I wanted to come today to talk about how we help older people, how we make sure we have a strong pension system, and how we address the concerns that you have. And let me start by thanking Age UK for all the brilliant work that you do. It really is a fabulous organisation. We all see that in our own constituencies.
I often talk about the long term economic plan that we have to turn the country around, and I’d argue that with unemployment coming down, with the economy growing, with the deficit being reduced, that that plan is working. But people often say to me, “Well that all sounds very well but what does this long term economic plan mean for me and for my family?” And what I’m trying to do now is explain how this plan converts into a plan for you and your security and your future stability.
And today is a big day for pensions in the UK, because we’re making some important announcements and changes. There’s an announcement about what will happen to the basic state pension next year and how much it will go up by. And there’s an announcement, because we’ve announced our Pensions’ Bill today, about the extra freedoms we’re going to give people to tap into their savings and their pension as they grow older. And I want to talk about both those things, but I think too often we politicians, we talk about technical issues and technical facts and figures rather than the values and the thinking that lie behind them. And to me there are some very simple values we should be thinking about when we’re talking about how we want to see pensioners treated in our country.
And I think the first one is security. Security and stability. If you’ve worked all your life you need to have a really predictable situation as you get older because you can’t suddenly dive back into the work force or earn lots of extra money to help pay for some extra thing the government has laid on you. So this security and stability is really important. And that’s why we introduced the triple lock for the basic state pension. We said that the pension will always go up by either prices or earnings or 2.5%, whichever is the higher.
Now, today the inflation figure has come out, and it’s a good and low inflation figure, which we’re all pleased about. So it’s almost at 1.2% meaning the pension next year will go up by at least 2.5%. That is an increase of £150 in the basic state pension, almost £3 a week, twice the rate of inflation. That means that since I’ve been Prime Minister we would have seen the basic state pension go up by £950. It will have gone up by a good £440 more than if we’d just up rated it by earnings. And I think that is a good and fair way to arrange our pensions so that people have security and stability about the future.
I would say, because it was at a meeting like this that I made the promise, we also made a series of promises at the last election that we said during this parliament we would keep the Winter Fuel Payments, the free television license, the bus pass, the pensioner benefits, and we’ve kept all those benefits in full, and I’m glad that we kept that promise. So we are balancing the budget, we’re dealing with the deficit, but we’re not doing it on the back of British pensioners.
The second key value is responsibility. I think if you’ve worked hard and saved during your life you deserve responsibility in retirement about how you spend the money that you’ve worked so hard for and saved so hard for. And that’s why we’ve made a series of announcements this year, first of all saying you no longer need to buy an annuity. It’s your money; you should be able to spend it as you choose. We also made the announcement that if you want to you can pass on your pension pot tax free to your children, instead of having to pay 55% tax on it. And today, in the pension reform Bill that we’re publishing, we’re explaining that as well as the current practice of taking a lump sum and then having a drawdown income, we’re saying you could take out a series of lump sums, rather than having to do it in one go. It is additional flexibility; additional responsibility. And I think that’s right. I think it’s right to say to people who’ve worked hard and saved hard that it’s your money, you can choose to do with it as you wish.
Very important that we provide guidance and that you’re able to access good advice, and we’re making announcements about that today, because these things are complicated. That’s why I brought my experts with me, Steve Webb and Iain Duncan Smith and Ros Altmann’s here. But I think advice and guidance is very important.
New ‘single tier’ State Pension
The third value alongside security and responsibility is dignity. I think people who’ve worked hard, who’ve done the right thing, who’ve saved do deserve dignity, not having to sign up for extra benefits; they should get them as of right. And that’s why I think one of the biggest reforms that we’re making, that I’m really proud of, is what was called the Single Tier Pension, and what is going to be called the new State Pension, which basically means that when future generations retire, that instead of getting the £113 a week, soon to go up to £115, plus the pension credit, you’ll get a single tier pension which will be north of £148 in one go.
Why I think this is so powerful is that it means we can say to everyone in our country that every penny you save in your working life won’t count against you in retirement; you’ll be able to spend it on your own retirement, in your own way. So I think the single tier pension is going to bring enormous amounts of dignity and security to future generations. I wish we could do it for all pensioners now. A lot of pensioners stop me in the streets; they say all sorts of things to me, but they often say to me, ‘Why can’t we have this straight away?’ Well, of course, there are some costs associated with the new single tier pension; some people are paying higher national insurance contributions to make it possible in the future, so it has to happen in the future. But I think it’s a big reform.
So my message is yes, there are lots of things we still need to sort out. We need to make sure the social care system is working properly for older people. We need to make sure our health service performs the very best care that it can for older people. But on some of the key issues about stability and security, responsibility and dignity for older people, I think we really are delivering some changes that I hope you’ll welcome today.
And, again, thank you very much for listening.