MONEY BOX INVESTIGATES THE STATE PENSION Presenter: Paul Lewis Producer: Jennifer Clarke Tx: Tuesday 14 September 2004 Rpt Tx: Sunday 19 September 2004 SOUND OF MARCH LEWIS: I’m with more than a thousand pensioners on their way to present their demands to the Government. The demonstration has been planned for months. But it has been given new hope by the resignation of Andrew Smith, the Secretary of State for Work and Pensions. They hope his successor may be more sympathetic. WOMAN: What we want is the basic pension to be increased so that everybody gets at least £105 and then we want that linked to earnings so that we don’t fall into the poverty trap MAN: Before the ‘97 general election Gordon Brown promised pensioners would get a fair pension, means-testing would stop. We are the fourth largest economy in the world and yet we pay the worst pensions in Europe. Sad. LEWIS: A higher state pension and an end to means-testing. It’s a familiar call. So familiar we almost don’t hear it. Older people have been demanding a better deal from the state pension since it began in the 1940s. The problem is this. After a lifetime’s work the basic state pension is a shade over £4000 a year, just under £80 a week. That’s less than a day’s work on average pay. And as each generation retires, the pension they get is worth less. Because the pension goes up each year with prices. Which rise much more slowly than their earnings. WOMAN: And the pension you can’t live on – that’s why you have the pension plus benefits. These people have paid in their whole lives and end up being means tested. It’s a damned disgrace, it really is. Of course they’re angry LEWIS: Even the Government accepts that the basic pension is not enough for anyone to live on. So a complicated system of means-tested help has built up around it. In other words, giving out a bit more to those who need it. But to get that you have to admit your poverty and reveal your savings. And many people don’t want to do that. So the pensioners’ two demands are linked – a higher pension would put an end to the need for means-testing. And they’re no longer alone making these demands. Money Box has discovered a growing consensus marching behind them calling for a complete change in Government policy. MAN: We need a radical reappraisal of our pensions system. WOMAN: The value of the state pension is a big problem and we’re definitely heading for a huge crisis if we don’t do something now WOMAN: Of all the problems that there are, the real root causes are in the structure and level of state pensions MAN: The system of state benefits for pensioners is a mess and it’s crying out for reform WOMAN: I think there is an increasing consensus that a firm foundation on which to build is what we really do need and have never quite managed to have. MAN: The only real issue with pensions in the UK is the state pension system and how it interfaces with private pension savings. That’s the big nettle that government have got to grasp, but they seem incapable of even recognising the problem. LEWIS: In order you heard the Confederation of British Industry, the Trades Union Congress, the Pensions Policy Institute, the Conservative Opposition, a professor of Gerontology, and the Head of Pensions Strategy at a major life insurance company. A broad consensus indeed. So will the new Secretary of State for Work and Pensions, Alan Johnson, consider these calls to pension off the 62 year old state pension? BBC ANNOUNCER: Tonight’s talk is by Sir William Beveridge whose report on social insurances… LEWIS: December 1942. With Britain at war, Sir William Beveridge tells the nation how his new system of ‘social security’ will work. BEVERIDGE: My report is a plan for securing that no one in Britain willing to work is without income sufficient to meet at all times the essential needs of himself and his family. LEWIS: But the state pension has never met those ‘essential needs’. Even in 1942 it was only worth a third of average pay. Today that is down to a sixth. Mervyn Kohler is Head of Public Affairs at Help the Aged. KOHLER: We find that more than twenty percent of our pensioner population are living below the official poverty line. And they are going to be living below that poverty line for the rest of their lives. Other people, younger people might dip down into poverty but be able to earn their way out of it, but if you’re a pensioner and you find yourself dropping into the poverty zone, you have no way of getting out of that and that is really frightening. LEWIS: And even those who are just above the official poverty line live well below the standard of living they enjoyed in work. KOHLER: For a lot of our pensioner population, the idea of a holiday, the idea of a meal out, the idea of a trip to the cinema or the theatre or something like that is beyond their immediate willingness to spend their limited sums of money. They can survive, but subsistence and survival is not what surely we ought to be actually looking for, for our older population. LEWIS: Hello I’m Paul Lewis from Money Box. WOMAN: Hi Paul pleased to meet you – Vicky from Age Concern. LEWIS: Hi Vicky LEWIS: Blackburn Lancashire. I’ve come to one of the Age Concern day centres Vicky runs to find