The Tony Blair Institute (TBI) specialises in disrupting comfortable thinking, such as thinking that the state pension is doing a good thing for Britain and its people. For a lot of reasons, it is contentious.

Here is Steve Webb’s reaction to the proposal which  is here: the URL spells out TNI’s intent, it will make a more flexible and fair future if it can be implemented

If you have got a quiet Bank Holiday Monday, you might like to read the 58 comments that follow but they have little to say that isn’t said by Steve Webb. The State Pension is social insurance from which there are winners and losers. To make this state benefit as  transparent as a Defined contribution pot would mean doing something about how long each of us might live.

We have of course broken the link between the state pension and income when we ran down and then stopped S2P/SERPS, we replaced that with a semi – compulsory DC alternative which less than 10% of those auto-enrolled opt out of.

The net result is to swich a state pension to a savings plan and though the savings bit has worked , the loss of “pension” is now proving problematic. The unions, some employers and a lot of actuaries would prefer pensions to return, albeit pensions that are linked at least to the semi compulsory contribution structure of auto-enrolment.

One of the points that people have liked about AE is that the contributions are fixed to people’s earning (or to be proper “a band of their earnings”). In short employers are bosses, they choose how much to pay both as salary and towards pension saving.

The TBI are happy with that, but not with the state pension that isn’t linked to salary but is a benefit that cannot be controlled so long as people live as long as their health permits them.

On current projections, spending on the state pension will rise from around 5 per cent of GDP today to 7.8 per cent by 2070  ^[1]Link to footnote – an increase of more than £85 billion a year in today’s terms, which is more than the annual defence budget. ^[2]Link to footnote . If this isn’t addressed, it will steadily squeeze out other spending priorities or push taxes higher.

This of course assumes that our GDP and tax take don’t go on going up which they have for most of my lifetime. If we see real growth in our prosperity, then we should continue to increase the amount we spend on people’s retirement. The triple lock has – these last 11 years – been a turbocharger to the state pension and maybe we’ve had it turned on long enough (maybe not enough). TBI thinks the triple lock has been turned on long enough.

But it has a more radical problem in its sites..

.. a system built to provide reliable support only at a fixed point of retirement is no longer well matched to how people live and work. A modern safety net needs to provide more support during working life – through redundancy, retraining and caring spells – while offering more flexibility over how and when support is drawn in later life.

There are three proposals in the TBI report which is its attempt to take over the Pensions Commission.

They increase from easy (turn off the Triple lock turbo), to what has been suggested before, that the state pension could be mortgaged to provide cash when times are hard, to a third proposal that we all get the same from the state pension  (payment for 20 years) but that those with low life expectancy get it early.

The difficult is of course getting people an estimate of their lifespan left to them. I seem to remember my surgery giving me an adjusted life expectancy based on where I lived and my obesity and I was marked down on both. Had I lived somewhere else and had a lower height to weight ration I would have been forecast to live longer. Under the BPI , I might have pushed the taking of my 20 year pension a couple of years.

But of course this is the state pension and while underwriting on individual longevity does apply on some things (annuities most obviously) it is not something that is imposed upon you. Infact the changes of this Government to DC defaults and through the introduction of CDC use centralised assumptions of longevity to calculate your longevity. Nest’s 14m savers will be in one pool of 85 year olds when they get an annuity, SMPIs and ERIs that give us our projections on our DC pots are based on standard life expectancy, CDC will use simplified assumptions of how long we’ll live (unless a section is created for long or short livers). In short there is nothing but social insurance ahead of us.

This is what Steve Webb advises against, after reading this report and I must agree. The doctor’s prognosis that I would die if I lived next to a polluted road (Lower Thames St) and stopped drinking beer and wine)  did not add up to “medical underwriting” though it did change my behaviour.

I am happy to say my doctor has made me healthier but I’d be horrified that he made me wait longer for my 20 year state pension! It’s not only me, we’d have a riot on the surgery steps. The state pension is a very delicate thing that does not take to radical rewiring. I suspect  the TBI report is important for  our DC pots but not our entitlement to a state pension.