House of Lords committee says retirees should pay NI and calls for state pension triple lock to be scrapped

A report from a House of Lords Committee calls for much of the help for older generations to be curtailed.

A report from the House of Lords Committee on Intergenerational Fairness and Provision has made wide-ranging recommendations on benefits for the elderly, calling for much of the help for older generations to be curtailed.

It has called for the free TV Licence for over-75s to be phased out, and for the state pension triple lock to be ditched.

The report has also criticised Winter Fuel Payments and older person’s bus passes, calling for both benefits to be only made available five years after state pension age, and treated as taxable income.

The committee has also attacked the National Insurance system as unfair, and says individuals over the state pension age should pay.

It also makes recommendations for reform of council tax, stamp duty and inheritance tax. 

The committee has published these recommendations as part of a wide-ranging look at government rules and policies in order to "deliver a fairer society" and support younger generations better. 

The chair of the committee, Lord True, comments: "We found that intergenerational bonds are still strong, and the evidence suggested both young and older people recognise the contribution the other makes and the challenges they face.

"However, there is a risk that those connections could be undermined if the Government does not get a grip on key issues such as access to housing, secure employment and fairness in tax and benefits."

National Insurance

The National Insurance system “functions poorly” as National Insurance Credits (NICs) do not directly pay for the state pension, nor are they linked to any actual rules on the size of state pension payments, according to the committee.

The report says it is unfair that only those of working age pay the tax, and that those over state pension age should also contribute.

The committee says NICs should be merged into the income tax system, and that this would protect vulnerable older people from having to pay as contributions would be weighed against income.

David Sinclair, director of the International Longevity Centre – UK (ILC) comments: "The National Insurance exemption for older workers seems an anachronism. And savings could be better invested in any number of other initiatives – including in addressing the gross underfunding of public health and social care.

"Pensioner benefits are a matter of increasing political debate. While there is a strong case for universal pensioner benefits, it is also perfectly reasonable that these benefits should be taxed, so that those who can afford to pay do.”

State pension triple lock

The committee has called for the state pension triple lock to be abolished and instead increased alongside average workers' pay.

The report states: “The triple lock for the State Pension should be removed. The State Pension should be uprated in line with average earnings to ensure parity with working people.

“However, there should be protection against any unusually high periods of inflation in the future.”

Steven Cameron, pensions director at Aegon comments: “As the age profile and distribution of wealth of our population continues to change, it's critical that all government policies are considered through a lens of intergenerational fairness.

“The state pension triple lock has served its purpose of boosting the level of state pensions faster than average earnings but continuing it indefinitely is not financially sustainable."

Free TV Licences

The free TV Licence for over-75s has also been criticised. The report calls for the free TV licence to be phased out and those who can afford it should pay. It recommends that the government subsidise the poorest households instead.

The BBC is currently undergoing a consultation on whether or not to maintain the benefit as the cost is set to be passed to the corporation from the government in June 2020.

Bus passes and Winter Fuel Payments

The report also mentions the use of free bus passes for older people.

In London, Wales, Scotland and Northern Ireland the free bus pass begins at age 60 but for the rest of England it applies from the age of 65 and will increase in line with state pension age.

While the committee received criticism that the bus pass is accessible to some people who are still of working age, it conceded that there was an environmental case to be made to sustain it as the free bus pass encourages older people to use public transport instead of motor vehicles.

Winter Fuel Payments also come under the microscope.

The report says that the payments are “not well targeted.” It argues that single parents of working age are much more likely than single people or couples over the age of 60 to be in ‘fuel poverty’ and it therefore unfair that these households receive a subsidy to pay energy bills.

In both the case of Winter Fuel Payments and the free buss pass the committee recommends that people should not be given access to the benefit until more than five years after reaching state pension age.

However, it recommends that transitional arrangements be put in place to protect those already in receipt of the benefit, who might lose out from rule changes.

It also says the government should look at treating these benefits as taxable income for those above the personal allowance threshold (currently £12,500 per year).

Mr Cameron adds: “With the Baby Boomer generation now above age 55 and increasingly in retirement, it's right to consider if blanket benefits for older generations remain appropriate or if the cost of funding these is falling disproportionately on younger workers.

“The average income of a pensioner couple is now £454 a week which means that incomes are now around 70% of non-retired households. This represents a huge change over recent decades and the stereotype of retirement as a time of constant thrift is largely outdated.

"Pensioner incomes have steadily risen as a result of factors like the provision of defined benefit pensions, increases in the state pension and strong performance of property prices and investments.

“However, while pensioners are on average better off this hides big discrepancies and across the country there are still many older people who struggle with fixed costs like heating bills. Some universal benefits like a free TV licence for wealthy pensioners do look hard to justify but the government should proceed with caution when it comes to reform of areas like the state pension.

"Some of the factors that have boosted pensioner incomes in recent years like defined benefit pension provision will not last forever as employers increasingly switch to less generous alternatives and any change could have significant consequences in the years to come.”

Inheritance, council and property taxes

The committee also makes recommendations for changes to council tax, inheritance tax and other property taxes such as stamp duty.

The report accuses council tax of being an "incoherent combination of a property tax and a service charge." It recommends council tax more closely reflect property values than it currently does, plus a system that allows those with high property values but low incomes to delay payment until the sale of a property. 

It also says second homes should be subject to pay a full rate of local tax.

Stamp duty has "seriously distorted" the housing market according to the committee. It calls on the government to review the system and its effect on housing market liquidity, and consider how it can be reformed to improve housing choices and availability for young families. 

Finally, the report accuses inheritance tax of being "capricious" and unfit for purpose. It recommends reviewing whether and how assets should be taxed on death or transfer to ensure greate intergenerational fairness.

This article was originally written by our sister publication Moneywise.

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Comments

ABOVE

The word UNTIL appears to be missing?????

In both the case of Winter Fuel Payments and the free buss pass the committee recommends that people should not be given access to the benefit more than five years after reaching state pension age.

Pensions & benefits

Why not add all the benefits to the state pension this way the better off would pay some back through the tax system less paperwork in November less postage. Also the higher income is from private pensions not the state which we are all encouraged to do.

NI contributions etc

The way things are going all the "benefits" of being a pensioner will e defunct y the time I get to pension and therefore all the things I've contributed in over the years I won't receive.

Brilliant.

Are the politicians and peers going to forego all the benefits and freebies they get too?

I'll bet not.

Nic contributions

Lord True what would you say to someone such as me who has already paid 45 years NIC's yet you still think I should pay more not bad coming from an unelected Lord

House of Lords Committee Report

At last some sense from (ex-)politicians. I am among the many who are better off in retirement than I was while working and find it embarrassing that, because of the NI anomaly, I have a greater net income than former colleagues with similar gross earnings, particularly as I am more likely to make use of the NHS and other support services than they are. As to some of the other issues (heating, bus passes, TV licences, etc), surely it is better to support overall incomes than selective expenses.

454 per week

you must be joking we are two pensioners our total weekly income from pension and any small benefits are 238 per week in total for both of us... yet we pay 209 a month for council tax 73 per month on electricity 75 per month on gas 47 per month on water rates 20 per month on insurance = ( 464 per month so 107 per week ) before any food or clothing or transport...Reality check lord true... your figures are considerably wrong...so we are left with 238-107= 138 per week for the two of us to survive yes 138 for everything else not each .. what a life after working and paying into the system for years....

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