Traditionally most pensioners within the UK enjoyed reasonable pensions provisions. Although State pensions were some of the worst in Europe this was buttressed by Europe’s most sophisticated occupational (paid by your employer) pensions systems. The State pension was up-rated annually by the cost of living. This was measured by the increase in average male earnings.
The Prime Minister, Margaret Thatcher, decided to sever the link with average male earnings and instead link increases to the Retail Price Index (RPI). This is an index based on a basket of goods and measured the price fluctuation in these items. There are two problems for pensioners with this change. Firstly average male earnings always exceeded the RPI and the RPI does not reflect the spending pattern of pensioners. The problem with the RPI is that it includes items that pensioners are unlikely to buy. Massive price increases in fuel and food impact badly on pensioners. For many of our poorest pensioners the choice is eating or heating. The Labour Party said in opposition that if elected they would restore the link with average mal earnings but never did so. Instead they opted for means testing. This was well intentioned as it targeted the poorest pensioners. Unfortunately it does not work. The take up rate is appalling. Many pensioners are unaware that they can obtain additional payments. Others find it too complicated to apply and a number believe “parading their poverty” is degrading. They see it as a charity and often say “I have never accepted charity before and I’m not starting now”. The administration costs of this approach are very high. The National Pensioners Convention (NPC) campaigns for universal payments. The arguments against this are that some better off pensioners would receive the payments. The contrary view is that at least the poorest pensioners would benefit and for the others some money would be clawed back in tax. I take this latter view. The Government is faced with the evidence that the number of elderly dying of cold related illness is much higher than in countries with much harsher Winters. Last year some 23.000 over 75’s were victims of the cold. Their solution to this is to provide special Winter Payments universally. This is only playing at the margins of the problem. The NPC demand universal payments for pensioners that match the official poverty line. Why can’t the Government accept our demands? The National Insurance Fund which pensioners contributed to during their working life is in massive surplus. It currently stands at a surplus of £46 billion and will rise by a further £68 billion over the next four years. This fund was designed to pay for State pensions. Amazingly, when challenged by the Government say that this massive amount of money cannot be used to uplift pensions because it has been earmarked for other purposes. Even more amazingly they say that if pensioner demands were met taxes would have to go up and “They would not get re-elected”. Only a politician could give such an answer. So the Government could meet our demands but will not. Something they may well regret come the next General Election when 12 million pensioners are more likely to vote than younger persons. In 2003 the now Prime Minister Gordon Brown, then Chancellor, added a further complication. He introduced a new cost of living index called the Consumer Price Index (CPI). The Government favoured this new index because it produced a lower figure than the RPI. As it does not include housing costs many believe it to be unfair. To bring this up to date we have now the credit crunch. As may known, most UK banks have collapsed and become nationalised. All this has made the situation worse for our pensioners. Although not strictly discrimination against pensioners it does impact more heavily on them. Many pensioners have saved all their lives for a hoped for comfortable retirement. They now find that share prices have crashed and anticipated income is no longer available. The Government is attempting to financially support mortgage lending for house purchases. To advance this policy the Bank of England have aggressively reduced lending rates. The effect of this that returns on savings are very poor and are likely to collapse to zero or beyond. It is not just those in receipt of pensions who are affected. For those in work the situation is bleak. When Gordon Brown was Chancellor of the Exchequer occupational pensions were in massive surplus. He decided to remove £5 billion per year, now amounting to over £100 billion, from such schemes. Most major employers took their lead from this and stopped paying into their pension schemes. Known as pension holidays. It appears that neither Mr Brown nor the employers realised that shares can down as well as up. Most of these schemes were defined benefit schemes based on final salary and length of service and inflation proofed. The risk being borne by the employer. Most of these schemes have been replaced by defined contribution schemes known as money purchase. The risk in these is borne by the retiree as the return they can get on the pension pot depends on rates available at the time of retirement and therefore unknown. Recent industry figures show that 90% of the defined benefit schemes face a total funding short fall of £204 billion compared with £48 billion a year ago. A further area of conflict is the difference between public and private sector provision. In the public sector, as well as an earlier retirement age than in the private sector employees enjoy final salary pensions, largely no longer available to those in the private sector. It cannot be right in my view that the ability to enjoy retirement from a financial point of view is dependent on whether or not one worked in the public or private sector. To conclude. Last year Göran Collert as our guest speaker concluded that future retirement would require working longer and saving more for retirement. This met with considerable hostility, notably from the French delegation. Whilst I reluctantly agree with Mr Collert’s view I fear that if correct the British Government has lost the plot. Means testing is a savings dis-incentive. Under the Age Discrimination Act an employee can request their employer to be allowed to carry on work after the normal retirement age. The employer can refuse such a request. I feel that rather than just exchange information from our various countries we would be much better debating the issues emanating from Collert’s thought provoking address. This would include contributions from the floor as well as the platform. We did ourselves no favours last year and we could have started to rectify this today.
BARRY INGHAM (ENGLAND)
(23rd February 2009)