The cost of living crisis is still upon us
Next month, I’m part of a panel debate kicking off the PLSA Annual Conference in Liverpool. The debate’s on the challenge to pensions of the cost of living crisis. The challenge is not to the mass affluent but to “those just getting by” and one door open to meet that challenge, just got slammed shut by the DWP.
In July, Stephen Timms and his Work and Pensions Select Committee issued a report which
- Recommends a pause in deductions from benefits to give extra breathing space to struggling families
- Calls for a review and increase of the benefit cap and a new strategy to boost Pension Credit take-up
- Claims that high inflation has laid bare long-standing problems with responsiveness of social security system and need to reform IT
“The Government’s rejection of our recommendations at a time when so many families are continuing to feel real pain from rising prices is disappointing. While a package of support on energy bills is promised, the appointment of a new Secretary of State presents a fresh opportunity to consider whether a change of approach at the DWP could also offer extra help for people through the benefits system. We look forward to questioning the new Secretary of State in the coming weeks and hope she can use this autumn’s annual statutory review of benefits and state pensions to make the social security system more agile in adapting to turbulent economic times.”
We know what the Treasury is doing
The Resolution Foundation’s analysis shows that capping energy prices at £2,500 will save the typical household £1,074 on their energy bills over the next six months. This, together with the previously announced £400 energy bill rebate, covers 76 per cent of the increase in bills compared to last winter (October 2021-March 2022).
Today the Resolution have claimed that the Treasury’s support is primarily helping those who are better off.
It is up to the DWP to ensure that support gets through to the most needy- those on benefits and dependent on state pensions.
So what is the DWP doing?
The DWP is making money available to households hard hit but this extra support is vey little. Infact , many find their benefits frozen or reducing at a time when household bills are soaring. They include our pensioners and those saving for retirement.
What this means for pensioners.
If you’re entitled to a Winter Fuel Payment (because you claim pension credits) for the winter of 2022 to 2023, you will get up to £300 for your household paid with your normal payment from November 2022. This is in addition to any Cost of Living Payment you get with your benefit or tax credits.
The Pensioner Cost of Living Payment is paid to the Household not per individual. But even added to winter fuel payments , they will get nowhere near the anticipated cost of fuel over the winter. This is the DWP estimate of the combined payment made to those on pension credit based on a means test on earnings between 19th and 25th September 2022 (next week).
These payments will only be paid for those eligible and claiming pension credit. Estimates are that between 770,000 and 850,000 households are elibgible and don’t claim (34% of all eligible) – Age Concern.
The Energy Price Guarantee will prevent household energy bills from soaring this winter. But they’re still set to be more than double their pre-crisis level. The outlook for living standards remains tough… https://t.co/gwD35RMppq pic.twitter.com/2pCcXLH0xR
— Resolution Foundation (@resfoundation) September 8, 2022
To put things in stark perspective
Capping energy costs at £2,500 will save typical households £1,074 on their energy bills over the next six months. Pre-payment meter customers will still need to find £264 in cash this January for that month’s energy alone tho, down from £550 without further government support. pic.twitter.com/OmyRMcfBZd
— Resolution Foundation (@resfoundation) September 8, 2022
What this means for savers
For those on universal credit – many of whom are enrolled into workplace pension payments, things are even worse. The £20 pw universal credit top-up is not being brought back but the downgrade in the benefit cap introduced in 2016 – and not increased since – remains.
Timms and WPS are calling for a “pause” in deductions from benefits for those who have been overpaid in the past – to help over the winter. Such a targeted intervention would give the poorest households some breathing space.
Why benefits matter to the pension industry
Occupational and personal pensions benefit those with net disposable income much more than those “just getting by”. The miracle of auto-enrolment is that it has mean millions of low-income savers have built up a pension pot to provide themselves with some financial resilience when work stops. Often this will be no more than a bridge to the state pension but even then saving means that low earners have a Plan B.
But low earners have had little support from the DWP over the past ten years. Many have seen earnings frozen and benefits frozen, some have seen benefits cut.
The impact of pension contributions – even with the government incentives to save low earners receive from RAS schemes such as Nest , People’s Pensions and many insurance arrangements , is likely to be significant. The impact on those who get no savings incentive (and overpay pension contributions by 25%) is that much worse.
Charles Counsell, who wrote to me last week on behalf of tPR , concluded his mail
On the subject of net pay, the Government has announced its plans for addressing net pay arrangements and this remains a matter for HMT.
It is also a matter for the DWP, for pension contributions which don’t receive the promised incentive are – to use HMT’s own description “an injustice“.
The pensions industry also has a duty towards its pensioners. It may consider that duty extends no further than to pay the pensions due, but this ignores the principles of both the Consumer Duty and of trusteeship, where the interests of the members are primary.
What should the pensions industry do?
Pension providers, trustees , employers and Government have a common aim, to make auto-enrolment work for everyone. The FCA call this a “consumer duty”, protecting the interests of members is written into tPR’s objectives.
One area we can work on , is increasing awareness of pension credits which unlock not just winter fuel payments but the pensioner cost of living allowance too. This is particularly relevant to annuity providers – particularly those providing small annuities to those past state pension age where there may be scope to claim pension credit both under the guaranteed credit scheme and savers credit.
Another area is to lobby HMT to bring forward the remedy for the Net Pay Injustice, which is currently delayed till 2025 and will not return money wrongly taken in 2022 or 2023, the first payment in lieu of the incentive needs to be in April 2023.
The third area where we can do something is in supporting Stephen Timms call for a reset of the benefit cap, a pause in benefit deductions and a restoration of the triple lock to provide inflation protection to all but especially to those reliant on the state pension.