Grey Doubt – Is there really a future for the state pension at all?
The recent proposal to raise the state pension age to 70 has met with a predictably mixed response varying from those who regard it as outrageous to those who regard it as sensible. But is it the state pension itself which is heading for retirement?
First of all let’s point out that what I refer to as the Worldwide Liberal Democratic Project has at it’s core the reduction of the role of and dependency on, the state. In the UK a key example is the “Workplace Pension” scheme. This is in it’s early days and may be regarded as a live experiment, so expect much development in the years to come.
Info on Workplace Pensions here https://www.gov.uk/workplace-pensions
Whatever happens though my guess is that this scheme will, in some form or by another name, replace the state pension as we know it, by forcing as it does, employers and workers to contribute to a scheme in which they have some choice (in terms of where they invest and when they take the benefits) rather than by taking money off everyone and then handing it out at a flat rate to those who are over a certain age regardless. This direct taxation approach creates the so-called “dependency ratio” of those who are working and paying taxes to those who have retired and are (generally) not paying taxes. Predictions are that the ratio will increase substantially over the coming decades, though the UK is not in a particularly bad position compared to other developed countries.
The state pension, being fed by taxation rather than drawing from an invested state pension fund, is thus a growing liability and it is understandable that the government should develop a scheme which transfers the risk to the individual worker and business. However this is, I would suggest, merely changing the form of dependency, not removing it and however pensions are paid, the cost will become ever greater to those who are paying it, whether through compulsory private contributions or rather more old-fashioned forms of taxation.
Indeed, when and if the Workplace Pension scheme replaces the state pension then there will still be a need to provide for those who have worked insufficiently to have amassed a worthwhile pension, but again, my guess is, such provision would be made not by direct taxation but by a levy on scheme providers. So, those who have, will still pay for those who have not, one of a civilised and prosperous society’s Great Unavoidables.
Meanwhile the state pension as we know it remains one of the two pillars of the modern British state, along with the NHS, and while successive governments claim they worship and believe in them, they steadily chip away at their base.
But speculate as one might about the future the facts about the present, and what they mean for that future make interesting reading.
First of all, the majority (77%) of pensioners have some either a personal or occupational pension. However the proportion of those currently working and accruing some kind of non-state pension is a minority (under 40%)
Check the info from the Pensions Policy Institute
https://www.pensionspolicyinstitute.org.uk/default.asp?p=82
https://www.pensionspolicyinstitute.org.uk/default.asp?p=81
Secondly the average retirement age whilst it is still way short of 70 is increasing
Here’s what the Office of National Statistics has to say
Their comments on demographic inequalities whilst a statement of the obvious are nevertheless significant, perhaps of the greatest sigificance in all of this.
Then there’s the question of future employment and wage levels. Would anybody be reckless enough to suggest where we will be in 30 years time? And what work will be available to those who are older and may suffer some decline in their working capacity? I’d like to be positive, but optimism in economics is the ultimate recklessness, and it may be worth pointing out that the author is “between jobs” at 57 and has taken over a year and substantial volumes of applications before being shortlisted this week.
Whatever, the future seems inevitably one of more people needing retirement provision. If we are to keep the state pension at it’s current level, let alone raise it to a decent level, this will mean a rise in taxation to accomodate it. This is something the Amateur Analyst don’t see any government doing or even mentioning, hence the current distraction technique of the recent age-rise proposals and the onward march of Workplace Pensions.
And don’t forget we haven’t even mentioned the other costs and problems associated with an ageing population!
You’ll excuse me finishing this post in a hurry but I have to go to the toilet…
Jonathan Whiffin 