(Positive) thoughts on the state pension

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John Cridland (ex CBI)

 

 

The state pension , next to our capacity to work, is most of our greatest financial asset. Conservatively valued at £250,000, the new state pension of £155.65 p.w. is worth more than most new Lamborghinis. So why do we dismiss it as a pension Trabant?

Talking with the Pension Minister last week in Birmingham, I sensed he was embarrassed to hear that it’s purchasing power is almost ten times the median DC pension pot. For those just getting by, it is getting close to a safety net, indeed – when supported by other benefits – and the age-related personal allowance, the elderly can now enjoy tax free benefits from the State of which we should be proud.

This seems to me to be something to celebrate. That those benefits are no longer ours by right at 60 or 65 is a consequence of their revaluation. The Government’s continued commitment to the triple lock (at least until 2020) is in the teeth of austerity. We are doing something in Britain to reduce elderly poverty and I’m very glad we are.

The bill to the exchequer for pensions will be around £157bn in 2017 of which around £110bn will be directly from the state pension. This bill is estimated to rise regularly over the remainder of this parliament (as a result of the triple lock).


Is this fair?

For much of my working life I have been selling private pension saving because of the inadequacy of the state pension to replace lifestyle or even provide a safety net. The upgraded state pension (paid tax free to those relying on it) can no longer be dismissed as nugatory (Michael Portillo’s description).

But I am hearing people saying that this is unfair. Today John Cridland will be publishing his report into intergenerational fairness and I hope he does not reinforce the prevalent prejudice that our elderly are being treated too well.

There is, in most cultures, a wish to treat the most elderly with the most respect. Society works like that. This recent idea that baby boomers are all take take take is being used against those in retirement who were the children of the war years. The frugality of my parent’s generation was fashioned from rationing and their capacity to look death in the eye was shaped by the horror of living in Britain (or of evacuation) when your young life was under threat from a wayward bomb or a torpedo.

The obligation that a younger generation owes to those surviving from the generations above them is often referred to as “inter-generational solidarity”. It is earned by the older generation by preparing, nurturing and educating the young.

That I pay a marginally higher national insurance contribution or income tax payment to ensure that my parent’s generation enjoy higher standards of living in poverty seems entirely right.


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Daniela Silcock- Pension Policy Insitute

 

Inter-generational and intra-generational solidarity

My friend Daniela Silcock is on the radio this morning (Radio 4 7.50 and 8.50 if you missed her on Wake up to Money explaining what the State Pension would look like if we were to pay it absolutely “fairly” between our generation. We would have to pay more to those with poor medical records than good ones, we’d pay people in Chelsea less than those in Walthamstow (there’s a 15 year difference in life expectancy), we’d pay more to men than women and we’d pay less to the well educated than those with no qualifications.

I suspect that Daniela has her tongue in cheek, it is ludicrous to suppose that a pension can be paid fairly. Even the most healthy, well educated female can die unexpectedly. If life is unfair, death is unfairer!

Which is why we regard the state pension as an insurance against living too long and not a right to a proportion of a national savings pension pot. This is what we mean by intra-generational solidarity- we accept some unfairness in the concept of national insurance.

Just as it is wrong for us to discriminate payments to our current pensioners, so it’s wrong for us to suppose that each generation coming along behind us should be treated progressively better. The increase of the state pension age is merely a reflection of the increases in the age at which we die (and stop getting our pensions).

The management of the increases in state pension age may not have been perfect (we all accept the WASPI anomaly) but the principal of linking state pension age to average mortality is a proper one reinforcing generational fairness and creating intergenerational solidarity.


Stop this unseemly bickering!

We have a job in hand which is to improve lifetime savings so that the state pension we receive is supplemented by proper lifetime pensions. For a diminishing number of us, the employer promise of a defined benefit remains but it is generally accepted that this cannot be a universal promise. The genuine unfairness of two people doing the same job – one on a proper DB pension and one with pence in the pot remains and is one that needs addressing. But I see little point in wasting energy levelling things down when there is an opportunity to make more of the workplace pensions we are setting up under auto-enrolment.

Whatever John Cridland’s report into the state pension age ends up saying, I hope that it will acknowledge that the state pension is valuable and becoming more so. The big picture is looking brighter despite the plight of the WASPI women and the remaining levels of pension poverty that still exist.

I hope that Cridland will make it clear that the financial  fate of pensioners to come is a  lot rosier than it was , without lulling any of us into a sense of security that it is what it should be. Our state pension needs supplementing by private pensions and those pensions should be properly funded throughout our working lifetime.

