Everyone has a stake in the future of the state pension

Martin Shipton

Racism aside, one of the most invidious forms of political propaganda in the UK is the attempt to drive a generational wedge between older and younger people.

There has been a concerted effort by many commentators to portray pensioners as a privileged elite that benefits at the expense of their working-age counterparts. This is unfair for various reasons.

It implies that the financial interests of individuals are determined by how old they are at any given time, and that people’s lives do not represent a continuum encompassing all ages. Obviously, this is nonsense.

There is no reason why a young person at the start of his or her working years should feel opposed to or even threatened by someone drawing a pension. Yet the polarising rhetoric surrounding any discussion in this area has undoubtedly fostered mutual antagonism.

The debate about the “triple lock” on the size of the state pension is framed as if greedy pensioners are being over-rewarded at the expense of younger taxpayers, whose interests are necessarily opposed.

But this is also nonsensical. Everyone has a stake in the value of the state pension because everyone will benefit from it, except the unfortunate minority who die prematurely. Ending the triple lock, which guarantees that it will increase every year by the highest of three measures – inflation, average wage growth or 2.5% – would be to the detriment of everyone who attains pension age.

Those pushing for an end to the triple lock tend to shy away from international comparisons. It’s easy to understand why. The UK has one of the lowest rates of state pension in western Europe.

Look at the figures: Iceland £30,251; Luxembourg £26,778; Norway £25,972; Denmark £25,410; Switzerland £22,719; Austria £20,480; Netherlands £20,264; Belgium £19,000; Sweden £18,882; and Ireland £18,318. The figure for the UK seems meagre at £11,973.

According to the House of Commons Library, the data suggests that the UK devotes a smaller percentage of its GDP to state pensions and pensioner benefits than most other economies. For state pensions alone, the UK trails other advanced economies, providing lower pensions in relation to average earnings. In real terms, this works out as an overall net replacement rate of 54.4% from mandatory pensions for those with average earnings, compared with an Organisation for Economic Co-operation and Development (OECD) average of 61.4%.

Those who persist in denigrating pensioners refer to the “gold-plated” pensions supposedly enjoyed by civil servants and those who have worked in the private sector. Yet while news stories are regularly published that quote extremely generous pension provisions for captains of industry and top figures in the public sector and associated organisations like universities, the reality is that such instances relate to no more than a tiny minority.

Over the last 20 or so years, there has been a drive among many employers to end final salary or “defined benefit” pension schemes – where the value of the pension is linked to the employee’s final salary before retirement – in favour of “defined contribution” schemes, where the amount of pension received is determined by the return on investment of the scheme’s assets. Only about 10% of private sector employers still have final salary pension schemes open to new employees.

This change has resulted, in most cases, in a significant drop in the value of the company pension employees can expect to pick up when they retire.

Industrial action

While trade union officials, in firms that are unionised, make the case that pensions are a form of deferred pay, it is very difficult in most workplaces to persuade workers to defend their pensions with industrial action. The value of a pension several decades in the future is seen as too remote to mean much.

As a result, those who don’t want to bury their heads in the sand can safely predict that pensioner poverty is going to get much worse in the future.

For the moment, Andy Burnham is thinking of how to pay for the care of the elderly in future years. He is concentrating on reducing the value of the state pension as a quid pro quo for funding such care, instead of introducing a levy or paying for it through general taxation. This seems to ignore the bigger picture of ensuring that future pensioners have enough to live on when they retire. As time goes on, this will become a major problem, although politicians of today may well choose to leave it for their successors to deal with.

In the meantime, we are left with a debate about whether universal welfare provision is feasible. For Rhodri Morgan and Mark Drakeford, it was essential to have a welfare system in which everyone had a stake. Free bus travel for pensioners and disabled people and free prescriptions for all were championed and introduced as examples of tangible benefits that brought our society together and created an inclusive Wales.

Cheap shot

Today’s diminished Welsh Labour seems to have abandoned this view, with talk of the Plaid Cymru government providing benefits to millionaires. Wales isn’t awash with millionaires, as we all know, and this is a cheap shot of the kind one would expect of right-wing parties that want to slash all welfare programmes. I don’t actually think Andy Burnham would approve of the sentiment either.

Any debate about getting rid of the triple lock should bear these factors in mind and consider them explicitly, especially the low rate of the state pension in comparison with other European countries.

While it’s true that many current pensioners enjoy reasonably generous final salary pension schemes, there are many who don’t and find it difficult to make ends meet, especially those who rely entirely on the state pension or have only a small private pension on top.

What’s certainly the case is that many future pensioners will be worse off than their counterparts today. Daunting as the prospect may be, this fact should be confronted and acted upon.

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