A step on the road to a Citizen’s Income

The Coalition Government’s announcement that a single-tier state pension will be introduced in 2017 is a step closer to an unconditional Citizen’s Pension.

The state second pension will be merged with the basic state pension to create one flat-rate pension of £144. Without the earnings-related contributory aspect of the state second pension the system will be less conditional. Groups such as women and the self-employed, less able to make contributions over their lives, will benefit from this.

Furthermore, the abandonment of the means tested pension credit in favour of a higher basic state pension will save greatly on administrative costs. Means testing is costly and has the perverse incentive of discouraging people from saving for retirement. Currently people receive more pension credits if they have fewer savings. The new single-tier pension would not be affected by people’s savings.

These advantages are similar to those that a Citizen’s Income would have over the conditionality of the current benefits system. It would be a single payment, benefiting each individual citizen equally. There would be no costly means testing and no perverse incentives through the withdrawal of benefits as income increased. It is good that the government understands these principles.

Where this single-tier pension does not quite reach the requirements of a Citizen’s Pension is in the ‘contribution record condition.’ Under the new system full entitlement to the state pension will be based on 35 years of national insurance contributions. Those with fewer years of contributions will receive a smaller assessed pension. To make the state pension truly unconditional the contribution record condition would need to be abandoned. Doing this would make sense because ‘even if the cost of the single tier pension were to be raised by abolishing the contribution record condition, the additional cost would be small and would be offset by administrative savings as contribution records would no longer be required’ (Citizen’s Income Newsletter, Issue 1, 2013). It would also make the system even simpler to administer.

It is heartening that the Coalition Government understands that complexity, conditionality and perverse incentives are undesirable in the benefits system. It is not a great leap from these basic principles to the realisation of a Citizen’s Income: an unconditional, nonwithdrawable income for every citizen.