Can someone explain why the government, opposition and assorted think tanks all think that abolishing means testing for older people is a good idea?

Am I missing something or wouldn't increasing the basic rate of RP just create more inequality by benefitting pensioners who already have a relatively large income and have to be so high to compensate for the associated loss of HB/CTB as to be unworkable?

And I know pension credit seems complicated to claimants, but it seems to me that the benefits system can either be simple or fair, but probably not both at the same time. (Although I wouldn't want anyone to think that I think the current system is particularly fair).

hi ian

i'll have a bite. : )

it remains to be seen what the government's position on means-testing is. it's been defended up to and including this week, but there are some new squawkings in light of the pensions report. it's at least being called means-testing again, after many years of euphemistic 'targeting'.

times and attitudes change, but the 'state-handout' stigma has never really gone-away. the right to _your_ pension, which you have earned and paid for over your working life, is regarding differently, by beneficiaries and by the law, than a means-tested benefit, to which you have to establish entitlement on an on-going basis, subject to on-going changes in the rules. overwhelmingly, people would prefer a pension which pays them enough to live on, with recourse to means-testing as a safety-net, not a norm. since we've never had it so good, this doesn't seem too much to expect.

what many think is really unfair, is that the value of the pension is allowed to erode, so that reliance on the state 'safety net' becomes a necessity for more and more pensioners. this is true of the contributory benefit scheme as a whole, which has been deliberately allowed to wither on the vine, particularly since 1979, but wasn't always the case.

the progressive S.E.R.P.E.S scheme was introduced with the switch from flat -rate to earnings related NI contributions in 1975, and we might now be seeing some really worthwhile state retirement pension rates, if only the current opposition hadn't decided to halve it in 1988, and further cutbacks since then. if there was a reduction in the NI rate at the Fowler reforms, it was too slight to reflect all the cuts introduced at that time. (and since - wot no rebate?) Mrs. Thatcher's project made sure that the workers lobby was much less powerful than the employers' lobby. heh! pensioners have been ripped off by the state scheme, and by their employers, and by the pensions industry. i don't know what happened to the 'minimum guarantee pension' but a lot of people believed that SERPES protected contracted out contributors, because to contract out, the Occupational Pension Board quango had to be satisfied that the occupational scheme would pay as much or more than SERPES. imo, on past history, added to increasing privatisation of state functions, the public would be fools to fall for 'compulsion' again, at least without cast-iron long term guarantees which governments and employers may not be willing to make. probably better to to save for our own retirement, in which case higher pay might be required. do i hear sobbing?

two main objections to means testing are the _oppressive_ level of state intrusion - and the administrative cost. the cheapest benefits to administer are universal benefits. i'm not sure the costs involved in administering means-tested benefits ever emerge in the accounts, but i'm certain the _true_ costs never emerge on paper. arguably the government could save hugely on introducing a non-contributory non-means-tested guarantee pension subject to overlapping benefit provisions with the contributory state pension. this would ensure that the money got to those with inadequate or no pension provision, and the targeting, to ensure that people with high incomes and capital did not needlessly benefit, could take place in the tax system, with a straightforward claw-back provision. not only would the grown men reduced to tears at the thought of completing another 50 page claim form like it, but the trees would benefit too!

it's possible that the younger generations, more accepting of providing copious amounts of personal information to get Boots cards etc, will have less objection to state intrusion and loss of privacy, but i suspect they will be less tolerant of being made to jump through hoops by a state that treats them with no respect whatsoever, and much more savvy as consumers about whether they are getting a fair deal. perhaps not - i'm often wrong about these things...

jj

i should have said SERPS of course. just in case anyone is wondering - i confess it! i got into the bad habit of calling it SERPES, to rhyme with herpes, a long time ago, and it must have stuck.

jj

Just to add another point against means-tested benefits, that jj has touched on - the issue of take up of benefits.

Universal benefits have, historically and statistically, had the highest take-up rates - for example, take-up rates for the previous scheme of tax credits were not particularly high: the estimated take-up rate for working families’ tax credit in 2000/01 was 62-65 per cent, increasing towards the end of the year to 65-70 per cent. This compares with a take-up rate of around 99 per cent for child benefit.

This is probably due to a combination of:

• actual or percieved difficulties with the process of making/maintaining claims for means-tested benefits/tax credits;
• feelings of stigma/lack of confidence/fear of committing fraud;
  
• along with the issues, raised by jj, about intrusion/confusion/etc.

The take-up aspect is a crucial reason for opposing means testing. All the assumptions that gov't use to justify means testing (that it targets help at the poorest) assume 100% take-up. Take-up has never reached such a level and eg for Pension Credit seems to be bumping along at about 60%.

Moving away from means tested to non means tested benefits also frees up resources tied up in administering them so they could be spent on benefits directly (it costs about ten times as much to administer means tseted benefits compared to non means tested).

Means tested benefits also have far higher error and administrative failure rate - hardly surprising given the complexity which they require.

There's also compelling evidence about the role of Child Benefit as way to tackle in-work poverty and reduce the poverty trap effect when people go into work (eg see the Tax Benefit Model Tables for families with children on the DWP website). CPAG have made this point ever since they were founded in 1965.

Having a good bedrock of non means tested benefits also prevents peoples' income drifting below means tested levels.

In short, means testing fails to tackle poverty and when one tries to use to do so, more and more people are drawn into the means testing arena.

So, in a nutshell, the most important thing is that you don't get 100 % take up, secondly that some people feel there is a stigma, thirdly the cost of administration which could be better spent on more money for the recipients, fourthly the detrimental effect on financial literacy.

On the other hand no government ever had an unlimited amount of money to spend and there is a huge disparity between the incomes of the richest and poorest pensioners.

If you took the same amount of money and distributed it among more people you would obviously have to pay each of them less, and you'd still have the problem of people losing it from their H.B. and C.T.B.

Perhaps you could use the tax system to claw some of it back from the richest pensioners but the net effect would certainly be to give more money to better off pensioners and less to those who are less well off. Provide you can get the take-up to close to 100% the means tested method would be fairer, if less efficient.

Of course you could always put even more money into it and pay everyone a certain amount regardless of how much money they have already. The only trouble is that taxes have already gone up substantially, largely to pay for increased benefits (as Michael Howard pointed out the increase in N.I.to pay for more money for the NHS would have been unnecessary but for the governments increased welfare spending). Pensioners are already marching against Council Tax increases, and the government was nearly driven from office by petrol protestors.

As for the point about the withering of N.I. benefits it is some years since I studied social policy but when I did we were told that N.I. actually paid for about 40% of N.I. benefits, the rest came from taxation. If people want to restore N.I. benefits they will have to pay more for them.

So I don't think it is black and white, there are arguments both ways but the most important thing to watch is what happens to take up. Take up of new Tax Credits seems to be much higher than under the old system, and the more people who claim the less the stigma.