There is no substitute for the state pension

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There is no substitute for the state pension

Rodney Bickerstaffe, The Guardian
Monday September 29, 2003

Very few governments, regardless of their persuasion, have the necessary political foresight to make decisions that take into account the needs of both today's and tomorrow's population.

All too often a political system that encourages parties to focus on securing victory in brief, five yearly intervals, inevitably leads to policies based on short-termism.

Seldom does any minister declare that he or she has an eye on the bigger picture.

Under such circumstances, why should politicians worry about the effects of decisions taken today, when the likelihood is that some other party will be in power and have to deal with the problem when the policy of the current regime starts to unravel at some point in the future?

Regrettably, nowhere is this lack of political vision more apparent than in the malaise surrounding the issue of pensions and the challenge of how society can best provide financially for its members' retirement both now and, just as importantly, in 15 to 50 years' time.

It is widely accepted in Europe and elsewhere that we have an ageing population. This is something to be celebrated rather than condemned as some would have us do; for, despite the ratio of working people to retired falling over the next 30 years, the nation's wealth, through increased productivity and growth, will continue to exceed what is needed in order to provide financial security in our retirement.

The response to such developments - such as the proposals to raise the age at which people can draw their state or company pensions, hidden behind the call for equal opportunities - are evidence of the short-termist, knee-jerk approach that suffocates the development of a coherent pensions policy.

Putting faith in the private sector to assume the main responsibility for pension provision over the coming decades, as advocated by the government, is the kind of policy that will come back to haunt us - not the ministers who encourage it, who will have since shuffled off the political stage but the workers who retire in 30 years' time only to find they were conned.

Remember the previous Conservative administration's hyperbole in persuading millions to opt out of the state earnings related pension scheme (Serps), only for it to be revealed years later that those individuals would have received higher payouts if only they had left their money in the state scheme?

It would be an act of intellectual immorality if such a mistake were to be repeated.

Recent events have also proved where the weakness in the government's current pension policy lies. The private pensions industry has been dogged by corruption, scandal and mismanagement on a global scale and the fall in the stock market has wiped millions from pension values.

Even the solid rock of occupational pensions, which successive governments have relied on to enable them to devalue the basic state pension, has now been hit by a landslide.

Every week another well known company closes its final salary pension scheme in favour of a more risky and less generous alternative.

Evidence also suggests that the US-style insurance scheme to safeguard pensions when firms go bust, currently being floated by the British government, is likely to fail. The pensioners of tomorrow are being forced to put their retirement into a system based on the high cost, high risk principles of the casino.

Based on the continued pursuit of the government's existing pensions policy, what little retirement the next generation of pensioners will have will be spent subsisting on means-tested benefits.

Already the government is extending means testing to half of all existing pensioners, through the introduction of the extremely complicated pension credit.

It will be ineffective at getting money to those who need it most, expensive to administer and turn the stigma of means testing into a purported virtue.

Even a leading member of the government's pensions advisory group has warned that as a result means testing will become "a majority sport".

The policy will undermine the very thing that can offer a solution to the pensions crisis and provide real financial security for generations to come.

The state pension, despite its current inadequate level and the need to widen its entitlement, still offers the most effective way for society to provide for its collective retirement.

The pay-as-you-go national insurance system enshrines the co-dependence between the generations and, unlike the private pensions industry, it works.

Of course, for many of today's pensioners time is a luxury they cannot afford. That is why an immediate £25 a week increase for every one of them is needed, along with a commitment to bring future increases in line with earnings. Additional non-means tested help for the over-80s and many women pensioners without full contributions are also essential.

Just as important is the need to start the debate about how the state pension system can be reinvigorated so that it provides a decent income in retirement that people can live on, set at least at one-third male average earnings.

In the meantime, with the general election now less than two years away, some MPs would do well to remember the 11m pensioner votes if they wish to keep their own generous pensions.