Tuesday, April 04, 2006
Dying Old and Poor? Pensions Matter a Lot
Thus began the editorial of the Daily Telegraph 13th October 2004(Thatcher's birthday I add irrelevantly). I certainly thought pensions were boring and even considered drawing out my benefits at one stage in my youth, calculating I needed the money more at that age rather than later when I was sure 'something would be in place'. Well, luckily I kept my benefits where they were and just as well. I found that at the age of 46 I suddenly needed a pension as a stroke, incurred while out jogging, flattened me and made full-time work no longer possible. I was lucky enough to get the university lecturer's pension complete- no fractions, the whole lot- when I was 46 and retired on medical grounds. Since then I've made a good recovery and can work part-time but that pension saved my bacon.
Our pensions crisis is caused by the combination of: the baby boomer generation coming up to late middle-age; increasing longevity making 65 too young an age to retire; the erosion of state pensions through its linkage to prices and not wages; and the disinclinationof 12 million people to save enough for their retirements. Adair Turner's report in autumn 2004 suggested changes to one or a combination of three approaches: later retirement, more taxation; or more savings. The alternative was a lower standard of living for pensioners who would in any case suffer a 20-30% reduction by 2035 if the present system is unchanged. He favoured raising the retirement age to 70 by 2050; increasing pensions in line with earnings and encouraging people to save much more than at present. Gordon Brown did not like the plans as they implied more taxation. Blair does like them and has declared he'll back them. Result? Battle royal pending between the two rivals. Can we afford it?
At present we pay only just over 60% of the median earnings in state pension compared to 85-90% in Germany, Italy and Holland. On average the EU spends 11% of GDP on pensions compared to our 6%. Seems to me- and I declare an interest!- older people deserve more rewards than they are getting, especially when company pensions are ceasing to pay 'defined benefits' and leaving savings schemes up to the vagaries of the stock markets. The basic pension needs to increase to above the poverty line and the means testing which Brown favours, targets poverty in old age to limited advantage but one third fail to fill in the comlplex forms and because savings are swallowed up during the process, means testing discourages saving as the system robs the saver of any advantage.
Pay up Gordon or you'll lose the 'grey vote' and lose even more local government seats in the coming elections. They may not mean much to the 25-40 cohort now, but, boy, in 20 years time they will.