Should wealthy pensioners get benefits?

Winter fuel payment is £100 to £300 tax-free

Winter fuel payments from the government should be landing on pensioners' door mats this month.

The benefit costs the government around £2bn a year, and goes to everyone born before July 1951 whether they need it or not.

At a time when the government is struggling to reduce the deficit, such generosity may no longer be affordable or even fair, especially to younger generations, which are feeling the effects of tax rises and spending cuts.

A report from the Free Enterprise Group of Conservative MPs has called for ministers to be "brave enough" to tell the wealthiest pensioners that their benefits will be cut.

Our ageing population is a sign of success: life expectancy in the UK has shot up because of better medical care, diet and lifestyles.

Not only that, but this generation of OAPs is richer than any other, in fact this generation may be a bit of a one-off.

Certainly, the kind of index-linked final salary pensions that many now enjoy are fast disappearing, in the private sector at least.

And many people find themselves living in properties worth hundreds of thousands of pounds more than they paid for them, as house price inflation has turned their homes into valuable assets.

Of course, that isn't the full picture - many pensioners live in poverty. But equally, at a time when the government is raising taxes and cutting spending, there are many pensioners who are getting benefits they don't need.

"If you look at the over-65s, there are virtually a million people who live in households with total wealth of more than a million pounds," says Angus Hanton, co-founder of the Intergenerational Foundation.

"If you go down to those who are 60 and above, you have two million people living in households with assets of a million pounds or more."

Radical approach

The savings that the government could make by not giving benefits to this particular group of pensioners are considerable.

Just removing the winter fuel allowance from pensioners who pay higher rate tax, those who have an income over £35,000, would save around £250m a year.

A more radical approach, such as paying the winter fuel payment only to those already on means-tested benefits, would save even more.

Cormac O'Dea from the Institute for Fiscal Studies explains how limiting the winter fuel allowance to such groups would work.

"Recipients of cold weather payment, paid to the poorest individuals in the coldest periods, and then pension credit, which is a means-tested benefit paid to the poorest pensioners, would be insulated from any effect of [the winter fuel allowance]'s abolition or change, while only those relatively better-off pensioners would lose out."

That change, which would be easy to introduce, could save almost £1.5bn a year. But it will almost certainly not happen.

For a start, David Cameron promised that the benefit was safe for the life of this parliament, and campaigning to abolish or even limit it is hardly a vote winner.

But it is making some people worry that the pain is not being shared evenly between the generations. After all, people starting university now will leave with tens of thousands of pounds of debt to repay, when earlier generations were paid to go to college.

Once they have repaid that, today's twentysomethings will have to save up a far larger deposit for their first mortgage to buy a house that costs many times their income.

And - especially in the private sector - their pensions will be far less generous than those enjoyed by earlier generations.

Demographic timebomb

There are of course plenty of young people who are very wealthy, those inheriting property in London and the South East for a start, and, as Caroline Abrahams from Age UK makes clear, millions are still living in poverty in their old age.

"Think of what happened in the 70s and 80s, all the de-industrialisation in northern towns; think of all the miners who lost their jobs and what happened to their communities," she says.

"They didn't benefit in anything like the same way. It is a bit different in London and the South East of England where there is a concentration of some older people who are actually doing rather better than the country as a whole."

But even if the government is not yet convinced that pensioners should share more of the pain, in the end they may have no choice. The baby boomers, that vast cohort of post World War II babies, have now started to retire.

This is the so-called demographic timebomb, which means there will be increasing numbers of pensioners in coming decades and fewer workers to support and look after them.

This raises an interesting political dilemma, because pensioners tend to vote more than other parts of the population, and so all political parties have an interest in being generous to them.

But will the rest of the population want or be able to afford to pay benefits to millions of pensioners who don't need them, when they are struggling themselves?

"We clearly don't have a problem with payments to the elderly people who are not well off," says Mr Hanton.

"The issue we're highlighting is the extent to which there's a cross-subsidy from poor young to rich old."

But no-one wants to be accused of leaving pensioners out in the cold, especially when they're an increasingly large part of the population with an increasingly powerful electoral voice.