There’s no need to adjust your screens, it is true; we’re on the way to introducing a flat rate pension for all of £140 a week. You might be thinking you’ve heard this before; well you’re not wrong, except in opposition we used to call it the ‘Citizens Pension’.
We are on the verge of delivering on another key manifesto promise after the Chancellor announced in yesterday’s budget the coalition’s intention to give pensioners £140 a week. While this morning’s headlines are heavily slanted to the reduction of the 50% tax rate, and the ‘granny tax’, nestled away inside yesterday’s budget was a pledge to deliver a flat rate pension system.
When announcing the introduction of a new single-tier pension for future pensioners, the Chancellor paid tribute to our man in the DWP, the Liberal Democrat Pensions Minister, Steve Webb MP. In fact to quote the Chancellor,
Such is the complexity of this means-tested system that only someone like our Pensions Minister can work out exactly what someone is entitled to and what they need to save.
These words were not lost on me. The coalition is trying to simplify the tax and pension system. Having different thresholds at when you begin to pay income tax complicates things. We want to have one rate at which people start to pay tax. We are rapidly raising the rate at which those under 65 pay income tax, and soon this will be equal to what pensioners who pay income tax are already entitled to. And from then on there will be one flat, generous rate for all.
I realise many pensioners may feel aggrieved at this, thanks in no small part to the media’s inclination to whip up an issue, but firstly I would like to state no pensioners will be worse off in cash terms. Secondly this will not affect half of all pensioners as only 50% of pensioners currently pay income tax. Thirdly the introduction of the ‘triple lock guarantee’ which will see pensions rise from now on by whichever is greater; inflation, average earnings, or £2.50, led to a £4.50 increase in the State Pension last year and the highest ever cash increase of £5.31 this year. And finally yesterday’s news that we are going to introduce a £140 flat rate pension.
Further details will follow later this year, but it will be a single, generous, basic state pension for those who have worked hard and saved all their lives. It will also mean an end to the complex and unfair means testing that has for too long overshadowed the state pension system. People who can only save a little bit for their retirement will no longer see it means tested away by pension credit, and every penny you put away will go towards your retirement, which will be a particularly big boost to women and self employed workers who are the biggest losers under the current system.
This is all down to the hard work of our Lib Dem Pensions Minister, Steve Webb. However there is still a long way to go before it becomes a reality, and therefore it is vital we all get behind Steve as he seeks to make yet another long cherished Lib Dem policy delivered in government.
* Stephen Lloyd was MP for Eastbourne and Willingdon until 2015. He was chair of the All Party Parliamentary Group on Religious Education. In March 2013 the Group published a report called ‘RE: the truth unmasked’ on the supply of and support for RE teachers. In June 2013 Stephen tabled an Early Day Motion on RE’s role in tackling extremism.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Trust re-formed to fund repairs to Ludlow's town walls
Fraser's weekly ward surgeries tonight! #dundeewestend
Red Flags
Councillor joins Lib Dems in Western Isles
Today we gave our thanks to the 999 services and other public servants
The Genome Rides on a Citric Acid Bicycle
Peter Martin
Ellyott
Joe Bourke
James Fowler
Simon Foster
20 Comments
At last I can see the fruits of our labours, LibDem policies being actioned in Coalition with the Tories.
“no pensioners will be worse off in cash terms”
Now where have I heard something like that before? Oh yes, it was Harold Wilson, after devaluing the pound, explaining that the “pound in your pocket” had not lost its value.
Give it a few years, a little inflation, a change or two of government and suddenly it too will become unaffordable and the ‘triple lock guarantee’ will be broken…
So whilst the gesture is appreciated, the safe bet is that for many people the rules will be changing several times before they retire.
£140 flat rate pension – very good news, presumably in time for the 2015 General Election?
@NNC
If we’re talking about domestic purchasing power, everybody can be pleased that the state is shrinking from 48% to 43% of GDP!
@Oranjepan
“If we’re talking about domestic purchasing power, everybody can be pleased that the state is shrinking from 48% to 43% of GDP!”
Your definition of everybody doesn’t include those that work for the state and those that use it’s services. So, in reality, almost nobody; almost nobody being those that contribute more to public services in taxation than they recieve in the value of public services they receive – i.e. the rich and wealthy. But that’s only taking into account direct expenditure (taxes) and direct services received. When you take into account the fact that the rich and wealthy indirectly benefit from everyone else being educated, having a relatively safe environment to locate their assets, etc, then it is really only the very rich and wealthy that benefit.
According to the published text of Osborne’s speech, the pension will be “contributory”, which I take to mean that NI contributions will be required. Surely the point of Citizen’s Pensions and Citizen’s Incomes is supposed to be that citizenship is the only qualification?
@Oranjepan: Yes, as I was driving to work this morning, over a particularly perilous zebra crossing on a winding road next to a primary school, I looked over at the empty space where the crossing patrol man used to stand until he was dispensed with just before Christmas, and thought to myself: “Thank heavens the state is shrinking. The A4e directors may well be in line for another bumper dividend after winning two more lucrative government contracts last week, but at least my taxes will no longer have to pay that old guy £6 an hour for helping kids across the road.”
