Recent reports have suggested that the Conservatives are considering making pensioners opt into winter fuel payments – which are currently automatically given to all pensioners regardless of need – in order to save money if they form the next government after the general election in May.
“A welfare system fit for the 21st century”
This policy proposal originated in a new Welfare Manifesto published by the think tank Policy Exchange on 3 February, where it was one of a number of reforms to the welfare system which have been mooted by the authors in the interests of creating a system that would be “fairer, more affordable and fit for the 21st century”.
Winter fuel payments are currently worth between £200 and £300 per year and are given to all households where someone receives the basic state pension, regardless of how wealthy they are, ostensibly to help them pay their heating bills, at a cost to the taxpayer of nearly £3 billion per year.
There seems to be widespread acknowledgement that the winter fuel payments scheme is badly designed and delivers poor value for money to the taxpayer. IF has written about the flaws in the scheme before, but most glaringly, other research has suggested that only about 12% of the money distributed through the scheme is actually spent on fuel. In addition, winter fuel payments overlap with a different government scheme called Cold Weather Payments, which works far better because it is targeted specifically at low-income households of all ages who are receiving social security benefits, and it is only paid when the temperature drops below a certain level.
Policy Exchange acknowledges in their report that winter fuel payments are badly designed, highlighting a poll of the general public taken in 2012 that found that 74% of respondents thought the scheme should be means-tested in some way or another. They estimate that switching to an opt-in system, under which people who currently qualify would have to tick a box somewhere to go on receiving the money, could save as much as £400 million per year through wealthy pensioners deciding to opt out.
Policy Exchange propose maintaining the automatic system for households that receive pension credit (the means-tested top-up to the state pension for low-income pensioners) so that those with the greatest needs don’t end up missing out.
Does this go far enough?
The report from the Independent cited above suggests that the Conservatives are at least giving consideration to this idea, although whether they would actually implement it is another matter, given that David Cameron has previously stated he has no desire to take universal benefits away from wealthier pensioners.
However, the fact that Policy Exchange has published this report at all suggests that the idea of reforming benefits for wealthy pensioners may be entering the political debate. All the parties acknowledge that it will be almost impossible to derive significant further savings from reducing the welfare bill without touching pensioner benefits, which have been largely protected throughout the Coalition’s five-year term of office.
Indeed, the Policy Exchange report also contained two other fairly radical suggestions: (1) including the basic state pension in the Coalition’s Welfare Cap, on the grounds that it accounts for 40% of welfare spending and so gives a misleading picture of the welfare bill by not currently being included in it; and (2) replacing contributory Jobseekers’ Allowance with a personalised system of unemployment insurance in which individuals contribute towards a “pot” they can draw on if they lose their jobs.
All the suggestions in this report merit further consideration from the government. As for changing winter fuel payments to an opt-in system, however, from an intergenerational perspective one could argue that this wouldn’t go far enough as there would be nothing to stop wealthy pensioners who wanted to go on claiming the money from doing so. Much more radical solutions – such as full means-testing or even abolishing winter fuel payments completely – are necessary if we really want to create a fairer welfare system for young and old.