out what survival means – and how far it falls short of Beveridge’s promise. Kathleen is in her 80s. Too frail to walk never mind march on Parliament. But just as angry. She told me what not meeting her ‘essential needs’ means. KATHLEEN: Last year my central heating packed in and it was £2775. Well I couldn’t pay it. So my son he gave me £775 to pay there and then. And for 6 solid months I stopped my papers, my milk, my gardener, my window cleaner. And the only thing I bought in was bread butter tea and sugar and I lived like that for 6 months til I paid it. I never said a word to anybody but I cried – I did cry because believe me I am frightened to death of debt. LEWIS: And do you think that if you’d had a better pension you’d have been able to afford it? KATHLEEN: Oh yes, definitely definitely yes. And every time they give us a rise in the pension by the time the pension comes everything’s gone up. Water goes up, electricity goes up, gas goes up. I’d just like to see them that sits in parliament live off what we live off. I would really. LEWIS: Kathleen only manages at all because she has an extra pension, earned by her late husband at work. She also gets the full basic pension – just under £80 a week. To get that you have to work and pay full National Insurance contributions for around forty years. But many people don’t. Especially women who tend to do less paid work as they look after children, support their husbands, care for relatives. And the national insurance they pay, sometimes doesn’t even count towards a pension. Steve Webb MP is the Pensions Spokesman in Parliament for the Liberal Democrats. WEBB: The idea of national insurance was that if you work and you earn and you put something into the system, you get something out at the end; but when the system was devised the assumption was basically that only men worked, only men earned, and they could use that to support their wives. National insurance, the whole palaver of national insurance is essentially a complicated way of excluding women from decent pensions. LEWIS: These complex National Insurance rules leave almost one pensioner in three with less than the full pension. And almost all of them, three and a quarter million, are women. The task of running the ‘whole palaver’ of National Insurance falls to a small army of civil servants. At Longbenton near Newcastle nearly 6,000 people spend their time recording and adding up every contribution paid every week by every one of us throughout our working lives. Those workers cost us nearly £120 million a year. It’s also their job when we retire to work out how much pension to give us. And how much to take away from those who haven’t made enough contributions. Even with graduated pension, SERPS or State Second Pension, the total paid is still on average far too little to live on. So politicians have devised a complex web of means- tested help to fill the gap. Mervyn Kohler. KOHLER: There are something like twenty-three different means tested benefits available to pensioners of which sixteen have something like thirty overlaps and interlocking features between them. I mean for crying out loud, you need a degree in welfare studies to actually be able to get your head around this system. LEWIS: The latest, and biggest, of these means-tested benefits is Pension Credit. ADVERT: You may not know it but if you’re 60 or over there could be money out there that’s rightfully yours. Pick it up it’s yours LEWIS: Pension credit is an extra amount of money from the state depending on your income and savings. It tops up the income of single people over 60 to at least £105 a week and to £160 for a couple. If you have savings the arithmetic gets a bit more complex. And at 65 it changes again - we’ll come back to that bit later. Pension Credit began in October 2003 and more than two million pensioners now share an extra £1.6 billion a year. An average of £16 a week per household. So those who get it are better off. And the Government says this is the most efficient use of taxpayers’ money – targeting resources on those that need them most. But critics say pension credit has three major problems. First it’s too complex. As Dora in her nineties explained to me in Blackburn. DORA: My daughter does mine, all my writing and everything. I can’t do it. I don’t understand it. LEWIS: You think it’s too complicated? DORA: Oh yes I can’t answer the questions they ask. I don’t know what I’d do if I hadn’t my daughter LEWIS: Because of means-testing millions of pensions have to be worked out individually. All this form filling and analysis takes a lot of people. Another army of civil servants, more than 18,000 strong, this time, costing nearly £400 million a year. This bigger army doles money out to people who don’t have enough. Including of course many of those people who the other army took money away from in the first place. The Pensions Policy Institute is an independent think tank set up three years ago to provide objective research into pensions. It calculates that every pound paid in pension credit costs ten times more to administer than a pound paid through the basic state pension. Liberal Democrat MP Steve Webb says the costs often outweigh the benefits. WEBB: It’s about