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Pensions fairness to the next generation demands that we adapt to new circumstances Pensions fairness to next generation demands that we adapt to new realities
(35 minutes later)
The fastest way to stop people reading an article is to type the word “pensions.” But I’m going to persist today in the hope that it may help prevent you ( yes, I mean you) making the familiar mistake that many others made – including me – in taking little or no interest until long after we should have done. The fastest way to stop people reading an article is to type the word “pensions”. But I’m going to persist today in the hope that it may help prevent you making the familiar mistake that many others made, including me, in taking little or no interest until long after we should have done.
I know, I know, it may all seem both unaffordable and a long way off, even longer as successive governments push back the retirement age for drawing the state pension to reflect rising longevity and therefore rising costs. Ex-CBI boss, John Cridland (born 1961), was appointed yesterday to stage another review focused on fairness in future reforms. I know, I know, it may all seem unaffordable and a long way off, even longer as successive governments push back the retirement age for drawing the state pension to reflect rising longevity and therefore rising costs. The former CBI chief John Cridland (born 1961) was appointed on Tuesday to stage another review focused on fairness in future reforms.
Good. Fairness matters even more when growing unfairness is so visible in society.Good. Fairness matters even more when growing unfairness is so visible in society.
I was very struck when François Hollande was grappling with modest French pension reform in 2013 (unlike some leaders, Hollande does have a reverse gear) that special allowance was envisaged for manual workers who could no longer do at 60+ what they had done at 25. Unlike many of those who sit at a desk, including me. And do I hear teachers protesting that they can’t easily handle rowdy classes in old age either? Good point. I was very struck when François Hollande was grappling with modest French pension reform in 2013 – unlike some leaders, Hollande does have a reverse gear – that a special allowance was envisaged for manual workers who could no longer do at 60+ what they had done at 25. Unlike many of those who sit at a desk, including me. And do I hear teachers protesting that they can’t easily handle rowdy classes in old age either? Good point.
There’s some talk of similar sensitivity in today’s Guardian and other speculative reports about what Cridland, a level-headed operator, might consider. By linking pension entitlement to the number of years an individual has paid in – a central calculation in the French pension system – here’s an expat’s guide – a change in Britain would mean that early school leavers would be able to access their pensions earlier. Women who take time out to raise children and graduates who start late would suffer, of course. There’s some talk of similar sensitivity in Wednesday’s Guardian and other speculative reports about what Cridland, a level-headed operator, might consider. By linking pension entitlement to the number of years an individual has paid in, a central calculation in the French pension system – here’s an expat’s guide – a change in Britain would mean that early school leavers would be able to access their pensions earlier. Women who take time out to raise children and graduates who start late would suffer, of course.
As things stand women born after 1950 but before 1953 face a sharp rise towards equalisation of the pension age at 65. Both sexes then head hand in hand towards a retirement age at 66, then 67 and 68 by 2028. George Osborne and Iain Duncan Smith’s new “flat rate” state pension at £155 per week will also generate a lot of collateral damage. Ros Altmann, the former Saga lobbyist/poacher turned pensions minister/gamekeeper, admits the deal was oversold. As things stand, women born after 1950, but before 1953, face a sharp rise towards equalisation of the pension age at 65. Both sexes then head hand in hand towards a retirement age at 66, then 67 and 68 by 2028. George Osborne and Iain Duncan Smith’s new “flat rate” state pension at £155 per week will also generate a lot of collateral damage. Ros Altmann, the former Saga lobbyist/poacher turned pensions minister/gamekeeper, admits that the deal was oversold.
Despite EU pressure to curb its pensions deficit the French retirement age rose only from 60 to 62 in 2010 and in 2013 Hollande settled for stretching the contributions rules and other tweaks, so that people will have to choose to work longer if they want to draw their full pension, generous by our standards, on retirement. Industrial action is a regular brake on this kind of reform. Whether it proves smart for France in the longer term remains to be seen. Despite pressure on France from the EU to curb its pensions deficit, the French retirement age rose only from 60 to 62 in 2010 and in 2013, Hollande settled for stretching the contribution rules and other tweaks, so that people will have to choose to work longer if they want to draw their full pension, generous by our standards, on retirement. Industrial action is a regular brake on this kind of reform. Whether it proves smart for France in the longer term remains to be seen.
What drives it all in Britain, France and all mature economies is affordability when we’re living so much longer, a miracle of our time, though the cost implications for pensions, social care and the NHS are alarming. The state, local authorities and families – above all, families – keep ducking a serious conversation about it. Many struggle as a result.What drives it all in Britain, France and all mature economies is affordability when we’re living so much longer, a miracle of our time, though the cost implications for pensions, social care and the NHS are alarming. The state, local authorities and families – above all, families – keep ducking a serious conversation about it. Many struggle as a result.
Everyone’s circumstances are different. Neither of my parents lived long enough to draw a pension. My engineer brother who worked until 70 is in pretty good health at 75. Our two sisters, 66 and 74, still teach occasionally. I’m typing this. Better medicine and healthier medicine has kept us going, as it has my wife who started work at 15 and stopped at 60. The housing association for which she raised so much money messed up her occupational pension. Mine is fine, though the Guardian moved from a final salary link to a defined benefit pot (ie you get what you and your employer put in) 25 years ago, ahead of the pack. Everyone’s circumstances are different. Neither of my parents lived long enough to draw a pension. My engineer brother who worked until 70 is in pretty good health at 75. Our two sisters, 66 and 74, still teach occasionally. I’m typing this. Better medicine and healthier medicine has kept us going, as it has my wife, who started work at 15 and stopped at 60. The housing association for which she raised so much money messed up her occupational pension. Mine is fine, though the Guardian moved from a final salary link to a defined benefit pot (you get what you and your employer put in) 25 years ago, ahead of the pack.
