Most progressive legislation in the UK has struggled to reach the statute books. As far back as the 19th century, measures to end child labour, limit adult working hours and improve factory safety were resisted on the grounds they would make Britain “less competitive”. Now, where have I heard that before? Similarly, there was opposition to state-funded old age pensions as they would “discourage thrift” and reduce “personal responsibility and independence”.
Other countries got there first. Germany’s Old Age and Disability Bill of 1889 introduced pensions for the over-70s. A non-contributory scheme was set up in New Zealand as early as 1899. Such schemes encouraged British campaigners, giving rise to the slogan, “A Free State Pension of Five Shillings a Week”. The slogan may not have rolled off the tongue, but it was heard by the Liberal government after its landslide victory in 1906. The Old Age Pensions Act of 1908 paved the way for the UK’s first age-related benefit scheme.
It wasn’t particularly generous and far from universal. As Chancellor, Lloyd George said: “It’s not much, unless you have not got it." It was means tested with a sliding scale. Five shillings (25p), around £20 in today’s terms, would be paid weekly to those aged 70 and over, having an annual income under £21. Those with annual incomes greater than £31, would get nothing. Not all Liberal MPs were onside. Harold Cox, spoke against giving pensions to “all blackguards”, resulting in an amendment disqualifying any person deliberately making themselves poor, been imprisoned or convicted under the Inebriates Act. Paying for the new pensions was an immediate concern, addressed in part by the “People’s Budget” of 1909 and the 1911 National Insurance Acts, which also tackled poverty arising from unemployment and sickness. The 1946 National Insurance Act was a further attempt to defray the growing cost through workers’ contributions.
Funding the state pension has continued to be something of a hot potato. Improving life expectancy has steadily increased the number of those living long enough to pass go. The current 12 million is estimated to rise by around 40 per cent over the next 20 years. That has significant political as well as economic implications. The last Labour government did much to lift pensioners out of poverty. In 2010 it introduced the “Triple Lock”, designed to protect the value of the state pension against inflation. It probably seemed a good idea at the time, but the Triple Lock has become a challenging economic and political conundrum for successive prime ministers and chancellors. Conventional wisdom suggests the “grey vote” leans markedly towards the Conservatives. Concern over pensions was probably a clincher for many of the 65 and overs who voted No in the 2014 independence referendum. As a result, all parties, especially the Tories, when contemplating the Triple Lock, will recall the old Scots’ motto, “Wha Daur Meddle Wi Me?”
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The post-Covid economic challenge may present the greatest threat to the protected status of the Triple Lock. The negative impact of the first lockdown on wages, means this year, one “leg” of the Triple Lock, the annual rise in average earnings, will trump the other two “legs”, inflation and the baseline 2.5%. Some economists have predicted annual wage inflation over the past year could be as much as 8%, resulting in a pensions hike costing the Treasury around £4 billion. How justifiable is a bonanza on that scale for all pensioners when the working age population, particularly the young, are facing tough times?
As I’ve written before, we over-65s aren’t a homogeneous group. Are we well off or not? Well, some are and some aren’t. The top 10% of over-65s have net annual incomes of over £36,000 while the bottom 10% struggle by on £7,000. The Scottish Government recognises that “pensioner poverty and material deprivation present a mixed picture”. The most comfortable have benefited from surging house prices, final salary pensions and inheritances. Damnably, the poorest are least likely to claim pension credit and housing and council tax benefits. We have a widowed friend living solely on her state pension, but steadfastly refuses to claim the benefits to which she is entitled.
It’s sometimes argued large increases are justified because UK pensions are amongst the lowest in Europe. Fact checking that claim is not straightforward. Raw data suggests we do lag behind our neighbours, The Netherlands and Denmark in particular. As other countries use more complex formulae, like for like comparisons are difficult. Unlike the UK, some countries such as Germany and France, have no upper limit for pensions that are based on previous earnings. Pensions paid to higher earners, therefore tend to distort the average level of payment. Irrespective of how average pensions are calculated, there’s no getting away from the fact that we are heading towards a funding crisis. That crisis can only get deeper when Mr Johnson enters the long grass to retrieve his promise of totally reforming the elderly care system. Whatever the outcome, it’s morally and economically unacceptable that the shrinking working age population is taxed ever more heavily to sustain the ever-growing Dad’s Army of elderly.
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It will take huge political will to come up with an answer. Are politicians willing to alienate the grey vote? Mr Johnson just wants to be loved, but he knows a suicide mission when he sees one. He will likely procrastinate until safely out of the firing line and it becomes someone else’s problem. The answer is not straight forward, but better off pensioners need to contribute more and the state less. Is inheritance tax, for example really that iniquitous? In the interest of fairness, unpicking the Triple Lock is as good a place to start as any.
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