four pounds per week per claim to administer, and in a world where sixty-five thousand people get less than that in pension credits, it’s actually costing more to administer the money than actually to give it to them. And some people get piddling amounts of money. Twelve thousand people get less than a pound a week. Well what’s that all about? LEWIS: Despite the army of people devoted to working it all out, mistakes are all too common. WOMAN: Hello, would you like to come in? MAIN: Yes certainly I will do. WOMAN: Nice to see you. Please take a seat. MAN: I will do thank you LEWIS: Yeovil Citizens Advice office. Sue Pearce and Ann Cook work here sorting out benefit problems. They both used to work for the Department for Work and Pensions. But now they spend their days correcting mistakes the Department has made. PEARCE: So much of my work is following up on payments which don’t appear to be correct, and it might be an overpayment, it can be an underpayment, and I seem to spend an awful lot of time just chasing things through. I’ve just been dealing with one today on a client who has recently died and the next of kin has received communication with ‘please don’t administer your estate because there’s an overpayment of benefit and we need to see whether you need to repay it’. Of course they’re very, very distressed. They’re also distressed because it took several months to get arrears of seven hundred pounds which was due to them. That was paid and then three weeks later they get a letter to say there’s also an overpayment of benefit. LEWIS: And if you weren’t here, what would happen to those people? COOK: For the most vulnerable, they would not know how to actually pursue their claims. They come and say to us if it hadn’t been for us being here and sorting it out for them, they would have left everything as it stood, They would have accepted what was paid to them without question. LEWIS: Sue and Ann’s experience is backed up by the National Audit Office. Last November it reported that one in five decisions and one in ten payments made by the Department for Work and Pensions was wrong. Now all this complexity, all this cost - even the mistakes - might be acceptable if pension credit got the money to the people who need it. That’s what targeting is all about. But in fact it’s a target that’s missed almost as often as it’s hit, as Mervyn Kohler told me KOHLER: Even despite a big PR push, we’re still looking at less than seventy percent of the people who are entitled to pension credit actually claiming it. LEWIS: So nearly one in three who could get it are not getting it? KOHLER: Absolutely right LEWIS: That means two million people who the government knows are entitled to this money don’t currently get it. Professor Ruth Hancock studies ageing at the University of Essex. She’s done extensive research into means-tested benefits. HANCOCK: The main problem is that of course not everybody who is entitled to these benefits claims them. So that means that the very poorest people are those who don’t claim their benefits and, therefore, who are not being helped by this policy of trying to target those in most need. LEWIS: Although take up of the pension credit is so far disappointing, ministers have said to Money Box in the past their personal target is a hundred percent. Can we ever achieve a hundred percent take up of a means tested benefit? HANCOCK: I think it’s unlikely. More importantly, I think it’s actually a rather silly target. For as long as I’ve been working in this area – which is a long time – we’ve had this problem of take up. It hasn’t gone away. We’ve made changes - re-naming benefits, changes to claim forms, all sorts of information out there – and yet still it’s a stubborn problem. The trend doesn’t go in any direction up or down. It’s been with us for a long time. LEWIS: Because pension credit is fairly new, there are no figures for the amount of money that two million pensioners lose by not claiming it. But under the less generous benefit it replaced, around a billion pounds every year went unclaimed. And although ministers may say they hope for 100 per cent take up of pension credit, their accountants tell us a different story. The department’s spending plans assume that by 2008 well over a million pensioners who could claim pension credit will still not have done so. So in its financial heart the Government knows it won’t reach everybody. Even though pension credit is at the centre of its pension strategy. Alison O’Connell is director of the Pensions Policy Institute. She says that strategy is in crisis. O’CONNELL: The problems of the system have just multiplied and multiplied until people just can’t take any more. There does seem to be a very strong feeling, and I think the real heart of it is means testing. Pension credit was probably the straw that broke the camel’s back, and that’s why people are saying we need reform now LEWIS: Already half of all pensioners are entitled to Pension Credit. And that proportion will grow. Because pension credit, which is linked to average earnings, goes up each year by more than the state pension, which is linked only to prices. As that gap widens, more pensioners will become entitled to pension credit. In thirty