U.K.: Labour's boost for pensioners is slipping into the mists of time - Julian Knight

. LONDON, England / The Independent / Money / February 2, 2009 By Julian Knight It was a national scandal that in the 1980s and 1990s, under Tory rule, we had pensioners dying because they couldn't afford to heat and feed themselves properly. The plight got so bad one winter that a Danish charity sent over food parcels and blankets to some of our pensioners. Nowadays, though, the picture has been transformed and millions of elderly people are no longer living in poverty – defined by most social scientists as existing on less than 60 per cent of average income. Bigger benefits, targeted help from social services and a general uplift in property values and the national wealth have helped make the lives of millions of retired people better. But this achievement – like Labour's others since 1997 – is slipping, slipping away. An unkind rate cut Interest rate cuts are a big part of the reason for this. Millions of elderly people rely on returns on savings, but the average account is now paying 0.8 per cent, compared to close to 4 per cent a year ago. To put that into context, an elderly widow with a pot of £40,000 was earning £1,600 a year ago in interest but now it's just £320. The only alternative for many will be to break into their capital, which is one-way ticket down. Now I can partly see the crude economic case for another rate cut when the Bank of England meets this week, but is it worth the long-term price in pensioner poverty? After all, where is the justice in putting money in the pockets of debtors (mortgage borrowers), who can still bring in an income, while impoverishing a group of savers who can't work any more? Another reason pension poverty will surge, if not this year then in subsequent ones, is that rises in the state pension are based on the retail prices index. The RPI, the general measure of UK inflation, is dropping like a stone – from 5 per cent last September to its current 0.9 per cent. Fortunately, this April's increase in the state pension will be based on that September figure, but in 2010 the elderly will be lucky to get any increase at all. There is a way to ease the situation. The decline in the consumer prices index, the other measure of inflation, is a little more steady: it's currently set at 3.1 per cent. If the Government was to announce in next month's Budget that from now on it will uprate the state pension by whatever is the higher out of the RPI and CPI, that would help a touch. Outside this, pensioners will find a lot of their housing wealth eroded by the price crash, and equity release plans are becoming more expensive and less generous. All in all, this recession could torch what promised to be the Government's finest legacy. Read Complete Article Copyright © 1999-2008 LiveJournal Inc