Why rich pensioners’ benefits SHOULD be scrapped

In recent days, both Nick Clegg and Iain Duncan Smith have made clear their opposition to the universal pensioner Winter Fuel Payment (WFP). For those who doubted that a re-assessment of universalism for some of the pensioner benefits was politically feasible, this comes as a pretty clear message that WFP and others will be in play as the Government looks to make further economies.

In a piece on this website earlier this week, however, Jonathan Portes, Director of the respected National Institute of Economic and Social Research, criticised the growing number of commentators in favour of means-testing WFPs. Mr Portes argued that Winter Fuel Payments and, by extension other universal benefits for pensioners, are economically equivalent to the Basic State Pension (BSP). Consequently, he says, it makes no economic sense to be in favour of means-testing them without also advocating a means test for the BSP.

But the usually impeccable reasoning of Mr Portes doesn’t wash here. First WFPs are neither politically nor economically a simple extension of the BSP. Second they were introduced in 1998 as a means-tested benefit. And third, means-testing and universalism have long co-existed in the pension system, so there is no reason why a marginal shift to the former should necessitate a wholesale restructuring of the pensions settlement as he implies.

Winter Fuel Payments are neither economically nor politically “just an add-on to the Basic State Pension”. The claimant groups are not identical and the eligibility rules are different. The payments kick in once a person reaches 60, not the state pension age. Then there’s a higher level for pensioners over 80. What’s more, the payments, unlike the pension, aren’t taxable. It’s not tenable to argue that these are economically a simple add-on to the BSP just because there’s a large overlap in claimants. Nor were these hand-outs intended to be seen as part of the basic state pension: if they had been they would have been consolidated into it.

Nor does history offer support for the idea of immutably universal WFPs. Back at their 1997 introduction, Gordon Brown explicitly justified the need for the payments with reference to the poorest pensioners and “those on the margins of poverty”. And design followed that intent: in their original incarnation these payments handed £50 to pensioners on Income Support and £20 to others. I don’t recall anyone arguing that the logic of this policy necessitated means-testing of the BSP. Why should such reasoning apply now?

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