years it could be three out of four. By 2050 it could be four out of five relying on means-tested top ups. And that leads to the third charge against the state pension system. And this one has brought financial services companies into the consensus for change. They say the spread of means-testing is damaging their business – it stops people saving. That’s because pension credit does more than just top up your income to £105 a week ADVERT: And now for the very first time if you’re 65 or over and have saved towards your retirement you could receive extra money too. It’s yours. LEWIS: Pension credit also gives a bit more money to anyone who has an extra pension or an income from savings of up to £65 on top of the state pension. That top-up can be worth as much as £16 a week. The way the arithmetic works, for every extra pound of income you have, pension credit is reduced and so you only get to keep 60p. That worries the pensions industry. Tom McPhail is Head of Pensions Research at Independent Financial Advisers Hargreaves Lansdown. MCPHAIL: The problem is that the state is giving with one hand and taking with another. In effect, you’re paying forty percent tax on your private savings. And, therefore – quite understandably – some people are looking at this and saying well what is the point in saving if I’m going to lose forty percent of my savings when I get to retirement LEWIS: The pensions industry estimates that we are saving around £27 billion a year too little to provide for a decent retirement. Recent figures from the industry show that more than half the people under 30 are saving nothing towards their retirement. And why should you bother if you may only keep 60 pence in every pound of the extra pension you’ve saved for? It makes it impossible for individuals to know whether it is worthwhile to save at all. Money Box asked Tom McPhail to work out for us how much must you save to lift your retirement income above the means testing trap. MCPHAIL: In broad terms you need to be able to build up a pension fund of around seventy or eighty thousand pounds LEWIS: But that’s three times the average amount people manage to save. So how much would you have to put away each month to hit that £80,000 target? MCPHAIL: Assuming your investments are going to grow at 7 percent a year and assuming that the current means testing rules are carried on through because bear in mind we’re talking about 40 years into the future, then the sort of levels of contributions you’re going to need to save to make it worthwhile doing it are around £60 a month for a 25 year old, around £100 a month for a 35 year old, and around £150 a month for a 45 year old and we recognise that for a lot of people that’s a big challenge LEWIS: Steve Bee is Head of Pensions Strategy at the insurance company Scottish Life. These problems have made him campaign against means-testing. Although Tom’s broad brush analysis is right on average, every individual needs personal advice. And Steve Bee says that makes selling pensions properly very expensive. BEE: What we’d like to see is a system where every pound you save makes you a pound better off than people who don’t save. We’d be able to go and stand up in front of groups of people – a hundred at a time, a thousand at a time if you like – and say to them join this pension scheme, it will be good for you. We’d be able to say that then because it would be true. We can’t say that now because it’s not true. LEWIS: So you’re saying the current system of state benefits acts against saving, which is the thing the government says it wants to encourage? BEE: Precisely. LEWIS: So we have a system that we are told is complicated, expensive to run, and will not reach at least a million of the poorest pensioners. It penalises many women, and after a lifetime’s work it still makes people jump through hoops and prove their poverty to get an income they can hope to live on. It employs a small army of civil servants to take money away with one hand and a second, bigger army to give it back with the other. And, perhaps most damaging of all, it discourages the very thing that Governments have been telling us to do for twenty years – save for our own retirement. Big problems. But the consensus we saw earlier now extends to one simple solution to them all. The demands of pensioners now echo back from boardrooms, universities, and Parliament. KOHLER: Let’s get the basic state pension state pension up to at least the level of about a hundred and five pounds a week. BEE: What would be sensible is if we had a pension that everybody got as a right at the level of a hundred and five pounds a week O’CONNELL: Increase the basic state pension, so that it’s above what you would get from means testing, which would be about a hundred and five pounds a week. WEBB: One adequate state pension, and at the very least that must be the hundred and five pounds a week that you get on the means-tested top up. LEWIS: But paying £105 a week to all pensioners raises the question that tests any consensus. What would it cost? And can we afford it? One solution put forward by the employer’s organisation the CBI is to raise the state pension age. Under its plans, the pension would go up to £105 a week. But it