Friday, 17 January 2014

Reforming "Pensioner Perks" - take away from the over 60s and give to the over 80s

In the United Kingdom, the over 60s are a crucial voting constituency and politicians have consistently bribed them - this is especially true of the Labour Party which has courted this generally Conservative constituency with handouts.

At 60 in the UK, and regardless of employment status or income, you currently qualify for a Pass which allows you free bus travel, free prescriptions for medicines, and a tax-free cash handout (£200 for a single person) which is put into your bank account just before Christmas. It's called a "Winter Fuel Payment" but this is bogus - you can claim this benefit even if you are an ex-patriate living on the Costa del Sol.

Though women could for most of the period since 1945 retire at 60 and claim their state pension, men couldn't.The retirement age for men was fixed at 65 - a piece of extraordinary sex discrimination which went unchallenged for decades. The retirement age for women will now rise by stages to reach 65 in 2018, so sex equality is still a little way off [January 18: This paragraph clarified and corrected to take account of the first Comment published below]

The Benefits handed out at 60 are not really "Pensioner Perks". They are not tied to being a pensioner in any way, though they used the female age of retirement as a fig leaf to make it seem that they were connected to retirement.

At sixty, many of the beneficiaries of these handouts have disposable incomes which are higher than they have ever experienced: their mortgages are paid off, their children have grown up and, if they are in work, then they are at the top of the salary scale. They simply don't need the handouts politicians have shoveled towards them.

Worse, because they are untaxed they are actually regressive benefits. A person paying 40% marginal tax would lose £80 if the £200 Christmas handout was taxed; a person on lower income and paying tax at a marginal rate of 20% would lose only £40. Put another way, a 40% taxpayer would have to earn £333 to generate £200 net; a 20% taxpayer would have to earn just £250.

Worse still, these so-called Benefits have some negative consequences even for their beneficiaries. The Royal College of Pharmacists has repeatedly drawn attention to the over-prescribing of medicines to the over 60s who binge on free pills in the same way as some of them binge on free bus rides.

But if you then turn to the over 80s or even the over 70s, you find a group in which many are struggling with low incomes - no longer earning and their savings used up - unable to afford appropriate care or equipment to make their lives more tolerable.

So though it is politically difficult to remove "Pensioner Perks" from a group which is often rather unpleasantly grasping, a very strong case could be made for switching expenditure from regressive untaxed benefits for the over 60s  to taxed increases in the state pension for the over 80s or over 70s. Since the state pension is taxed, those with existing higher incomes who do not need the increases would simply pay more in tax than those who do need them.

There would be some additional advantages in making this switch. The so-called "Pensioner Perks" are offensive in a number of ways. For example, the Bus Pass is paternalistic insofar as it shepherds older people to the form of transport the politicians think appropriate for them. But an elderly person might prefer one taxi ride a week for a supermarket shop to five bus rides into town. The present system does not recognise such a preference. Worse, the Bus Pass confronts other bus users - generally young people on low incomes - with the daily spectacle of often well-dressed individuals hopping on board and flashing a Pass which exempts them from paying for something they most definitely should pay for.

So that's my proposal: cost all these Pensioner Perks and transfer the total budget to enhancing the state pension income of people who are older and, in general, more in need.


2 comments:

  1. Check your facts on the age at which women can now start to claim their pension.

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  2. Dear Trevor, I really think your objection to the free bus pass is over the top. I'm in London where I get a free pass to trains, tube and buses so it is, I acknowledge, an enormous benefit but in principle it is no more objectionable than medical care under the NHS being free at the point of delivery, something which particularly benefits the elderly. I gave up my car when I retired so the London Freedom Pass definitely influences behaviour in a positive and environmentally friendly way, and I willingly submit to this sort of nudging. Transferring pensioner perks to the very elderly could have a number of perverse consequences. On the other hand, I agree that the young elderly are well off, especially ones like me with property and a good pension. The answer to that is to increase taxes on property by increasing the number of council tax bands, removing the single-person discount and revising valuations upwards. This in effect would have been the mansion tax advocated by Ed Milliband.

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