Lib Dems seem to be struggling to find a logically coherent view on the Granny Tax. On the one hand, we have articles like this which claim that the government is actually making pensioners better off and that this is a Good Thing. But then other Lib Dems are claiming that the Granny Tax is fine because it’s only right and proper that pensinoers should contribute more to paying off the deficit, and this is also a Good Thing. Some Lib Dems are even trying to have it both ways at the same time. I’m completely baffled – do most Lib Dems believe in better treatment for pensioners, or taxing pensioners more?
Yes, Steve Webb is playing a blinder, and it is only right and proper that we get rid of all the ridiculous complexity in our tax system and replace it with a straightforward non-means-tested state benefit which restores incentives to save.
And the people who are supposedly hit by the granny tax (because they have a private pension or are still earning a taxable income) are of course those who will benefit most from the new non-means-tested state pension.
The only problem for me is the artificiality of the cut-off between people who are retired (and receiving £140 a week) and those who are perhaps one year away from retirement, and not receiving anything. Citizens’ income anyone?
“the state is shrinking from 48% to 43% of GDP”
I found this reference that Malcolm Todd on another blog article made reference to interesting and relevant to this discussion: http://www.ukpublicspending.co.uk/spending_chart_1979_2010UKp_11s1li111mcn_F0t
It would seem that a natural level of government spend for the UK is in the range 35~40% of GDP. So we should be pleased that the state is being contracted back to levels that are probably sustainable in the long term.
I am one of a couple of pensioners who acquired occupational and private pensions, in addition to the state pension over working careers, so I would like to point out that we have NEVER benefited from the “age allowance”. If you are over the normal tax threshold, firstly you start to pay tax on your state pension from your other pensions. If your other pensions + state pension are enough, the “age allowance” is progressively reduced until it disappears and you’re back on the basic allowance like under-60s. There are lots of other benefits given to over-60s, but “age allowance ” is far from universal.
So I and my “granny” wife benefit form the general rise in personal allowance and don’t lose from the changes to the “age allowance”. This is a point the media seem to have completely missed. I’m sure there are thousands like us.
Dedecek Ian
I am in Ian’s position. I have not taken my state pension. However, what puzzles me is why we pay income tax on our state pension. Can anyone give me some good reasons?
@ John Carlisle
I am in a similar position to you and Ian. It has never seemed odd to me that I pay income tax on my total income which consists of an occupational pension , the state pension and the interest (apart from that earned by my ISA) on my savings. It seems to me that there is some justice in taxing universal benefits: those with other sources of income are taxed accordingly while those on low incomes receive the full benefit.
What really hurts, ‘though is paying tax on interest rates which are below the rate of inflation (i.e. insufficient to protect the value of my savings). That feels rather like paying tax on a negative income.
It is my understanding the £140 is for “new” pensioners. Existing pensioners will not get as much. If this is true I would like to know why existing pensioners are being disadvantaged.
Rather than simplify the calculation by removing it why not increase the allowance to the maximum for all. All of us to silly to understand the calculations will understand if the reduction in allowance for income over the set amount was removed. The pensioners and those caught in the new threshold for the 45p tax are the only people with an increased tax bill.
@ John Carlisle
I’m fine with State Pension being taxable – if you have enough income. The fact that it is always paid gross means that HMRC doesn’t have to deal at all with pensioners who have less income than the personal allowance.
If you have delayed taking your state pension after the normal retirement age, you could be in for a nice surprise when you do take it, as the annual pension paid is raised for every year you don’t take it. Of course, whether that’s a good idea depends on the sort of calculation actuaries make – and your individual life expectancy. Like all pensions it stops when you die!
And all these calculations change again as the pensionable age rises.
What guarantee do we have that with the £140 pension other benefits will not disappear eg winter fuel allowance? I expect that it will be said that because we have such a ‘generous’ pension, top up benefits are no longer needed. The savings from this must be astronomical as along with the state pension itself, there is also the savings from the benefits that used to be paid at 60, the womens retirement age. Why is this never mentioned? Expect more to die from the cold as not everyone is healthy as they age. Already people are having to wait years longer for their pensions with the threat in the budget of the state pension age rising further. I do not think that pensions will be much of an issue in future as very few will live to qualify, they will be worked to death, if not in paid work then on mandatory Workfare schemes as employers will reject the elderly ‘workforce’.
I meant to put the savings from the increased retirement age must be astronomical. Brain getting older!
I may not have grasped this, fully, but won’t there be a lot of ill feeling as between people, already retired, who have a lower pension, but had to make ten or more years extra contributions ?
I think Steve Webb is working on proposals that will ,in one instance at least, give existing pensioners the same amount as those due to reach pensionable age in the next few years. People who have contributed for 30 years or more may even get a state pension of £145 per week.
Personally, I don’t think someone who hasn’t contributed should receive quite the same amount. This may not be the site on which to say it, but why should a person’s relative who has recently come from another country be entitled to £140 a week or more almost on arrival?
Why must Steve webb and IDS keep saying a £140 pension for all when it will only be for new pensioners after 2015. What I can not understand is if its as cheap to give £140 if you do away with all the red tape of the existing pension system then why not give all pensioners the £140. They say it will get rid of means testing so does this mean we will all get the pension credit. I think not, it means that not only will they have to keep the existing system working but introduce another new system. So the actual cost will go up . When will all politicians tell us the truth. All us existing pensioners will have the chance to vote in a couple of years and there are a lot of us. I am not complaining about my pension just the unfairness that I get £107 with 44 years contributions and new pensioners will get £140 for 30 years contribution.