wouldn’t be paid until the age of 70. Raising state pension age is not a popular move. Many people do not want to work longer, many others couldn’t. And not every employer wants them to. But if we are living longer, someone has to pay for the extra time we have at the end of our lives when we are not working. When Beveridge devised the state pension, retirement was only expected to last 14 years for women and 12 years for men. Today it is half as long again. And in thirty years it will be getting on for twice as long. So even if pensions stay the same, they will become more expensive. Or we will have to claim them later. Tom Ross is a Fellow of the Faculty of Actuaries. He says it’s just arithmetic. ROSS: Reality would suggest that over time all pensions, including state pensions, are perhaps going to have to start a little later in people’s lives because of increased longevity and that working lives will need to be thought of as being extended for a bit longer. But I think that’s simply a mathematical truth of the effects of longevity. It’s perhaps surprising that that hasn’t happened already. LEWIS: In fact a million people over pension age are in paid employment. But no political party plans to raise the state pension age. Politicians want painless pension reform. No more work. And of course no more taxes. First up are the Conservatives. If they win the next Election they will raise the basic state pension – but very slowly – funded by cuts elsewhere in the welfare budget. The plan was devised by Shadow Pensions Secretary David Willetts. WILLETTS: What we’ve said is that we would increase the value of the basic state pension by earnings, not prices. LEWIS: But wait a minute. Tories linking the pension to earnings not prices? Wasn’t this the policy they scrapped in 1980? WILLETTS: We do recognise now that if you hold down the basic state pension for a generation and you have the basic state pension only growing in line with prices, then the system is vulnerable to a sort of spread of mass means tested benefits on top. That has terrible effects. We have shown therefore how we can afford a policy that would increase the value of the basic state pension over the first Conservative parliament, by seven pounds for a single pensioner and eleven pounds for a couple. LEWIS: That’s a very modest proposal though, isn’t it? You’d still have many millions of pensioners on means tested benefits at the end of that process. WILLETTS: I’m aware of this criticism and I think I’m struck by the way the debate has shifted since we first launched the policy a year ago. Then we were told that it was incredibly risky and expensive. I think now there’s a growing consensus – and I’m proud that we’re part of it – that the way forward is to increase the value of the basic state pension LEWIS: But raising the basic state pension – whether by £7 or even to the magic £105 level – only solves part of the problem. It leaves out all the people, mainly women, who don’t have 40 years paid work and contributions. They still wouldn’t qualify, and would remain dependent on means-tested benefit. So a more radical group of reformers would go further. They say scrap the whole costly apparatus of National Insurance. Keep it as a tax. But decouple it from the retirement pension which would be paid on the basis not of work but of residence. It’s often called a Citizen’s Pension. Set at £105 a week for all it would float millions off means-tested benefits. And after all, the Government guarantees everyone an income at that level. Easier surely just to give it them without checking contributions or testing income. Alison O’Connell of the Pensions Policy Institute. O’CONNELL: All the citizen’s pension does is say we recognise that in a decent society the minimum that people can live on in their old age is a hundred and five pounds a week and we will give it to long-term residents of this country without spending money on unnecessarily complicated administration procedure. LEWIS: And it’s not just a theory. New Zealand has had a citizen’s pension since the 1970s. O’CONNELL: Their pensioner poverty is around the five percent level instead of the twenty percent level in the UK. There is no means testing, very low administration costs. And, most importantly, there is no disincentive to save with a citizen’s pension that has got rid of means testing. LEWIS: And, presumably, if you got rid of the contribution rules of national insurance and got rid of means testing, you’d have a much simpler system? O’CONNELL: Absolutely. And the simplicity of the citizen’s pension system is illustrated by the number of pages of legislation: in New Zealand the entire pension system takes around thirty-five pages; in the UK, we have around three thousand five hundred pages of pension legislation and growing. LEWIS: Michael Littlewood is a pensions consultant in New Zealand. He’s served on government pension committees there and in the past worked on the state pension here in the UK. No-one better then to compare the two countries’ schemes. LITTLEWOOD: We have a very simple system. A couple qualify for sixty-five percent of the national average wage from the age of sixty- five, and the single person’s benefit is about sixty percent