Letter from UNISON to the Secretary of
State (PC 19A)
I am writing to focus on a couple of issues
of particular importance to the 1.2 million members of UNISON
regarding the proposals to introduce a Pension Credit.
First of all I welcome the idea of a Pension
Credit, as not only is it a good idea but I would suggest utterly
essential for the effective operation of the Minimum Income Guarantee.
Most of our members are both relatively low paid but also contribute
towards a second pension in an employer's pension scheme.
We certainly believe that there should not be
a savings trap to penalise those who would otherwise have qualified
for a Minimum Income top up. Without a Pension Credit, not only
will Stakeholder pensions be impossible to promote amongst the
low paid it may also be difficult to persuade existing low paid
members to remain members of their employees pension schemes.
We are concerned that the proposals for the
Pension Credit will effectively knock off 40p for every pound
of pension earned. Even with the partial offset it will be difficult
to persuade a lot of our members to contribute to second pension
provision as it could be demonstrated that earning small amounts
of pension will still represent bad value for money in view of
what will be undoubtedly seen as low paid members paying a "40
per cent marginal rate of tax" on their pension. We are also
concerned that it would appear only pensioners with an Income
under £135 per week and couples under £200 per week
are likely to benefit at all from the Pension Credit.
When responding to the Government's paper on
Partnership In Pensions in March 1999, it was our view that a
Minimum Income for a single person at that date should have been
at least £150 per week and this view was shared by Age Concern.
It is our view that a proportion of low paid members would achieve
this level of income with a small second pension on top of their
Basic State Pension and SERPS. It would be pernicious then that
the income for this group would be clawed back by suffering a
reduction of 40p in the pound on the entire second pension that
they have earned.
Although we welcome what the Government has
done in providing additional income to the poorest pensioners
without any second pension, and standing firm on issues such as
the Winter Fuel Allowance, and free TV Licences for those over
the age of 75, we believe that the Government will be open to
serious criticism on the point of means testing the pension for
those on the lowest incomes. We would ask the Government to think
again on its proposals, on offsetting every pound of pension.
We suggest that if the Government cannot go the whole way in removing
means testing altogether for the low paid, it should at least
allow a certain level of second pension to be earned without any
offset applying against the Minimum Income Guarantee. From our
figures we would suggest that the income from State Pension and
second pension should at least equal £1.60 per week before
the 40p in the pound offset was applied.
The other major concern that we have on these
proposals is that during a period of a rapidly rising Minimum
Income Guarantee there will be no Pension Credit in force until
April 2003. We cannot see any reason why there should be a delay
of two years as this will act as a significant disincentive for
members to make any pension provision during the next two years.
This may well hamper those who will be trying to persuade members
to contribute to Stakeholder pension and/or to join their employer's
It may also have the effect of dissuading many
women who have suffered discrimination as a result of being denied
membership of their pension schemes because they were forced to
work part-time. The recent judgement in The House of Lords has
made it clear that such members are likely to have to pay employee
contributions for the back period. This being the case it will
be extremely difficult to persuade members who are likely to be
within the range covered by the Minimum Income Guarantee to pay
lump sums to purchase a pension, which will effectively be offset
by 40p in the pound. This will mean that it will effectively be
the tax payer that picks up the full cost of the discrimination
perpetrated by employers in not allowing low paid members to join
the pension schemes in the first place.
I hope you will accept the above comments as
constructive criticism of what we view as in principal a good
idea. We certainly support the view that the Pension Credit should
come into force from age 60 for both men and women. We also support
the views of the TUC submission, in particular the concerns over
the treatment of pensioner couples and the suggestion for the
help for the poorest pensioners.
We consider the issue of Pension Credit to be
a very important one for our members especially in a period where
employer pension provision Is under attack and many of the large
employers are threatening to change otherwise good employer pension
schemes from defined benefit to money purchase Stakeholder provision
for new employees. We would welcome further discussion on this
issue. Please feel free to contact either myself or Glyn Jenkins,
UNISON's Head of Pensions if you require further clarification
28 February 2001