Readers Question: Evaluate the view that the most effective way to reduce poverty is to increase significantly the state pension.
Pensioners account for a growing % of the population; therefore inequality and poverty amongst pensioners is becoming a significant cause of relative poverty in the UK.
For several years, the state pension has been index linked. This means increased in line with inflation. However, this increase means it has fallen behind average wages and therefore relative poverty between pensioners and workers has increased. Increasing the state pension is a guaranteed way to reduce relative poverty between pensioners and those in work.
Minimum Income Guarantee. Rather than increase the state pension, the government have relied on using means tested benefits to increase the incomes of old people. This means pensioners who rely only on state pensioners can receive a top up benefit. This is cheaper than increasing the universal state pension. However, it has a significant disadvantages. Relying on means tested pensions to reduce poverty creates a disincentive for people to save for a private pension. Therefore, in the long run, it may encourage people to be dependent on state benefits.
If the government increase the basic state pension, it doesn’t reduce the incentive to save for a private pension. This is important for providing a long term solution to the pension crisis.
However, with an ageing population you could make a strong case that the economy cannot afford to increase state pension. This is because there is a declining tax base to pay for an increasing old population. Arguably a higher state pension would require higher income tax and higher income tax would reduce incentives to work.
However, to avoid this the government could look to increasing the state retirement age to 70 for both men and women. This means that they will be able to afford a higher basic pension, but people will have to wait longer before they receive it.
Also worth mentioning that some pensioners are relatively well off, especially those who have paid off their houses and have private pensions.
The Council tax should be changed as this takes a high % of income from pensioners
1 comment so far ↓
The Pensions Commission suggests the number of people over 65 will rise by 78% between now and the year 2050. I think we all agree the key to preventing further pension crisis is educating people pre-retirement. I don’t believe the state pension should be increased because people will continue to rely on the government to take of them.
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