of that. The only modest qualification is that they should have been resident in New Zealand for ten years after the age of twenty, and only five of those years need to be after the age of fifty, and that’s it. LEWIS: How much is it at the moment? LITTLEWOOD: The single person’s benefit is about sixteen thousand dollars a year. LEWIS: So that’s probably something just over a hundred pounds a week – that sort of amount? LITTLEWOOD: Yes … broadly. LEWIS: Is that an amount people feel they can live on without anything extra? LITTLEWOOD: We have done surveys of retirees – that is people who are on the state pension – and they are a remarkably contented lot. LEWIS: How do you pay for it? LITTLEWOOD: It comes out of government revenue. It comes out of ordinary taxes. And you must acknowledge that the national insurance contribution is just another form of taxation. New Zealand citizens I think by and large think that we’ve got a reasonably understandable system and I think that the evidence for that is that all political parties today would not touch today’s entitlements. LEWIS: And Michael Littlewood is convinced that something similar would work in the UK LITTLEWOOD: The citizen’s pension is a model which I think will become the basis for all developed countries’ fundamental state provision, what you call the basic state pension. That would clear out a lot of the complexity that the UK currently suffers under. LEWIS: Last week the Liberal Democrats became the first major political party in the UK to adopt a Citizens Pension as their long term goal. But like the Conservatives, they will head towards that goal very slowly. Steve Webb MP. WEBB: What we are proposing is that you start with everyone over seventy-five - they will tend to be poorer, tend to be widows, tend to be women - and you start putting their pension up to the hundred and five pounds a week figure on a citizenship basis. What we’ll be arguing at the next election is that in the short term you can find – and we’re talking about roughly three billion pounds - to put the pension for the over-75s up to the level of a hundred and five pounds a week. But in the longer term you can’t do this sort of thing and carry on with a state second pension, with lots of means testing. So in the long-term you scrap all of those other things, and instead the state does one thing well – pays a good citizenship based pension that keeps people off means testing. LEWIS: But for sixty years we have been used to getting a state pension because we have paid for it. Was Steve Webb concerned that people who’ve worked and paid their contributions would feel it unfair if everyone got the same pension? WEBB: I think the point is that people don’t really understand who it is who misses out on a full pension. They assume that it’s shirkers and layabouts and the evidence is that the people who don’t get a full pension are typically women, typically carers, people who’ve brought up children, cared for elderly relatives. These are things that we all value and they ought to be properly recognised. LEWIS: That view is strengthened by the fact that there already is a citizen’s pension in the UK. Anyone who is without a pension from the state can claim a reduced one when they reach 80 regardless of their work record, as long as they have lived here for ten of the last twenty years. It’s only £46 a week, few people know about it and very few get it. But the principle is here already. The Liberal Democrat plan would take decades to include everyone in its citizen’s pension. Others are more impatient. The National Association of Pension Funds speaks for hundreds of company pension schemes that between them control £700 billion. It believes change is urgent and has commissioned a high powered group to look at moving to a citizens pension soon. Actuary Tom Ross is in charge. ROSS: The group which I chair is all about the how. NAPF has come to the view that there is a wide enough consensus out there of the need for change, and citizen’s pension is the one which many people are plumping for. But whichever form of simplification to a higher, simple state pension one chooses, the how we get there is important because the transition in terms of cost, in terms of making sure there aren’t serious losers does merit careful examination. NAPF believes that examining this thoroughly and professionally will add substantially to the case for change. LEWIS: The Pensions Policy Institute is doing that careful examination. And Director Alison O’Connell has a surprising message for politicians worried about the cost of reform. O’CONNELL: We could afford it within current government spend on pensions. LEWIS: So you’re saying that a fundamental reform paying a hundred and five pounds to everyone over the age of sixty-five could be afforded without spending any more money? O’CONNELL: Yes, we could do it tomorrow. Firstly, we won’t need pension credit any more, so we won’t need to spend money on that; and, secondly, because we won’t need contracting out any more and we currently spend eleven billion on that. Contracting out is where the government pays money into private schemes and personal pensions to encourage people to have their pension in the private sector