Recent pensions policy and the Pension Credit

Tom Clark

Published on 1 February 2001

In the November 2000 Pre-Budget Report, the government announced a major range of measures for pensioners. Some come into operation in April 2001, while others follow in 2002 and 2003. The most important aspects of the package comprised: above-inflation increases in the retirement pension; substantially above-inflation increases in the means-tested minimum income guarantee (MIG); and the introduction of a new element into the means-tested benefit system for pensioners, known as the pension credit. Overall, the package means the government will pay over 4 billion a year extra to pensioners (2000 prices) by 200304. It represents a very substantial redistribution in favour of pensioners, and particularly those on low incomes.

In the November 2000 Pre-Budget Report, the government announced a major range of measures for pensioners. Some come into operation in April 2001, while others follow in 2002 and 2003. The most important aspects of the package comprised: above-inflation increases in the retirement pension; substantially above-inflation increases in the means-tested minimum income guarantee (MIG); and the introduction of a new element into the means-tested benefit system for pensioners, known as the pension credit. Overall, the package means the government will pay over ô billion a year extra to pensioners (2000 prices) by 2003ְ4. It represents a very substantial redistribution in favour of pensioners, and particularly those on low incomes.

This paper, first, costs the various elements of the government's proposals and analyses who will gain from them. Second, it focuses in on the structural pension credit reform, explaining its rationale and basic workings before outlining the design issues it raises. Finally, it concludes by asking what this package of measures indicates about the longer-term strategy underlying pensions policy.