Article for Wokingham Times

In recent days politicians have had old age on their minds. The Commons turned down a proposal for tax relief for health insurance for people after they have retired during the Committee stages of the Finance Bill. That helped keep us debating high finance until 1.30 in the morning. The public sector held a series of strikes to complain about proposals to cut the costs of providing  public sector pensions. This week Mr Dilnot from St Hugh’s College Oxford produced a Report suggesting that taxpayers pick up more of the bill for care for the elderly.

We all know what many would like to see. In an ideal world good public sector final salary based pensions would continue, and the state would be more generous in supporting the elderly in need of care. There has always been some misunderstanding on what the state does and does not pay for at the moment. Elderly people like the rest of us qualify for free health care, but that does not extend in many cases to the hotel services of a care home. Some think it should, as the one blends into the other.

All political parties in office so far have kept the dividing line as best they could. They have said that if an elderly person has to vacate their own home and go to live permanently in a care home, the proceeds from the sale of their home should be used to pay for their new accommodation. Their  extra health care is free. Now all parties are on the move. There will be genuine attempts to hammer out some cross party consensus on whether this old convention should be removed, and a more generous deal offered to the elderly with means of their own. Elderly people with little capital and no home to sell already receive free nursing home care and hotel services.

Meanwhile Ministers agonise over how affordable public sector pensions are.  They have rightly said they will not remove any earned pension entitlement already established by a public sector employee. They have also proposed for the future that the pension should be indexed to the CPI, not the RPI, that the age of retirement should be raised, that employees should make a bigger contribution and that in some cases they should move to career average rather than final salary.

 Various public sector employees have written to me worried about these measures. I think it is important the government and the Unions negotiate in good faith. They should negotiate over how big a saving is needed to make it all more affordable, and negotiate over how to achieve the required savings. As a public sector employee with a final salary pension plan myself I understand how people feel about it. I also think in the case of the MP scheme we need to contribute more, even though our contribution rate was raised to 11.9% some time ago, and look again at the cost of the range of benefits offered under it.

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One Comment

  1. cronshd
    Posted July 6, 2011 at 4:28 pm | Permalink

    Hi John

    Yes you’re right to highlight this in your diary.

    With regards to contribution rates, once again I return to the concept of indexing the contribution rate to longevity.

    That is to say – the %age contribution rate should increase (in a predictable fashion) as longetivty increases. It could be done every year and so, gradually increase rather than have these unpredictable shifts.

    A good start point from todays baseline would perhaps be 15% for MPs. I’m sure an actuary could then work from there how each additional year of longevity should be reflected in additional contribution rates.

    This would be fair and provide predictability to all.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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