rather than in the state sector, so it’s money that comes fundamentally from the taxpayer pot and that could be re-circulated to pay for the citizen’s pension. Thirdly, the way we propose changing to the citizen’s pension would be a lot more cost effective than other proposals. LEWIS: Her newly published proposals are controversial and will no doubt be studied closely. But she says they make the citizen’s pension politically possible. I put these new figures to the Pensions Minister Malcolm Wicks. He introduced the Pension Credit a year ago and stayed in post when his boss, Andrew Smith, resigned last week. He remains the pension credit’s most passionate defender. Did he accept that he could introduce a citizen’s pension tomorrow at £105 a week at no extra cost and with no-one worse off? WICKS: Well you say no one worse off, but I think those who are getting enormous support now from pension credit probably would be worse off if we simply abandoned what we’re doing now and went to the so-called citizen’s pension. I myself would be reluctant to abandon the contributory principle. Now, okay, the contributory principle has favoured men rather more than women – and that’s why we’ve focused extra help through pension credit. As we predicted, two out of three pension credit recipients are women. Now that’s no accident. It is for the very reason that they don’t have the full national insurance contribution and because of their caring responsibilities as mums in the past, not getting a works pension, and that makes the point that we’re focusing the resource where it’s needed. LEWIS: No citizen’s pension from the Minister then. But did he accept that there is a consensus for some major change. WICKS: Many people instinctively will say you know let’s get rid of the complexity, why don’t we put all the extra money there is on the basic state pension. I mean there’s a kind of consensus amongst some groups that lasts for a paragraph or so. I don’t think it’s a very well informed consensus. LEWIS: Can you name any major organisation that doesn’t have that view? WICKS: Um, well I’m not sufficiently aware of the whole range of you know organisations and their views. LEWIS: We’ve spoken to the CBI, the Pensions Policy Institute, Help the Aged, Age Concern, the National Association of Pension Funds and the TUC. I mean we haven’t found a single major organisation that isn’t calling for major reform of the state pension as an underlying theme to improving pensions in general. WICKS: Well this Labour government is part of that consensus in that we’re not just talking about a fundamental change in state pensions, we’ve brought about a fundamental change with the pension credit. So we’re actually leading that consensus. LEWIS: Well, they don’t see it like that WICKS: Well with all due respect, as they say on these occasions, I’m much more interested in how we’re helping elderly people than what certain national organisations are saying. LEWIS: Pensioners we’ve talked to have said “you’ll guarantee us a hundred and five pounds a week as long as we claim it and jump through the hoops about income and so on”. Why can’t you put the basic state pension up to that level and get rid of all that complexity? WICKS: Because costs and resources have to come into this in the real world. With the extra money we’re spending on state pensions – ten billions extra a year – What we’ve sought to do is get the balance right between how much of that we give to all elderly people through the basic state pension and things like the winter fuel payments and how we focus some of it on the poorest group. And trying to strike the balance produces some difficulties– but I’d rather be there on the frontier of fairness, than simply take the easy option of saying okay we’ll simply give everyone rich and poor the same basic pension increase. It might make my life easier as a Pensions Minister, but it wouldn’t be just and it wouldn’t be fair and we’re not going to do it. LEWIS: Malcolm Wicks. Since we spoke to the Minister his new boss, Alan Johnson, has arrived as the new Secretary of State in charge of Pensions. He said he was too new in the job to talk to Money Box. But on Sunday he was asked to comment on newspaper reports that the Prime Minister, no less, shared the concerns we’ve heard in this programme about the growth of means-testing. And that Tony Blair also wants reform of the state pension. Speaking to the BBC’s Breakfast with Frost programme, Alan Johnson seemed more prepared to look at both sides of the debate. JOHNSON: The argument is about should you have means-tested benefits for the poorest or should you just increase everybody’s pension. We’ve spent the last few years focussing on the former. I’m not quite sure where all the different focus groups are at the moment because I’ve only been in the job for 3 days, but it’s an issue that we really do need to focus on LEWIS: It’s no accident that pensions are moving up the political agenda. The next General Election could be just months away. At that election half those who vote could be over 50. When Alan Johnson goes through his in-tray and finds the consensus for radical reform we’ve heard in this programme, he may find it very hard to ignore. 1