Rewarding saving and alleviating poverty? The final pension credit proposals

Tom Clark

Published on 1 February 2002

In Autumn 2001, the government finalised its proposals for the introduction of the Pension Credit in 2003. Since the initial plans, the Government has significantly changed the way in which pensioners' savings will be treated by the new benefit, and has also decided to couple the reform to significant increases in the generosity of housing benefit for pensioners. This paper updates earlier IFS research evaluating these modified proposals, asking who is likely to gain, and assessing the likely effect on pensioner poverty, on savings incentives and on the public finances. We conclude that modifications to the reform leave the policy better able to reward saving and fitting in better with the rest of UK pension policy. In the longer-term, however, there large questions about the eventual cost and effects of the reform that remain unanswered.

This Briefing Note updates earlier work published by the Institute for Fiscal Studies on the pension credit in the light of the new details concerning the policy's operation that the government announced in November 2001. Section A summarises our earlier work, which explained why the pension credit was being introduced. Section B investigates the new announcements that the government made in November. Section C updates our modelled estimates of the distributional and incentive effects of the policy in the light of the new announcements. Section D concludes.