Our working lifetimes have to be longer as our non-working retirements are longer. There is nothing unfair about that.

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intergenerational solidarity – medieval style

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to (Positive) thoughts on the state pension

  1. Phil Castle says:

    Yep, well said.

    Like

  2. Peter D Beattie says:

    Henry. Nothing in our society appears ‘to be fair’! Herewith my recent comment to ‘pensiontheft (PAG) being a pensioner from FAS/PPF:-
    Hi Gerry. Thanks for pointing out how the government continue to fail us last century pensioners due to malfeasance not being addressed or apologizing for it and by ‘short changing our state pension due by right! In my case comparing your figures I am now in the ‘poor class’ because:

    1. My household income is less than your figure by £4,500-00 per year.

    2. I get no indexing on anything under the current FAS/PPF rules.

    3. Still no compensation offered for ‘lost pension years 2000 to 2004.

    4. And of course there is no prospect of any type of acceptance of liability by the DWP or apology from government for ‘the fine old mess’ they have handed us.

    The movement proposed for lifting ‘the cap’, something, I do not fully understand, is of course a welcomed progress for those of you on ‘higher incomes’. But why is there not any attention being given to those of us below the £17,500 per year?
    I would have thought that attention would have been given by our negligent government to ‘the have nots’ before those above the ‘poverty line’
    HERE IS a typical reply from Gerry (a very putout member) that Professionals have failed:-[

    Hi Peter,

    We’re all guilty of being suckered into pension schemes, state operated, company and private. Suckered because the government and financial institutions play on the fact that those of us who are responsible people that look ahead seeing the need for old age provision, get ripped off. I’ve said it before, when we put money aside for old age it should always remain our money but it doesn’t. The state put it in a giant pot then on retirement dishes it out the same amount for all irrespective of what you personally put in. It also reneges on schemes that were paid into to provide additions to basic state pension. Company schemes were set up so your money once it left your pay packet became the property of trustees to gamble with, to steal by the owners. Financial institutions offered grand plans that are unnecessary, they turn a pension provision into an insurance plan that costs you dear, up to 40% of your saved money. The government could, if it wanted to, put it all right but what do they do? They introduce another wasteful pension plan called the ‘Work Place Pension’, to those on modest incomes and below it won’t be worth a jot to them when they retire, it’s an exercise to keep employed civil servants who, with recent government department cuts, would have been unemployed. It’s just another wasteful form of taxation.
    What really needles me is the constant showing of benefit claimants, those who have never worked, doing rather nicely on up to £29,000.00 per year for doing nothing. Pension thieves like Green, a most despicable man, flaunting his stolen wealth on the television with his yachts and rollers. The billions given in aid to countries and people who hate us, our money that we don’t have any say as to who or where it goes.
    I wrote a while back to ‘Our Dave’, with my suggestion as to what pension provision should be and how to operate it, I’ll have to repeat myself again and offer the suggestion again to ‘Our Trease’. I also offered my suggestion regarding the other busted flush the NHS on similar lines. How many pensioners paid into that for fifty years and have been refused life-saving medicines that they’d paid for but can’t get because some overpaid tosser in NICE dictates that the drug is too costly. The NHS is falling apart not because of the hard work Doctors and Nurses are doing but because it too is laden with overpaid tossers at the top. Tossers that probably award contracts to cronies for a hidden considerance. Equipment, services and drugs being bought at vastly overpriced costs. They’re failures, the general public see they’re failures yet nobody does anything about it, least of all the government but I’m forgetting something, they’re cronies of cronies. We are all paying for FAILURES, time for a change, but who’s going to step up to the plate? The country’s full of people in high places on the make, protecting their ill-gotten gains that ‘Ordinary Joe’ has paid for. Why are all the pension thieves still at large? Answer:- At the top, it’s a network of high-class thieves.

    Gerry

    So you see ‘us survivors of WW2’ are not impressed by the way that the younger generations have handled our situation and we are still spending BORROWED MONEY on others rather than looking after our own citizens!

    Peter D Beattie – Military Veteran and FAS/PPF Pensioner

    Like

  3. Martin Evans says:

    Nice article which does nothing to dispel the faulty bill of sale that came with it. You could have a state pension of £155 per week but if you have had time in a Comp or a Cosr scheme then you probably wont. We encourage all employees to get a state pension forecast so that there are no unwelcome suprises

    Liked by 1 person

  4. henry tapper says:

    I was surprised that even having been in a COSR scheme and having opted out using a personal pension , I was still entitled to my full benefits if I carried on working past 64. Others have commented on the Contracting Out Deduction which seems quite generous to those that contracted out

    Like

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