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Fresh pension reform under fireBBC News, March 25, 2002
Many
people may not have enough cash to retire on The
government has come under fire from all sides over its latest attempt to
reform Britain's pensions system. The
Pension Credit is designed to reward people with modest savings who are
penalised under the current system.
But
Labour former welfare minister Frank Field said it would lead to more
means testing and a huge increase in tax, if fully taken up. The
plan - contained in the State Pensions Credit Bill - was also opposed by
the Conservatives and Liberal Democrats. At
the moment, people without a substantial private pension are entitled to
the Minimum Income Guarantee (MIG), to top-up the basic state pension. This
is meant to be a safety net to prevent pensioners sliding into poverty. But
those with savings of £10,000 or less are not entitled to a top-up -
making their savings effectively worthless. 'Long-standing
grievance'
From
2003, the MIG will be replaced by the pension credit. This
is designed to remove the disincentive to save by allowing pensioners with
modest amounts invested in a pension scheme access to more benefit cash. Work
and Pensions Minister Alistair Darling said five million pensioners stood
to gain an extra £400 a year under the plan. He
told MPs the policy "puts right a long-standing grievance. It is fair
and it promotes saving". But
it can only work if pensioners are prepared to be
"means-tested", to find out the size of their savings. State
second pension And
critics, including Mr Field, say that flies in the face of Labour's 1997
election pledge to reduce means testing. He
also predicted that the scheme "would not last" and, if fully
taken up, would lead be the equivalent of 8p on the standard rate of tax. He
called on the government to scrap the pension credit in favour of a
properly-funded state second pension. Shadow
work and pensions secretary David Willetts also cast doubt on the claim
that the move would reward thrifty pensioners.
Mr
Darling wants more incentives for saving 'Complex
issue'
In
a debate on the second reading of the Pensions Credit Bill, Mr Willetts
said findings by the Institute of Fiscal Studies and the Financial
Services Authority suggested the issue was not as straightforward as had
been made out. He
told Mr Darling: "What you are announcing is the end of the basic
state pension as a determinant of the income of pensioners. "In
future the amount you receive as a pensioner will be determined by the
minimum income guarantee and the formula for determining the savings
credit above that. "So
after decades, throughout most of the 20th century, when there was a
belief on all sides of the House that the basic state pension would be an
important part of provision for people in their retirement - the secretary
of state's measures tonight say farewell to that." 'Thatcherite'
approach
Liberal
Democrat work and pensions spokesman Steve Webb said the measures were too
complicated and it was "a nonsense " to suggest they would
encourage saving. "The
theory is lovely, the bar charts look great, the practice falls
short," he told MPs. Mr
Webb said there had been no logic in the government's approach to
pensions. "The
sense that government pension policy has been made up on the back of a fag
packet is irresistible." He
added: "They make it up as they go along, they spot the blunders one
year, they try to amend it the next year. "The
pension credit, the savings credit, is a lottery for those who won't get
it, it penalises women and it gives people money who haven't saved in just
the same way as those who have. In what sense is that an incentive to
save?" Mr
Webb accepted that there was a role for means-testing but said it should
be for the few rather than the many. He
accused the government of adopting a "mass means-testing, Thatcherite
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