Bank blunders and coalition cuts squeeze pensioners

Robyn Hall

September 13, 2012

Dr Ros Altmann was launching a report by the respected economic think tank CEBR showing that fiscal and monetary policy will leave Britain’s pensioners £11.5 billion out of pocket by April 2014, or an average of £1,318 for each of the 8.7 million households.

In her presentation Dr Altmann took issue with the Bank of England’s premise that while low interest rates cost investors £70billion they saved borrowers £100million, therefore having a positive impact on the economy.

At a Saga Thought Leadership event in Westminster, she pointed out that this would do little if anything to stimulate the economy as the benefits of low rates would by and large go to heavily indebted younger people with large mortgages who would use the windfall to reduce debt.

Pensioners, by contrast, would be more likely to spend any spare income as they typically have much lower debts. But by reducing their income, policy has forced pensioners to cut back on goods and services, reducing economic activity and explaining, perhaps, why the economy remains in the doldrums.

She supported this view in her presentation by highlighting ONS data showing that while the under 30s had seen their mortgage payments fall by £21.60 a week between 2007 and 2010 those in the 50-64 age bracket had gained just £1.50 a week. Those aged 65-74 had actually seen their payments go up by an average of £2.90 as many were forced to remortgage when endowment policies failed to clear their loans.

Turning to government fiscal policy Dr Altmann also highlighted tax and benefit changes in the pipeline such as cuts in Savings Credit and the abolition of Age Related Allowances, the so-called Granny tax.

In particular she also showed that the coalition’s much-trumpeted “triple lock” pledge to increase pensions by the higher of average earnings, the Consumer Price Index or 2.5% masked the fact that payments would have been greater under the previous system linking them to the Retail Price Index (RPI) used by Labour rather than the lower CPI measure introduced this year.

Her presentation showed that this meant that the State Pension would be £62 lower in 2013/14 for single pensioners and £82 for couples.

Dr Altmann also criticised an Institute for Fiscal Studies report in March which actually reported that pensioners had benefitted from tax and benefit changes. She said a flaw in the analysis was that it assumed everyone claimed the benefits they were entitled to which was not the case and that they had not considered the impacts of lower pension uprating and much higher pensioner inflation.

She said: “The IFS report lulled MPs into a false sense of security that they have been lessening the financial pain of pensioners but this does not ring true when you talk to people at the sharp end of these policies.”

She said savers were paying the price of other people’s borrowing. Hammering pensioners’ incomes was sucking spending power out of the economy and reducing the power of the “grey pound” to create economic activity and jobs for younger people.

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