Pensions and pensioners: when I’m 64…65…66…

The following article has been republished in full from The Pryer as the original has been archived on an old server and is no longer available. This article was originally published in June 2011. 

Chelsea pensioners

As the person most likely to reach this age the soonest on The Pryer team, I bestowed it upon myself to write a series of articles on pensions, retirement and beyond. This first article will focus on the government’s recent announcement on proposed changes to the pensions system, and its advice to take out some form of pension provision to cover the costs of retirement.

First off, I would like to point out that the government is still conducting a review into the proposed changes to the pension scheme. But only for a couple more days, so get your ideas and comments in now. This is your future.

The main issues with the current state pension are alleged to be:

§         The complexity and uncertainty of outcomes in the state pension – makes it difficult for people to know what they will get when they retire, meaning it is more difficult to plan and save for retirement.

§          High levels of means testing – can deter people from saving as the incentives are not sufficiently clear and too many pensioners are forced to rely on Pension Credit to top up their income. Around a third of pensioners do not claim the Pension Credit they are entitled to.

§          Significant inequality remains in the system – groups such as women, the low paid and the self-employed tend to have lower state pensions.

In the foreword, Steve Webb, Minister of State for Pensions writes:

“The complexity of the current state pension is a major barrier to saving. It means that few people have a clear idea of what their state pension will be worth when they retire. Not only that, the current system actually discourages saving, because the extent of reliance on means testing means that people cannot be sure they will benefit from the savings they put aside”.

On page 20, there are four quotations, two of which are not referenced, that speak of a pensions system that is “complicated” and “confusing”. No mention is made of savings. I wonder how many of you have considered not saving, purely because you were unclear about the pensions system. Did the complexity of the system discourage you from putting money into a saving account? Or, once you have found employment, are you trying to make ends meet, paying tuition fees, mortgage/rent, council tax, utilities, public transport costs etc.?

In terms of reform for a future state pensions system, the Government has four guiding principles including personal responsibility, fairness, simplicity, affordability and sustainability. I am going to focus on the principle of fairness, described as follows:

§          fairness – ensuring an adequate level of support for the most vulnerable, ensuring everyone with a full contribution record should be entitled to a state pension above the standard level of means tested support, and ensuring all groups are treated fairly.

Scottish Widows HQ (c) Qualit-E

Two weeks ago, The Guardian,  referred to a Scottish Widows report that states that half of the UK population are not putting sufficient funds aside for their retirement. According to this report, someone saving adequately for their retirement needs to put aside 12% of their salary.  On a salary of £20,000 per year, this equates to saving £2,400 of that annual salary (£200 per calendar month). Those earning between £30,000 and £50,000 are said to be preparing best for retirement, whilst high-income groups (above £50,000) are less focused. 


Although it is not clear why, I am assuming that higher earners have their funds invested elsewhere (e.g. property, ISAs). True, an assumption only, but if you had a significant amount of cash put to one side for your retirement, would you invest it in a company run by Lloyds Banking Group? For that matter, would you invest in any pensions company, given the Equitable Life debacle and concerns with defined benefit pension schemes? What this indicates is that those who are better off are more able to afford a private pension, or use other means of saving for their retirements. Does this subscribe to the guiding principle of fairness?

A key part of future pension schemes is the implementation of automatic enrolment and the National Employment Savings Trust (NEST). Those who earn between £10,001 and £30,000 a year, and whose employer has fewer than 25 staff, are a key target group for NEST, with only 11% expected to opt out of this scheme. The 21% who remain undecided, and the 68% who are currently sure, may yet change their minds if government cuts bite deeper still, and they can not afford substantial monthly payments. By targeting those who earn less, the government are failing to tackle issues of unfairness.

I note that the Scottish Widows conducted their research through YouGov. In other words, their respondents need access to the internet, which itself, is linked to socio-economic and demographic determinants including age, disability and location. Many government services are now only available online; this consultation process relies heavily on the citizen accessing this information online. In the UK, over 8.7 million adults have never used the internet, with the disabled populace accounting for almost half of that figure. In terms of the pensions discourse, is it fair to further exclude those who are already marginalised?

Returning to the Department of Works and Pensions report, increased life expectancy is cited as being a major contributory factor in the state’s inability to provide adequate pension cover.  However, whilst the government quotes life expectancy rates as rising, life expectancy hits different groups differentially; the better off you are, the more like you are to live longer and vice-versa. Those earning less have less time to “enjoy” their retirement. Fair?

The state pensions options considered in this report have their pros and cons according to its authors. There are alternatives to these options, such as those founded on ideas of social capital, which, given the Conservative party’s manifesto, I am surprised they have not made more use of. Meanwhile, the Liberal Democrat party’s manifesto talked of reducing public spending to the tune of £100 billion by not replacing the Trident nuclear weapons system. Surely that would be a saving that we could all afford; as terrorism is classed as the most significant security threat, and that terrorist cells operate in the UK, I would hope that we would not consider nuking ourselves.

Recent news reports on the changes to women's pensions further highlight the unfairness of the proposed state pension system. This article demonstrates how this new system is founded upon the same injustices and how it will replicate them. Therefore, it fails to meet the government's stated guiding principle of fairness.