Why we can’t have “Super-style” private pensions and a gold plated state pension

Yesterday I wrote about early retirement for the super-worker, for the men who make it to 65 with 45 years of state pension credits who might want to draw a lower pension for longer. Let’s say it’s a pension with an actuarial reduction of 4% a year , so an 8% reduction for life for retiring 2 years before state pension age, 12% for 3 and so on. Getting less for longer is one thing, but let’s say you can’t expect “longer”.

Let’s say you can medically prove a reduced life expectancy. Is there an argument for an ill-health state pension paid at the full rate at an earlier age – perhaps there is. Perhaps that is how we integrate pension credit into the state pension.

Today I am thinking about a post by Helen Morrissey on Linked in.

Like most sentient people, I don’t have a lot of time for Jacob Rees- Mogg so I was immediately drawn to Helen’s conclusion and the Daily Express strap-line , implying that the loafing toff had it in for Britain’s working class. But it’s not as simple as that. As a hard-working 75 year old actuarial friend of mine asked me…

What is the purpose behind the state pension? By paying it so early, as we do now, we have changed its nature dramatically from even 1948 never mind 1908.

For those who weren’t around in 1948, never mind 1908, the state pension was designed as an insurance against living too long , not as a reward for 35 years getting state pension credits.

The great Norma Cohen responds to the challenge

‘What is the State Pension for?’ Is the right question to ask. In 1908, the short answer was that it kept the elderly out of the Workhouse. In 1925, it did two things; first, it provided a minimum income for those too frail to work in manual labour. Second, at a time when more than 10% of the workforce was unemployed it siphoned off ‘excess labour’. What’s it for now?

If we are serious about the mantra “save harder, work longer” which is how a dignified wage in retirement is achieved, then Rees Mogg has it right. He is factually correct in saying that were we to fully take into account the increases in life-expectancy since 1948, we would be paying the state pension from 72 and he’s right to point this out to his own Secretary of State for Work and Pensions.

Mel Stride

Two different ways of looking at early retirement.

Most people now want to retire earlier than 72 , infact most people see 66 (soon to be 67) as longer than they choose to be working. Many people are doing 4 day weeks from their 50s or even earlier – that is their choice and it doesn’t impact their state pension entitlement.

We need to decide if the state pension needs to reflect that, and accept the cost. It is highly unlikely that we will be able to provide a full state pension with a triple lock within the 6% of GDP threshold recommended by Lucy Neville Fox. So what would you choose?

Do you want a universal state pension which is a right from an early age and pushes up taxes for younger people?


Do you want the state pension to become part of a wider support of unemployment and incapacity?

If it’s the former, you may as well pack in auto-enrolment and rely on the pay as you go tax/benefits system that they have in France (and other European countries)

If it’s the latter, you may have to accept that without radically higher contribution rates, the auto-enrolment system can’t do much more than bridge low-earners to a state pension paid much later.

The wage for life vision behind Royal Mail’s CDC approach – does not come cheap

The Royal Mail Collective Pension Plan’s design was agreed in 2018, with a fixed employer contribution rate of 13.6 per cent of pensionable pay. Standard employee contributions will sit at 6 per cent. The scheme will have an additional 1 per cent rate for employees who choose to save for an additional lump sum payment

A question of ideologies.

There has been a false consensus between the left and right over retirement since the decline of Thatcherism and the beginning of stakeholder economics under Blair and Brown. It says we can have our cake and eat it.

I say “false” because I don’t think we can. We can’t have a state pension paid at current rates from the current SPA with a triple lock without leaving a legacy of tax rises for the next generations.

We can have a state pension paid as it is in Australia, as part of social security on the basis of capacity to work (or to have worked). Whichever way you look at it, this means means-testing of some kind – an expansion of universal credit. This would put more emphasis on private pensions, pension contributions and getting people value for their money. This I suspect is where Rees-Mogg’s head is at, as it would mean pushing back universal entitlements well into people’s seventies.

We can instead have the retention of the current system, which is what the Labour party seem to want, which will put a big burden on the Treasury and require HMRC to collect considerably more by way of national insurance and income tax. Unless the distribution of these taxes was skewed to the richest, it would prohibit the development of auto-enrolled workplace pensions to Australian levels of self-sufficiency.

The false consensus, which has prevailed for a quarter of a century is that you can have both high savings and a high universal state pension paid much earlier than Lloyd George or Beveridge intended.

Do you want a system of social insurance or of private wealth , you can’t have both without saving harder and working longer. Sorry Helen, but on that at least Jacob Rees-Mogg is right.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Why we can’t have “Super-style” private pensions and a gold plated state pension

  1. Tim Simpson says:

    Hello Henry,

    I agree with what you say about Ages for Retirement. I was alive in 1947 but not working. I do remember the social situation during the 1950s (South-East London) and I wouldn’t want to see it again. In 1968 a chap working for the HMRC advised me (socially) that the reason why the Retirement age had been set at 65 for men was, that so few men saw it i.e. a winner for HMG.

    Currently, I suggest, we are at a crossroads of employees’ working rights e.g. working from home etc. Taking your point that over-50’s are possibly working reduced hours/week, plus all the maternity/paternity/sickness Leave etc employees are entitled to, must oblige employers to continually reassess how much their overheads can withstand, particularly when it comes to Pension entitlements. Yesterday Elon Musk plus others have warned that computer software is now at a stage that it could be dangerous to society. No shortage of examples where the text generators have convinced intelligent readers of the point being made. No doubt that, like the word processors, office life will change notably and with what ramifications?.

    As you say in yours above, there have been misunderstandings in the public’s expectations going back to Mrs Thatcher. For fifteen years I was self-employed but never felt confident in starting a pension e.g. stakeholder, because of the warnings of the financial Press.

    It will be interesting to see in twleve months time what the employee will be faced with.

    Kind regards,
    Tim Simpson

    • John Mather says:

      Yes Tim the press did much to give legitimacy to not providing an income beyond work. However, they offered no better solution and as a result we have small pots and real hardship.

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