The new Work and Pensions Secretary has admitted that the pension credit needs to be reviewed because it is likely to affect increasing numbers.
Speaking at an ABI fringe event at the Labour Party conference, Alan Johnson conceded that if the pension credit continues to rise in line with earnings and the state pension continues to rise in line with prices, then more people will be caught by means-testing.
He acknowledged that this problem needs to be examined said: “We need to have a debate about designing a scheme that is effective for the future.”
Johnson's comments followed Prime Minister Tony Blair's keynote speech at the conference that indicated a more flexible approach from the party on pension reform.
Blair said a third term would see the party design a system with the state pension at its core, along with incentives to save.
Johnson promised changes to the system and, when pressed on whether the Government will look at introducing new incentives for savers, said: “Watch this space,” but refused to give any further details.
Both Johnson and pension minister Malcolm Wicks emphasised the importance of the credit to lift the most vulnerable pensioners out of poverty.
But Johnson refused to listen to the argument that young people are choosing not to take out pensions because of a potential 40 per cent tax on their savings.
He said: “I am hearing an argument that people in their 20s and 30s are not saving in a pension because of means-tested benefits. I doubt whether they are but I do understand there has been an effect that we need to look at.”