State pension triple lock and winter fuel payouts for all are SAVED: Tory deal with DUP junks key manifesto promises
Conservative plans to scrap the state pension triple lock and means test winter fuel payouts have been scrapped under the party’s deal with the Democratic Unionist Party.
Neither of the policies was mentioned in last week’s Queen’s Speech, and both were jettisoned by the Tories to win support from the Northern Ireland party in getting key legislation through parliament.
‘Both parties have agreed that there will be no change to the pensions triple lock and the universal nature of the Winter Fuel Allowance,’ according to the three-page ‘confidence and supply’ agreement between the parties.
Deal struck: DUP will support Tories on key matters such as the Budget
The fate of the Tory manifesto plan to axe the triple lock – which sees the state pension go up by at least 2.5 per cent a year – has hung in the balance since it failed to win an outright majority in the 8 June election.
But last week Work and Pensions Secretary David Gauke warned the valuable guarantee could not last, and would remain until 2020 but then be ‘reflected’ on.
The popular policy means annual rises in the state pension are decided by whatever is the highest of price inflation, average earnings growth or 2.5 per cent.
A switch to double lock proposed by the Tories means it would only go up by whichever is the highest of inflation or earnings growth, which pension experts say will lead to lower increases in future.
Although the Tory-DUP agreement confirms the Winter Fuel Allowance will continue to be paid to all, regardless of income, there was no mention of the Conservative’s heavily-panned social care plan.
But this proposal, which would swallow people’s individual assets including homes down to a floor of £100,000, was downgraded to a consultation in last week’s Queen’s speech.
AJ Bell senior analyst Tom Selby said: ‘Political necessity has once again trumped long-term thinking when it comes to the state pension triple lock.
‘The reality is the triple lock is a random mechanism for ratcheting up the value of the state pension during periods of low inflation and average wages, without any clear destination or justification.
‘Indeed, moving to a double lock of earnings or inflation is unlikely to cost a lot less in the short term – and could cost nothing at all if either remains above 2.5 per cent between now and 2022.
‘The state pension system will come crashing down unless spending is reined in, with estimates suggesting it will cost £30billion more in today’s terms in 50 years’ time unless reforms are introduced. This will involve either reducing the amount people receive, or increasing the state pension age.’
‘My dad deferred his pension and died before taking it, so why can’t we claim?’
Steve Webb, former Pensions Minister and now policy director at Royal London, pointed out the Tory-DUP deal includes finance bills, which could give the Government leeway to shake up other areas of pensions.
‘If DUP are going to back finance bills, this increases the chance of cuts to pension tax relief getting through (eg MPAA, annual allowance),’ Webb tweeted today.
The Government has previously looked into scrapping pensions tax relief or introducing a flat rate that applies no matter how much you earn, although it never came to pass.
At present, everyone saves for retirement out of untaxed income, because they are rebated at their 20 per cent, 40 per cent or 45 per cent income tax rate.
The MPAA is the ‘money purchase annual allowance’, which is the annual sum you are still allowed to put in your pension after you start drawing it. To prevent people recycling retirement savings to gain a tax advantage, this allowance was cut from £10,000 to £4,000 in the last Budget.
However, the election put the move on hold, and technically the existing £10,000 limit still applies, although experts suggest savers get advice rather than make assumptions.
The annual allowance is the amount you are able to put in your pension fund every year and qualify for tax relief. This is currently £40,000 unless you are a higher earner.
For those making between £150,000 and £210,000 a year, the size of the annual allowance is gradually reduced, or ‘tapered’, from £40,000 to £10,000.
Tom McPhail, head of policy at Hargreaves Lansdown, said of the dropping of Tory triple lock and winter fuel payment plans: ‘This has to rank as one of the least surprising aspects of the deal.
‘The Conservatives’ assumption they could win the election comfortably whilst withdrawing policy support from their core constituency of older voters back-fired painfully.
The DUP position of retaining the triple Lock and the winter fuel payment allows the Conservatives a welcome way out of this bind in the short-term.
‘This is not to say that the triple lock should be retained indefinitely. There is widespread support for its abolition, however from a political perspective now is clearly not the moment.
‘A possible way through this impasse is to build consensus with the pensions industry and across the political spectrum, through the formation of a Savings Commission to explore the development of a joined up savings policy for the benefit of all ages across society.
‘It is telling David Gauke, now Secretary of State for Work and Pensions and former Treasury Minister has already gone on record since the election, reiterating Conservative sentiment that the triple lock should be abandoned.’