convention believes this will do little to tackle rising pensioner poverty, fuel poverty and the impact that the recession is having on older savers.

Dot Gibson, NPC general secretary said: “Mr Darling’s proposed 2.5% rise in the state pension next year fails to address the pressures older people face now from the economic crisis. One in four pensioners still live in poverty and rising costs of food and fuel, combined with record lows in savings returns and underperforming pensions, mean that pensioners are suffering a disproportionate increase in the cost of living. In light of all this, the Chancellor’s promise to raise the state pension next year by just £2.40 a week sounds more like an insult.”

“Millions of older people have lost money from their savings. This generation has tried to put money aside for a rainy day – but no-one warned them of an economic monsoon. Extending the scope of the means-tested Pension Credit is not the answer. A better way to boost the economy and help all older people would be to raise the state pension to around £165 a week.”

“One in three pensioners is estimated to be spending more than 10% of their income on energy bills, placing them in fuel poverty, and the winter fuel allowance now covers just a fifth of the average bill, compared to a third when it was first introduced. The Chancellor’s decision not to raise it will do nothing to prevent a further 20,000 pensioners dying this winter from the cold.”

“It’s clear that the message to pensioners from today’s Budget is stop counting your savings, don’t turn up your heating, and if you make it to next April, make sure you don’t spend your extra £2.40 all at once.”

Pensioner facts and figures

• Around 5m older people who have modest savings of around £10,000 have lost between £10 and £20 a week (up to as much as £1000 a year) as a result of the drop in interest rates.

• The scale of pensioner poverty is rising - 822 pensioners fell into poverty every day last year. 2.5m older people now live below the official poverty line. Means-tested benefits fail to reach almost 2m of the poorest pensioners.

• Older people face annual inflation rates around ten times higher than the rest of the population, according to a recent report by the Institute of Fiscal Studies. Pensioners spend a larger proportion of their income on those items whose prices are rising fastest.