Neil Duncan-Jordan explains why pensioner poverty is on the increase and the importance of campaigning for a ‘living’ state pension
No-one is ever interested in pensions until they get near to retirement, and yet they are such an important part of the drive for social inclusion, dignity and equality.
Fundamentally, if you are low paid throughout your working life then you can be assured of having a low pension in retirement.
For years successive governments have looked to a robust personal and occupational pension system to offset the need for a decent state pension, but this approach is now completely out of step with what faces millions of people at work. Most final salary company pensions have closed to new entrants, many have changed their terms for existing members and some have even gone bust completely. Equally, new auto-enrolled pensions are a poor substitute.
Meanwhile the state pension has been consistently undermined:
- In the 1980s the Thatcher government broke the link between the state pension and earnings;
- The abolition of SERPS (State Earnings Related Pension Scheme);
- The introduction of widespread means-testing;
- Changes to the state pension age;
- The removal of the Retail Price Index (RPI) from indexation arrangements;
- The Pensions Act 2014, which was an attempt to portray a long-term cut in value, as a ‘mere simplification’.
Winning the race to the bottom
Recent analysis shows that today’s UK pensioners have one of the least adequate state pensions in the developed world, with the OECD now rating the UK at the very bottom of the league table for the first time ever. It means someone entering the British workforce today can expect to receive less than a third (29%) of their final working salary as a basic pension after tax. This is considerably lower than the 50% of salary that those who entered the labour market in 2002 would have received.
By comparison, elsewhere in the developed world the average worker can expect 63% of their salary as a state-funded pension. The OECD also acknowledges that current poverty levels among those aged 75 and over are 18.5%, compared to 11% among the whole population and just over 10% for the age group 66-75. As a result, pensioner poverty is on the rise for the first time in twenty years, with an additional 300,000 more pensioners now living in relative poverty than four years ago.
A recent National Audit Office report also found that 76% of people reaching retirement in 2060 will be worse off under the new state pension than if they had been on the old pre-April 2016 system, and whilst future pensioners may no longer have the cushion of a reasonably good occupational pension to fall back on, they also face an unprecedented rise in their state pension age. This will inevitably have the greatest impact on many of our poorest workers.
The fact that a number of universal benefits such as free bus passes and a winter fuel allowance are available to pensioners is in part an acknowledgement that the state pension is simply not enough to live on. The need for a decent, living state pension for all is therefore overwhelming.