Rightly so in my view, open-ended commitments are unsustainable as retirement extends into the 80s for many people. When Lloyd George introduced the first pension of 5 shillings a week (25p at a time when a labourer’s wage was £1.50 ) recipients had to be over 70, not jailed in the past 10 years and means-tested. Rightly so, in my view, open-ended commitments are unsustainable as retirement extends into the 80s for many people. When Lloyd George introduced the first pension of five shillings a week (25p at a time when a labourer’s wage was £1.50 ) recipients had to be over 70, not imprisoned in the past 10 years and means tested.
The average age of death in 1908 was 55 and the lucky 500,000 who drew it didn’t often do so for long. But they were bloody grateful. Today there are 12.5 million Brits of pensionable age (30% of the working population) and their future life expectancy – is between 22 and 24 years. The average age of death in 1908 was 55 and the lucky 500,000 who drew it didn’t often do so for long. But they were bloody grateful. Today there are 12.5 million Brits of pensionable age, 30% of the working population, and their future life expectancy is between 22 and 24 years.
Something has to change, we can all see that. Fairness to the next generation demands that we adapt to new circumstances. Thoughtful former minister, David Willetts, who now chairs the Resolution Foundation ( it was me who coined the nickname “Two Brains”), has long written about inter-generational fairness. Here is ex-Lib Dem minister, Steve Webb’s contribution on efforts to get younger workers to save when their pay is already stretched, most notoriously by high rents. Something has to change, we can all see that. Fairness to the next generation demands that we adapt to new circumstances. The thoughtful former minister David Willetts, who now chairs the Resolution Foundation (I coined the nickname “Two Brains”), has long written about intergenerational fairness. Here is the former Liberal Democrat minister Steve Webb’s contribution on efforts to get younger workers to save when their pay is already stretched, most notoriously by high rents.
They’re both dogged optimists. But it needs voters to think seriously about their own future too, the state can’t carry it all. They’re both dogged optimists. But this issue needs voters to think seriously about their own future – the state can’t carry it all.
But fairness should also focus on where the state’s incentives (ie its subsidies in terms of tax allowances) to save are best focused. Webb, who worked with George Osborne to bring about “pensions freedom” which allows older people to access and spend their pension pots as they see fit (I remain very suspicious of Webb’s “Lamborghini” option), is now alarmed that the Treasury is poised to whack allowances (again) in the 16 March budget. Fairness should also focus on where the state’s incentives (its subsidies in terms of tax allowances) to save are best focused. Webb, who worked with Osborne to bring about “pensions freedom”, which allows older people to access and spend their pension pots as they see fit (I remain very suspicious of Webb’s “Lamborghini” option), is now alarmed that the Treasury is poised to whack allowances (again) in the upcoming budget.
Why ? I won’t go into the details here. Older readers already know them and younger ones don’t care. But basically the justification which will fall from Osborne’s mouth is that most of the multi billion allowances help the better off, those on higher tax rates whose pension contributions are not taxed. That means it costs a basic rate taxpayer 80p to save £1, his boss much less. Why? I won’t go into the details here. Older readers already know them and younger ones don’t care. But basically, the justification that will fall from Osborne’s mouth is that most of the multibillion-pound allowances help the better off, those on higher tax rates whose pension contributions are not taxed. That means that it costs a basic rate taxpayer 80p to save £1, their boss much less.
Levelling out the rate of tax deductibility at 25% or 33% for everyone strikes me as the fairest of many options being floated ahead of budget day. The chancellor will probably also do some tweaking which only hurt wealthier savers, further reducing the tax deductible amount they can save each year for example. It’s currently £40,000, so you needn’t worry too much. Levelling out the rate of tax deductibility at 25% or 33% for everyone strikes me as the fairest of the many options being floated ahead of budget day on 16 March. The chancellor will probably also do some tweaking that will only hurt wealthier savers, further reducing the tax deductible amount that they can save each year for example. It’s currently £40,000, so you needn’t worry too much.
But remember, much of what Master George does on the tax front now is designed to rake in revenue upfront and not worry about what happens when he himself has retired in 2038 when he’ll be 67. Anyone buying a Lamborghini instead of an annuity will be paying a lot of tax now, though they might end up on welfare after their bad eyesight lets them hit a bus with it. But remember, much of what Master George does on the tax front now is designed to rake in revenue upfront and not worry about what happens when he has retired in 2038, when he’ll be 67. Anyone buying a Lamborghini instead of an annuity will be paying a lot of tax now, though they might end up on welfare after their bad eyesight lets them hit a bus with it.
But if you’re 25 don’t be too gloomy or feel defeated. Do Something. Things will change in ways we can’t imagine, some of them for the better. The baby boomers’ luck (being born in the post-war decades was really lucky) may run out, yours may unexpectedly brighten. Not all boomers are well off. And the boomers’ turn to be dead will come before yours. No more chardonnay and Mediterranean cruises then, eh. But if you’re 25, don’t be too gloomy or feel defeated. Do something. Things will change in ways that we can’t imagine, some of them for the better. The baby boomers’ luck (being born in the decades after the second world war was really lucky) may run out, yours may unexpectedly brighten. Not all boomers are well off. And the boomers’ turn to be dead will come before yours. No more chardonnay and Mediterranean cruises then, eh.