?2bn boost for pensioners

Gordon Brown yesterday put the state of pensions at the heart of his strategy when he announced a £2bn spending boost for low-income pensioners that will come into effect next year.

The chancellor also gave succour to those saving for a pension when he ringfenced tax-free lump sums on retirement. Pension campaigners had feared that this benefit would be abolished.

In a statement characterised by downbeat forecasts of the global economy, the chancellor also announced a raft of measures designed to help low-income families and savers.

As a result of the new plans, the state pension will rise next April from £75.50 to £77.45 a week, and in April 2004 by at least 2.5% to £79.40 a week. A minimum income guarantee, which will top up the basic pensions of the poorest third of pensioners, will be set at £102.10 a week.

His attempt to tackle pensioner poverty and boost savings will also be helped by increases in the state pension and retirement benefits in April and the introduction of the pension credit next October. Pensioners who pay tax will also benefit from inflation-busting rises in their personal allowances next April, in contrast to the working population who will see their per sonal allowances frozen. The allowance for people over 65 will jump from £6,100 to £6,610 while the over 75s will see a rise from £6,370 to £6,720.

The green paper on pensions, which will be published on December 17, will not include proposals to scrap the tax-free lump sum payment to retirees. Higher rate taxpayers will also be allowed to keep the tax relief on pension contributions, he said, scotching rumours that the tax benefit would be cut as a cost-saving measure.

"For five million pensioners this will be the biggest increase in pensions since the old age pension was introduced," he said, adding that pensioners would be better off by £6bn in real terms as a result of policies introduced since 1997.

In respect of the pensions credit, he said: "In the typical constituency [of MPs], 7,000 pensioner households - couples with total incomes of £200 a week or less, single elderly with £139 a week or less - stand to benefit from this £2bn extra paid out in pensions."

The pension credit aims to allow pensioners who have built up private income from occupational pensions or savings to also claim benefits. Under the existing scheme they lose £1 of benefits for every £1 of private income they earn over the basic state pension. From April 2003 thousands of pensioners will be allowed to keep a proportion of their benefits income in a scheme that tapers off until their retirement income reaches £135 a week. The cost of the credit in the first year is expected to be £2.3bn.

But he immediately ran into criticism that the increases to benefits and the pensions credit would draw the majority of pensioners into claiming means-tested benefits. He also faced a growing coalition of MPs and pensioner groups and pensions experts who said he had failed to tackle fundamental issues affecting occupational pensions.

Two left-of-centre thinktanks, the IPPR and the union-backed Catalyst, have told the chancellor his pensions credit scheme will prove to be a mistake that encourages more workers to abandon saving. Both groups called on the chancellor to spend any spare cash on raising the state pension, claiming it will prove to be a more sustainable policy.

Gordon Lishman, Age Concern England's director general, said that while he welcomed increases to pensioner income, the reliance on means-tested benefits would discourage many pensioners from claiming the money.

"The government must commit to clear, ambitious targets for take-up of the pension credit. These should increase year on year until 100% take up is achieved for the five million entitled pensioners.

"We also urge the government to consider our new research which suggests single [pensioners] need a minimum of £160 per week for an active and healthy lifestyle."