By Ilonka Oudenampsen
A new report by the Institute for Fiscal Studies has found that pensioners have enjoyed the fastest-growing incomes of the last decade, but Barnett Waddingham have said it ‘disguises’ the true nature of UK pension problems.
IFS researchers looked at how pensioner incomes have evolved in recent years, how the tax and benefit system provides additional support for pensioners and how it could be reformed to raise additional revenue from this group. Any such changes would be painful, the IFS said, but money could be found whilst also making the tax and benefit system more coherent in the way it affects pensioners.
The report found that pension incomes have risen by 29.4 per cent since 1999, whilst non-pensioner incomes have risen by 26 per cent. More than 40 per cent of pensioners are now in the top half of the income distribution compared to 25 per cent twenty years ago.
It added that recent cohorts of pensioners have received higher levels of income from state and private pensions, while tax and benefit changes introduced under the Labour government of 1997-2010 also favoured pensioners.
IFS director and co-author of the report Paul Johnson said: “The Dilnot Commission’s proposals for funding social care represent a coherent way forward in an area where reform is long overdue. Should government choose, there are ways of raising money to pay for the changes from relatively well off pensioners, the group which will benefit most from the proposals.
“But it is important that any changes are made in the context of a clear strategy for the design of a coherent tax and benefit system that works well as a whole for both those above and those below the State Pension Age. But raising money is always painful, perhaps especially from pensioners who have little or no opportunity to increase incomes from other sources.”
However Barnett Waddingham’s Malcolm McLean was critical of the report and said: “The problem with studies like this is that they usually result in statistical averages which iron out the different ends of the scale and can disguise the true nature of any problem.
“There is no doubt there are many comfortably off pensioners at the present time who are benefiting from the proceeds of generous final salary schemes – now largely defunct in the private sector at least. Their numbers will inevitably diminish in the years ahead.
“But there are also many more who are certainly not in that position and are bumping along at or only slightly above the poverty line. Membership of expensive golf clubs and three foreign holidays a year is definitely not how they spend their time – rather it is a continual struggle how to feed and clothe themselves and heat their homes.
He added that pensioner poverty is a problem which needs to be addressed. “We have one of the lowest state pensions in Europe and a preoccupation at the moment with means-testing. We need a bigger state pension – probably bigger than the £140 a week the government is contemplating – and one which on its own guarantees a reasonable standard of living for elderly citizens. In my view this should be large enough to encompass the various ‘perks’ which pensioners enjoy such as free travel and heating allowances which can then be withdrawn. This would ensure amongst other things that the rich pay tax upon them unlike now.
“If the state were able to provide a solid baseline in the form of a liveable on state pension then it is up to individuals to build on that through private saving to give themselves that better standard of living in retirement that many aspire to have but don’t always achieve and thus provide a more equal pensioner population than at present.”