When Mr Asquith designed the old age pension, which began on 1 January 1909, it was five shillings a week (equivalent to less than £30 now), and was paid only to people over the age of 70. At the time, the average lifespan of men was 48 and women 52. Last year, the total pensions bill was £110 billion, and by 2025 it may be £135 billion, or more than the total expenditure on defence, education and by the Home Office combined.
The mounting bill is partly the result of greater longevity (men now live to 79 and women 81), but also down to the rise in real value (the basic individual state pension now is £203.85) and the “triple lock” that ensures the pension rises by whichever is the largest of inflation, annual wage rises or 2.5 per cent. This year the rise was over 10 per cent. It is unaffordable, and unsustainable.
Perhaps an awareness of that reality caused 30 per cent of respondents to a recent poll to say they did not believe the state pension would exist in 30 years; many others thought that they would not retire before their 70s, if at all. If this is true – and it may well be – it is another blow for the generation now in their 20s and 30s.
As it is, they earn low real incomes, often cannot afford even to think of becoming property owners, and their best bet financially is to rely on subsidy from their more fortunate parents, or to wait for their inheritance – or that part of it not plundered by the Treasury.
If pessimism about the future of pensions is justified then politicians – not merely the current Government, but those who aspire to form the next one – must be straight with the younger generation about it. With the present system unsustainable, the Government must think strategically about how the old age of people now in their 20s and 30s is going to be funded, to avoid the modern equivalent of a return to the workhouse.
This may require greater tax incentives to encourage payments to private pension schemes; and it requires reform of the National Insurance system, contributions to which are technically supposed to be related to pension eligibility.
The money to provide incentives to those who will not enjoy the generosity of the state in their own retirements must come from the generation who have benefited from it quite lavishly.
That means the end of the triple lock and the bankrupting rate at which state pensions rise. It means, quite possibly, a scaling down of the state pension for those with private provision and with other substantial assets, notably houses that have benefited from decades of real increases in property prices.
The Government attempts to justify the existing arrangements by saying they are “protecting the old”. An increasing number of the old, and those nearing pensionable age, need no such protection, being perfectly able to take care of themselves.
Some elderly people struggle to feed themselves and heat their homes, and those less fortunate, in a compassionate society, do merit the state’s help. However, the state’s generosity towards that generation is disproportionate, and some should be focused on improving the life chances of the struggling young.
Otherwise, the 70 year-olds of the 2060s will be as vulnerable as their Victorian forebears.
