THE STATE PENSION: ONE HUNDRED YEARS ON
2008 is the centenary of the state pension in Britain. This was introduced in 1908 and paid five shillings a week. At the time this was about one-quarter of average earnings. Before then most older people depended on their families for support after they stopped work, and without this support could be dependent on charity to keep them from the workhouse.
So how much is there to celebrate?. We are often told that Britain has such a successful economy and much of that is due to the past hard work of today’s pensioners. Yet the Old Age Pension has fallen in real value for many years and is now less than one-sixth of average earnings. It is also one of the lowest in Europe.
In April the state pension will rise by 3.9%: by £3.40 to £90.70 for singles and by £5.45 to £145.05 for couples. For those with little or no other income the Minimum Income Guarantee for Pension Credit will rise also by 3.9% to £124.05 for singles and £189.35 for couples.
The government decided that rather than raise pensions for everyone they would target the less well off with Pension Credit. The intention is that those with little other income than the basic pension are entitled to a higher pension rate of up to £124.05 for singles and £189.35 for couples. Savings Credit is also available to those with savings.
As Pension Credit is means tested the fact is that hundreds of thousands of people, perhaps half of all pensioners, who should be receiving the higher pension do not actually claim it for various reasons. As a result many older people, and especially women on low pensions, struggle to pay bills and maybe cut back on heating and food, while that extra pension could make a big difference.
Age Concern Southampton offers a free, independent and confidential Benefits Check and can help you with applications for Pension Credit. We can also help on Council Tax Benefit, Attendance Allowance and other entitlements. Call us on 02380 368636 between 10 and 4.
The 3.9% pension increase was set by the rise in the Retail Price Index in October, but it is now rising at 4.1%. The RPI is an average of prices for all households, rich and poor, young and old.
But the prices of many basic goods are rising much more. These price rises hit everyone but hit hardest those on low incomes. Most suppliers of gas and electricity are raising prices by around 15%, food prices look set to continue rising by about 12% a year. Petrol has gone up 16% in the last year.
So why is ‘headline’ and ‘average’ inflation only 4.1%? While basic goods’ prices are rising many ‘luxury goods’ prices are falling. Worldwide food and oil prices have risen steeply, but there are many cheaper goods coming from countries like China. New computers, TV’s and music systems may be 20% cheaper than a year ago, new car prices are down by 4%, alcohol prices are much the same. Oil and food prices will probably stay high, and eventually feed into higher prices for everything.
What is the outlook for the Old Age Pension? The government has talked about restoring the earnings link whereby pensions would rise in line with average earnings rather than prices. This link was lost in 1981 but is unlikely to be restored before 2012.
While pensions are still based on price rises it would be much fairer if state pension rises were based on the prices of the basic goods which are the major expenses of low income pensioner households. In fact the Office of National Statistics does have a Pensioner Price Index, but it is difficult to find! This PPI is based on prices relevant for a one pensioner household, where most income is from pension and benefits and it does not include housing costs. In the PPI food and fuel account for over a third of expenditure.
Recent research by the Newcastle Building Society confirms that pensioners continue to face higher price rises than average. It shows that the PPI rose by 14% since 2002, compared a similar general price index rise of 10%. The research predicts that the PPI will rise by 7% in 2008.
Age Concern Southampton works with other organisations to campaign for a fairer pension in the future. Meanwhile we will continue to help older people in accessing their full pension and other entitlements.