State pensions: White Paper whitewash?
Dot Gibson, General Secretary of the National Pensioners Convention, concludes that the Government plans to end up paying less for state pensions...
Britain has a terrible record on pensions and the way it treats older people. Even after 100 years of the state pension we still have one the least generous schemes in Europe, largely as a result of successive governments having refused to properly look after those in retirement.
Many will remember the 1980s when Margaret Thatcher broke the link between pensions and earnings – stripping over £60 a week off the value of today's state pension – or the debacle in 2000 when Gordon Brown decided that the pension should only go up by 75p a week. Given this history, it's no surprise that one in five older people still live below the official poverty line, three million pensioner homes suffer from fuel poverty and millions more are faced with rising living costs and are struggling to get by on very modest incomes.
Against this background, on Monday the Government announced a White Paper on the future of the state pension which started with a fanfare and ended on a bum note.
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Under the plan, after April 2017 the basic state pension and the second state pension (formerly known to many as SERPS) would be merged into a single pension of around £144 a week at today's prices and paid to anyone who had contributed 35 years of National Insurance payments into the system. To many this sounds like a much simpler way of doing things – that is until you take a closer look at the small print.
Today, workers are required to pay 30 years of National Insurance and for that will receive a combined basic and second state pension of at least £150 a week. So the White Paper asks people to pay for longer and get less. Not only that, but the Government also plans to keep changing the retirement age. It's already set to be 67 by 2028 – and many in Whitehall think it should go to 70; OK for politicians sitting in Westminster all day – but not so good for those doing heavy manual or physically demanding jobs. For them the chances are they might never get to draw their pension.
The real problem with the Government's plan is that it does nothing to address the terrible situation facing many of today's pensioners. Around five million existing older women don't get a full state pension because of time spent bringing up their children, paying the 'married women's stamp (which didn't go towards any pension) or in low paid jobs that didn't qualify. They don't get anywhere near £144 a week – but anyone who is already retired won't be covered by the new arrangements.
This is likely to create even more complexity and unfairness, in what is already a highly complicated and unfair pension system. It seems that every generation will be on slightly different amounts of pension which will be governed by slightly different rules. The Government has said this is a simplification of the system – but the truth is the first person to receive their state pension solely under the new rules won't do so until 2080! If it's so simple – why will it take nearly 70 years to come into force?
The new system will actually end up spending less on state pensions than the current system and respected bodies such as the Institute for Fiscal Studies have now declared that in the long run everyone will be worse off as a result of these proposals. It seems almost unbelievable given all the pressures that older people are under that there's no new money.
The vast majority of our 11 million existing pensioners deserve and need a higher state pension now. Every year they add £40bn more to the economy than they take out, through taxes, voluntary work and unpaid caring. Meanwhile, millions of people at work have seen their occupational pension schemes disappear or become worth less and less over time. The prospects of future generations having decent company pensions to make up for an inadequate state pension are not looking good.
What the Government needs to do is re-think its approach. Instead, we need to raise the state pension for all existing pensioners above the official poverty level of £178 a week and keep a second state pension that gives extra help to the low paid. By doing so we could end the need for widespread means-testing and give a bit of dignity back to the older generation – without the need to fill in forms or go looking for hand outs. This too would also help the pensioners of tomorrow – by guaranteeing that they would get a decent basic pension when they retired – without the need to work till they dropped.