THE PENSIONS PROBLEM

[Stanley]

THE PENSIONS PROBLEM

8 April 2006

Bear with me on this one, it’s important not only to UK readers but to others as well because I want to look at the reasons why we have got into the mess we are in now and I believe these are universal human traits. In 1908 the Old Age Pensions Act introduced the first general old age pension in Britain paying a non-contributory amount of between 10p and 25p a week, from age 70, on a means-tested basis from January 1 1909, ‘Pensions Day’. This was introduced during the Liberal government of David Lloyd-George. Sir William Beveridge, father of the welfare state, was an adviser.
There was a small problem, how could anyone prove they were 70 years old? Births weren’t registered when they were born. In Ireland a civil servant realised that anyone who had heard of the ‘Big Wind’ of 1839 was probably that age and so applicants were asked the standard question, ‘Do you remember the big wind?’ Not surprisingly the number of people who knew about this event rapidly increased and there had to be a rapid re-think. I think this was the first time pensions policy had to be revised to keep expenditure in check.
Since then in the UK we have developed an extraordinarily complicated system of pensions and benefits that provide a very basic income topped up by ‘means tested’ benefits. The administration of this system has, over the years, spawned an immense system of bureaucrats who, at tremendous expense, operate the system and its complicated rules.
For over thirty years it has been recognised that the present system was running into trouble as the proportion of earners to pensioners declined. The latest estimate is that by 2020 it will be approximately 50/50. Something had to be done, the question has always been what is politically and economically possible? The longer this decision hung in the wind, the more urgent and serious it became and we have reached a point now where the political and economic imperative has swung to finding a solution and applying it.
There are basically two schools of thought: The pensioners and those soon to enter that category are in favour of raising the basic rate of pensions to the point where means-testing becomes a very small component and thus making huge savings on the administration of the system. The Treasury, and in particular, Gordon Brown, wish to retain means-testing on the grounds that this enables resources to be targeted at the most needy in society. A resolution had to be found.
To this end the government commissioned an enquiry led by Adair Turner, the former Chairman of the Confederation of British Industry and he has reported this year. What he proposes is raising the basic pension, cutting back on means-testing and bureaucracy and paying for this by savings in the system and raising the pension age to reduce the numbers coming into the system while the reforms bed in. He stated very bluntly in his final report that the recommendations could not be cherry-picked, it was a package and the success of the reform depended on the implementation of all the elements.
It remains to be seen whether the government will bite the bullet, the nation awaits. I have my own opinion and what is exercising my mind at the moment is justifying my grounds for believing this. I don’t think that they will. They will say that the Turner report is right and will agree to implement the recommendations subject to affordability. So what brings me to this conclusion?
Politicians are people who believe they can influence the course of events by the exercise of legislative power. In other words, once the levers of power are in their hands they can exert control. Once accepted, this becomes a mind-set and every legislative decision is a reinforcement of control. From our experience over the last nine years of New Labour we can have little doubt that in the higher echelons of government in general this doctrine has taken root and in Tony Blair and Gordon Brown it is particularly strong.
If you can take this on board and agree with it you will see the reasons for my doubt. If Turner’s recommendations are implemented and pensions are linked once again to the national industrial wage the Treasury automatically loses control over a large part of the pensions system. There is the additional inertia generated by having to savagely reduce the administration which will no longer be needed. Looking ahead, the trend of reduction of wage earners to pensioners will continue and the only control under the Turner system would be to raise the pensionable age again, a very unpopular control in political terms.
I was raised in an age where we believed that there was a contract between us and our rulers. We kept our head down and worked hard in a historically low-wage economy with no occupational pensions but secure in the knowledge that by virtue of our National Insurance payments we would eventually be given a pension large enough to keep us out of poverty in old age. For decades this seemed to be a correct assumption, the pension was linked to the national average wage and rose steadily. This linkage was destroyed under the Conservative government prior to 1997 and despite promises to the contrary in their election manifesto New Labour has failed to reverse the decision relying instead on an ever-increasing flow of means-tested benefits. The basic pension is no longer enough to keep the recipient out of poverty, this is the root cause of the present situation.
There remains one thorny problem as far as I am concerned, what does ‘subject to affordability’ mean? Depending on which measure of China’s national product you use, the UK is either the fourth or fifth largest economy in the world. Are we really being told by government that the country we worked and fought for cannot afford to allocate a slice of national income large enough to support a decent pension administered in a way that preserves the recipient’s dignity and self-respect?
I know I shall be accused of over-simplification but I see no restraint in spending on useless nuclear weapons programmes, foreign aggression, mal-administration of the machinery of government and the ever increasing use of ‘government advisers’. The question arises as to what the priorities of government are. I’m afraid I’m a cynic, we are yesterday’s women and men, our day of power is past, we can expect no better treatment. Unless of course we wake up and realise that with the gradual change in the proportion of our age group to the rest of the population it is inevitable that eventually we shall become the majority. It may be that the age of Grey Power is coming and that this might well be the eventual answer to the question of allocation of national resources to pensions. That day might be closer than anyone thinks.

8 April 2006