PENSIONSANDSAVINGS.COM

• Of course, with an aging population and high inflation, the costs of state pensions will rise, but that should not be a shock! 
• Of course Britain can afford to pay its State Pensions, this is a political choice of priorities.
  
• The UK has one of the lowest State Pensions in the OECD while most EU countries pay far more. 
• Cost-cutting need not mean attacking the core pension, raising State Pension Age or mass means-testing. 
• Increasing the number of years for a full State Pension, changing to a double lock and making universal tax-free add-ons taxable would save money, but still recognise the inequalities among the elderly population.
  

Of course Britain can afford to pay the State Pension which is one of the lowest in the world:  The UK State Pension is not ‘unaffordably’ generous. There is nothing inherently wrong in spending more on the State Pensions than other Government Departments. This seems to me to be a misguided idea, probably based on the assumption that pensioners are well-off these days and the UK is paying them too much. Of course there are many high-income pensioners, but millions have only a State Pension to live on. The UK pays one of, if not the lowest state pension in the developed world according to OECD figures. If we, as one of the richest countries, decide we cannot afford to look after pensioners, what does that say about post-Brexit Britain?

Most younger people could not live on the State Pension, but millions of pensioners do:  The old Basic State Pension is just over £8000 a year, the full New State Pension is just £10,600 a year – how many younger people would believe that is a good amount to live on for the rest of their lives?

Governments have failed to prepare properly for the aging population: As pensioner numbers soar due to demographic factors that have been in place for decades, and during a cost-of-living crisis, it cannot be a shock that the bill for State Pensions is rising sharply. This was always inevitable and is part of the reason why the State Pension Age has been increasing. However, that is a simplistic response that ignores the vast differences in health and wealth among older groups. Unfortunately, successive Governments have failed to rise to the challenge of sorting out the priorities for the aging population.

Attacking the very core, basic part of the UK welfare state is not the right way forward in my view: The UK National Insurance welfare state system has always been based on very modest State Pensions being topped up by private pensions or other savings, to ensure pensioners have more than a basic minimum to live on.  However, millions of fifty-somethings (especially women) had no chance to build private provision, so they rely on the State payments to help avoid poverty.

Accelerating State Pension Age increases would just plunge more pensioners into poverty: As the State Pension Age rose to 66, poverty among 65-year-olds doubled. Those who cannot yet receive any State Pension, regardless of a long National Insurance record, have run out of savings, or are caring for others or have health issues, or cannot find work due to ongoing ageism in the workplace, were left behind. People healthy and wealthy enough to wait longer for a State Pension (and the top 10% of the population stay in good health into their early seventies) can receive an even higher State Pension by delaying their start date.  But those in desperate need before the ever-increasing age, cannot receive a penny. Many more will die before receiving anything at all if the State Pension Age rises are accelerated.

Extending means-testing so that ‘wealthy’ pensioners get nothing is also no solution:  When Pension Credit was introduced twenty years ago, aiming to focus spending on the poorest pensioners, it contributed to a collapse in private saving, and rising pensioner poverty. If the State Pension is only paid to those with little or no savings, the average worker may reasonably decide not to bother with pension contributions and just spend all their money, in case they are penalised for it later.

There are other ways to save money on pensioner spending, which do not risk up-ending the whole edifice of the welfare system: Of course, with a massive fiscal deficit, looking for areas to cut costs is sensible.  But rising State Pension costs do not, in my view, mean the current State Pension itself is unsustainable. Persistently increasing pension ages or extending mass means-testing or cutting the real value of the State Pension would be attacking the core part of our system, on which the welfare state contract has always been based and would worsen pensioner poverty. Each year, people in the workplace, or caring for others, build up National Insurance records, to provide protection against sickness, unemployment and for a State Pension. That is the social contract. Rather than cutting the already very low State Pension, or making everyone wait longer to receive anything, costs could be controlled in other ways.

Increasing the number of years required for a full pension from 35 to, say, 45: Currently, just 35 years NI record qualifies for a full new State Pension, but this is nowhere near a full working life. Someone who started work at 16, has a full record by age 51, even those starting at 21 can have a full record at age 56. If the State Pension is a recognition of long contributions to our country, perhaps increasing the number of years required for the full pension to 45 is a better and fairer way to control costs. Someone who only moved to this country in their thirties, or those who spend many years working abroad, can still have a full record and receive the full amount. If the 35 years only entitles people to about three quarters of the State Pension, there would be cost savings and more money could be raised for the Exchequer in coming years by allowing people to pay voluntary contributions to purchase added years.

Change the political gimmick of the triple lock to a double lock: The so-called triple lock promises State Pensions will rise by the highest of prices, earnings or 2.5% each year. This has become a totemic political symbol of pensioner protection, however the 2.5% element is a rather arbitrary figure and removing it while inflation and earnings are rising by so much more, can cut long-term pension spending, without undermining the whole system. Indeed, the triple lock is more of political gimmick than any sensible pension protection policy. Politicians should now accept that the triple lock is not the be all and end all of pensioner protection. A double lock, which ensures the State Pension keeps up with rising prices or earnings, is fairer and would save money in the long-run too. In any case, the triple lock is a political gimmick rather than proper pension protection. The poorest and oldest pensioners (anyone beyond their early seventies) only have the basic State Pension part of their State Pension triple-locked which is just over £8000 a year, while the full new State Pension (£10,600 a year) is protected for those reaching pension age.  These are not the poorest pensioners, but they receive best protection. In addition, the Government already removed the triple lock just as the cost of living crisis took off, so this promised protection does not guarantee pensioners anything.

Roll all universal additional pensioner benefits into a higher State Pension to make them taxable: At the moment, all pensioners receive tax-free Winter Fuel Payments and other benefits which, unlike the State Pension itself, are not taxable.  They are worth far more to well-off pensioners than others, which seems unfair and is hardly a sensible use of taxpayer resources which are under so much pressure. If the additional free benefits were added into the State Pension, there would be further cost savings, without undermining the State Pension and without needing to keep increasing the starting age.

It is vital that pensioners are protected: There are huge differences in health and income across the UK population. Our welfare state must not be used as a political football, especially when it risks reversing the progress on pensioner poverty which was achieved over time. Just increasing pension age, or cutting State Pensions and increasing means-testing, just because average life expectancy is rising and average pensioners are better off than in the past, would pull the rug from under the over-50s and worsen poverty in Britain. There are better ways to deal with these issues and pensioners should not be made to pay for the failure of past Governments to properly prepare for the aging population.