Pensions

The Government’s position on pensions is unsustainable, and can only make intergenerational inequality worse

Nothing symbolises the way that today’s younger workers are being penalised in favour of the current generation of state pensioners more than the announcement that those presently in their forties will now need to wait another year to get their pension. The news arrives shortly after our enfeebled Prime Minister had to concede opposition demands (most potently form new found partners the DUP) that the “triple lock” on pension increases be retained. With wage growth so low – so low, indeed, that many household incomes have barely risen in a decade – this is increasing the burden on the workers of today, and making it harder for themselves and for the state to make adequate provision for their own welfare in retirement.

There is, in fact, a straightforward trade-off in terms of what might be termed jam today or jam tomorrow. So generous is the triple lock now, by comparison with wages growth and growth in the wider economy, that it would become unsustainable if there was any attempt to keep it over the coming decades. The increase in national indebtedness could simply not afford it. Some amelioration is immediately required, and that has come in the form of a gradual postponement of entitlement to the state pension. We can have a more generous pension, in other words, or one that arrives relatively early; but we cannot have both.

The Institute for Fiscal Studies has calculated the trade-off precisely; with the triple lock, a full old age pension in 2060 is projected to be worth 27.5 per cent of average earnings and will be available from age 69. If we were to abandon the triple lock, and link only to the growth in wages, then a slightly lower value of relative pension – 24.2 per cent of average earnings would be paid, but could be collected at the earlier age of 67 and a half. Alternatively if we wanted a higher pension at, say, 30.7 per cent of average earnings then keeping within the same cost envelope could be achieved by increasing the pension age further to roughly age 70 and a half. And so on.

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The issue of intergenerational fairness immediately intrudes into these calculations because the beneficiaries and contributors are of course different generations. In the context of the good economic years that so many baby boomers lived through, with often vast unearned windfalls from successive property booms, and today’s impossible situation for first-time buyers, as well as university tuition fees and so many other radical alterations on the generational balance of power, the case for easing the “triple lock” now is overwhelming. As the Pensions Select Committee and the Cridland Independent Report on the state pension age both concluded, the present arrangement is neither sustainable nor fair, and pensions should now be linked solely to earnings.

The crisis in social care and parts of the NHS are other signs that we have failed to face up to the challenges of an ageing population, and one that is living longer but not always in the best of health. That the rise in life expectancy is slowing down merely takes an edge off the dilemmas. Brexit and the widespread resistance and misunderstanding of migration means that Britain’s demographics are less likely to be supported by a ready supply of younger, more energetic workers arriving to share the burden of the welfare state.

A century ago the Queen’s grandfather, George V, began the custom of sending congratulatory telegrams to centenarians. In 1917, during the Great War, 24 were sent from Buckingham Palace to those born in 1817, not long after the end of the Napoleonic Wars. In 2016, though, some 6,000 received a card, and by 2050 the expectation is that the number of those hitting a century, the surviving early baby boomers, will number 56,000, and not many of them will be looking after themselves in their own homes. It would be nice to think they will be living in a country able to care for them and offer them some income and comfort in retirement; but it is not so very far away, and there is little sign of much determination to do so. 


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