Column: Charles Amos

It was nearly a really good policy. Setting Basic State Pension too low immediately embroils government in a complex mish-mash of means-tested benefits to find other ways to give elderly people a minimum income – which in turn breeds errors, anomalies, disincentives to save, hardship for non-claimants and heaps of administration at every step. Giving lower-income pensioners age-related tax allowances that taper away as soon as income starts to rise is another recipe for confusion, error and administrative waste.  In an era when government can only afford to help the elderly by spending the same money smarter, surely it’s better to increase the basic state pension - which everyone understands - and pay for it by phasing out error-prone tax reliefs?

Except that’s not how it was sold to the public. Increases to basic state pension were presented as a real improvement, with no suggestion at the time that recipients themselves might end up paying for it; tax changes are then slippedin months later as a “simplification” that leaves pensioners “no worse off in cash terms.” Suddenly pensioners are not merely less well off than they were told to expect, but told the government thinks they’re stupid too. No wonder the Popular-with-pensioners Press has leapt on a rare opportunity to reverse the decline in newsprint sales.

So Plan B is to tough it out and blame the communicators. But was this merely a communication blunder, or is there a deeper problem about the way that government joins up pensions policies?

It may make economic sense to link pensions benefit and tax policy, but that’s not how Whitehall is structured.  Pension benefits is DWP territory, but woe betide the Pensions Minister or DWP thinker who breathes a word in public about consistent tax policy.  Pension protection is DWP responsibility too; but regulation of takeovers is jealously-guarded BIS territory, even though foreign takeovers pose the biggest single threat not only to private pensioner security but also to Treasury income from pensioners - in direct taxes, indirect taxes and multiplier-effects from their spending.  Getting more people of working age off benefits is a DWP priority, but for the employment side of the Department; pensioner-spending is central to creating local jobs that single parentscan actually do, but the argumentbarelycatchesthe lift inside Caxton House.  The Great Granny-Tax Blunder wasn’t just a spin-doctor’s botched operation; it reflects a wider failure by government to get a cross-departmental grip on all the economic issues raised by pension saving, especially the threats  and opportunities arising from the predominance of foreign shareholder interests in the companies that have made most of the past promises. Government can’t hope to produce joined-up communications on pensions until it can produce joined-up thinking on pension economics.

Charles Amos

former ICI pension scheme manager, now of Long-Term Practical Perspectives