Long live the means test

Pensions is one of those subjects that sees British public debate at its worst. It belongs, alongside the Schleswig-Holstein question, local government finance and the Common Agricultural Policy, in a category of topics that almost nobody fully understands. It involves the long term at its longest, so that half the population is not affected by any proposals for change, and the other half not interested. It encourages words and phrases that carry excess emotional baggage: elderly folk, means tests, lifetime savings, Beveridge. Most commentators, therefore, fall back on the tried and trusted fundamentals of political exchange - "reckless public spending . . . intolerable burden on our children" on one side; "old-age pension under threat . . . starving grannies will freeze to death" on the other.

Social security ministers, for their part, invariably describe their proposals as the most radical and far-reaching for half a century, as Alistair Darling did when he launched his green paper on pensions this week. This, as Bernard Ingham would have said, is bunkum and balderdash of the highest order. The importance of the green paper is that it opts for the status quo, with a few changes and trimmings. It is more significant for what it does not say than for what it does. It buries Frank Field, whose collectivist, redistributive visions - laid out in numerous articles and pamphlets over many years, but presumably never read by new Labour leaders - frightened ministers out of their wits, once they understood them. It marks new Labour's final recognition that welfare reform was just a bit of spin-doctoring, dressed up for the manifesto.

The green paper rejects privatisation of the entire pension system: the present mix of public and private stays in place. It rejects the idea of compelling people to take out private pensions: the voluntary principle stays in place. It retains the basic old-age pension but implicitly accepts that, being linked to rising prices rather than rising earnings, it will continue to wither away. Universalism is dead, Barbara Castle spurned, the means test triumphant. The green paper, however, also contains the statement - perhaps the most important in the whole document - that "our long-term aim is that the new minimum income guarantee should rise in line with earnings so that all pensioners can share in the rising prosperity of the nation".

In other words, ministers have decided to concentrate on improving income support for those in greatest need, rather than on raising the basic pension, which goes to rich and poor alike. This is surely right. Though inadequate for many who receive it, the state pension remains the largest single item of public expenditure; to increase it would be to invest in what has become an extraordinarily blunt instrument of social policy. Old age is no longer synonymous with poverty as it was 50 years ago: the increasing number of people who own their homes, the growth of occupational and personal pensions, the spread of share ownership have all seen to that. Over the past 20 years, pensioners, on average, have done better than the rest of the population, with their incomes rising by 60 per cent. But the gap between rich and poor pensioners has widened dramatically. To treat pensioners now as an homogeneous group, out of some fastidious objection to means testing and vague ideals of cohesion and community, would be an absurdity.

There are, then, two challenges. The first is to ensure that all pensioners entitled to the guaranteed minimum claim it. The green paper promises action to remove the stigma of means testing, but this is easier said than done. It would be easier done, though, if people like Mr Field stopped banging on about fraud and moral degeneracy. The second challenge is to bring more old people above the minimum income level so that they don't need a means test in any case. To that end, the green paper proposes a second state pension, which (unlike the present Serps system) would pay a flat rate.

And those famous stakeholder pensions? Reading the green paper, it is hard to resist the conclusion that these are just private pensions by another name, tarted up to make them more attractive to lower- and middle-income earners. All social security secretaries claim to simplify things; all succeed only in making them more complex. Thus, Mr Darling - to the state pension, the second pension, the personal pension and the occupational pension, to say nothing of the guaranteed minimum - adds the stakeholder pension. The additional complexity is likely to make people more, not less, willing to take out pensions. But the term was in the election literature; once more, new Labour is hoist by its own rhetoric.

This article first appeared in the 18 December 1998 issue of the New Statesman, A time for unadulterated tradition