Should rich pensioners lose fuel allowance?

Updated: 

Lord WarnerRui Vieira/PA Archive/Press Association Images

Government adviser, Lord Warner, has suggested that wealthier pensioners ought to lose universal benefits such as the winter fuel payment and the free TV licence, to help save money that could be pumped into paying for long-term care. It was part of a series of recommendations he made after being asked to investigate solutions to the care funding crisis by Andrew Lansley.

And some of the other suggestions spell financial disaster for retirees too.

The problem

Lord Warner is a former Labour minister, and was a member of the Dilnot Commission. That particular group investigated the long-term care crisis, and concluded that the total cost of care charged to individuals should be capped at £35,000.

The report was widely welcomed, but the government saw that it was going to cost them £1.7 billion and panicked. That sort of cash wasn't just lying around. So it asked Lord Warner to come up with ways of raising the cash.


Benefits

The removal of universal benefits is the most headline-grabbing. It is a tricky one, because there has been a steady succession of experts suggesting that it is an inefficient and poorly targeted way to spend money, and at a time when spending is being cut everywhere - and money is desperately needed for social care - it must go.

Rumours have suggested that Iain Duncan Smith and Liberal Democrat ministers are in favour of means testing for benefits. Duncan Smith was pushing for this as far back as January this year. However, the Tories came to power with a promise that the winter fuel allowance would stay - which is going to be tricky to pull away from - and some are suggesting David Cameron is resisting cuts.

Older people feel passionately about these benefits. Saga conducted research into the winter fuel allowance and discovered that 90% of people over 50 think the winter fuel allowance is important, of whom two in three consider it very important.

Granny tax

This wasn't the only possibility, however. Warner has also suggested removing the exemption for paying national insurance from retired people, so their tax bill is higher. There is some support for this idea. CentreForum's chief economist Tim Leunig has been calling for this for months, arguing that the money raised from this "could be redirected more evenly across the population".

However, this has already been called the second granny tax. Let us not forget the political fallout to the first granny tax, which was received by Dr Ros Altmann, Director-General of Saga as an "outrageous assault on middle-class pensioners" and "an enormous stealth tax for older people." The second blow isn't likely to prove a vote-winner either.


Death tax

The third idea was to recoup the cost of care from people's estates after they died (plus interest), so they wouldn't have to sell their home to pay for care - but after their death when the estate was divided the authorities could claim their cash at that point. Unfortunately, this has been dubbed the 'death tax', which makes it politically tricky to get behind.

It's another political football, not helped by a campaigning speech by Cameron announcing: "If he wins the election, Gordon Brown wants to introduce a number of measures which will hit pensioners. A Conservative Government will not penalise pensioners, as Labour are planning to do: We will not introduce a 'death tax' of up to £50,000."

Do nothing

However, while all these answers are difficult, the real worry is if nothing is done. Warner told the BBC he was concerned that the government was currently leaning towards doing nothing at all. The social care white paper was due any time, but the government said yesterday that it could be months before publications - which is in itself only a first step to facing up to the problem.

Giving evidence at the Health Select Committee consultation on social care reform, Altmann said the delay would in itself lead to disaster: "The Treasury is wrong to believe that not implementing Dilnot-style reforms would save money. In reality, by not sorting out social care, we will probably spend even more money, but it will be in an unplanned way via the NHS instead of planned spending on care."

Age UK, meanwhile, agrees that the crisis is deepening. Age UK's Care in Crisis 2012 report shows that this year spending on older people's social care in England has fallen half a billion pounds short of even maintaining the levels of provision in place when the Coalition came to power. Michelle Mitchell, Charity Director of Age UK said: "Our new figures show a funding gap clearly exists, that it currently stands at £500 million, and that it is growing bigger all the time. We need urgent Government action now; otherwise the gap will simply get worse."

But what's the answer? Which solution would you prefer? Let us know in the comments.

The brokest towns in Britain

The brokest towns in Britain


More stories

Pensioners fail to claim thousands in income
20 reasons pensions go wrong
How much you need to save for retirement
Annuities calculator
Free guide: 10 retirement saving myths

SPONSORED FINANCIAL CONTENT