Pensions - The Lib Dem Costed Policy

Written by Vincent Cable MP and published in Online Exclusive on Fri 24th Sep 2004

Last week was spent in Bournemouth at Lib Dem party conference. These annual tribal gatherings are where MPs meet and listen to councillors, party helpers and activists. I suspect that the general public is bored by the endless speeches and procedural wrangling. But conferences help to clarify party policies.

This year, for example, my party put forward a new pensions policy and, as the Shadow Chancellor, my job is to ensure that the sums add up.

The problem is that the state pension has fallen well below official poverty levels. Many survive through means tested benefits like pension credit. But large numbers, especially older pensioners, do not claim. The process is too complicated and bureaucratic. And for those who do, 50p of hard earned income from savings or company pensions is claimed back for every extra pound they get in benefit. This is a massive disincentive to save, on top of the worry that pension schemes will be wrecked or stolen.

We say that a decent state pension, above means tested levels, is essential. It must be linked to earnings, so pensioners do not fall behind everyone else. And it must include the many women who, as mothers and carers, never qualified for state pensions. But a really generous pension increase - say £25 a week - is too expensive without a big tax increase. So we have agreed to start with older pensioners, 75 and over. And I have found savings by cutting back on other government departments to pay for the policy.

I am pleased to see that the policy has been well received as sensible and affordable. But all parties will have to face the bigger question of how a smaller working population will pay for a growing retired population in the long term.