A citizen’s pension is the best way to end pensioner poverty

By Alexandra Kemp

It is time to start an important new debate around citizenship, age and income standards. Labour has taken one million pensioners out of poverty but two million pensioners are still in poverty. A Citizen’s Pension, paid universally to all, with a 15-year minimum residency qualification, could give certainty, a sense of dignity, material wellbeing and social inclusion to all pensioners.

The Joseph Rowntree Foundation approves the level of the means tested Pension Credit Guarantee – currently £130 a week for single pensioner – as the baseline for an acceptable standard of pensioner income. But, a decade on, a quarter of pensioners do not claim their entitlement. The average unclaimed amount for Guarantee Credit is £68 a week.

Universality would the best way of reaching poorer pensioners and achieving maximum coverage for those whose low pay, exclusion from employer pension schemes and caring responsibilities mean they cannot accrue this level of entitlemnent.

In A New State Pension, Howard Reed, former Chief Economist at the ippr, costs the Citizen’s Pension at an additional 0.5% of GDP in 2030, reducing to an additional 0.4% in 2040. This is realistic: the UK is shown to be currently toward the bottom of a league table of OECD countries in a recent survey.

The Basic State Pension is only £95 a week and its value has been in terminal decline since 1980 when the Conservatives cut its link to average earnings. Labour’s above inflation increases in the state pension, the winter fuel allowance and Pension Credit have taken a third of pensioners out of poverty. This is the right direction of travel. But more needs to be done, as recent reforms to increase coverage of the basic state pension are not aligned with the second state pension.

Despite – or perhaps because of – the popular portrayal of benefit claimants as “scroungers”, thousands of pensioners will not claim what they are due, particularly homeowners who may not have been conversant with the benefits system during their working lives. They then often struggle to keep up with repairs to their homes, or other bills. As many as 81% of entitled owner-occupiers do not claim Pension Credit compared to 14% of renters who do not. Moreover, people are fearful of loss of other entitlements, giving out information to officials, the diminishing capacity to engage with bureaucracy, the frailness of old age when savings run out or interest rates decline – and there is a lack of accessible information.

UK Pension Reform is already in the right direction of travel. The new gender-fair measures being introduced to help women and family carers build up entitlement to the state pension this April will recognise and redress the impact that caring and the gender pension gap have on the ability to save for a pension. But we need to go further and think ahead. It could still take carers until 2040 to experience state pension outcomes similar to the rest of the population.

A Citizen’s Pension would recognise and give respect to the economic contribution of the self-employed, who are currently excluded from building up a second state pension. A Citizen’s Pension could be introduced in 2025 to float everyone above means-testing. This would make it pay to save for retirement, particularly for women, with an individual entitlement to a Citizen’s Pension at the level of the Guarantee Credit. It would also encourage saving in NESTS, the new universal company pension scheme to be introduced in 2012. It would reduce the risk of mis-selling claims, as it would always pay to save in a pension.

There would be winners and losers but it is a bold, far-sighted project which now merits a platform for wider debate.

Join us for the Citzen’s Pension debate on Monday March 29th from 6:15 pm until 7.30 pm, at the Houses of Parliament Committee Room 2. Speakers – Mervyn Kohler, Help the Aged; Malcolm Small Institute of Directors, Joanne Seagars, National Association of Pension Funds, Adrian Boulding, Legal and General, Howard Reed, former Chief Economist IPPR Chair: Baroness Patricia Hollis, House of Lords & Women and Pensions Network.