Put simply, unless we act, tomorrow’s pensioners will be poorer than today’s, because people who are saving aren’t saving enough for their retirement. And crucially, because almost half of the working-age population isn’t saving anything for their retirement at all.”
It’s fair to say that the secretary of state for work and pensions, Liz Kendall, has had a challenging time of it since she took her first ministerial job a little more than a year ago. But that doesn’t mean that everything she says is wrong – or that every initiative she takes should be doomed.
On pensions, she seems determined to make sure she’s not forced by the Treasury into another precipitate and politically disastrous move before first winning the arguments on reform, not least within her own party. State and private pensions are ripe for further restructuring, as is the wider social security system, and the country cannot afford another debacle on the scale of the recent welfare reform bill. Neither can Ms Kendall, or her impatient colleague, the chancellor.
Fortunately for the government, much of the background work was completed some years ago, and the machinery to reshape policy is available “off the shelf”. The Pensions Commission, which last reported in 2006, was a rare success in that many of its recommendations were actually implemented and proved to be highly successful.
Now, for example, some 88 per cent of workers are auto-enrolled into a private pension, with at least 3 per cent of their salary paid by their employer into an approved scheme. The result is a widespread, but still inadequate, building-up of private pension provision.
Not enough is being put aside for old age and infirmity, particularly by younger workers – who, tragically, have the most time on their side to make their savings grow – and the self-employed.
The UK, post-Brexit and in a more unstable world, is hampered by low investment, sluggish productivity growth, an expensive national debt, and a seemingly intractable cost-of-living crisis.
As Ms Kendall points out, the triple lock – which guarantees that the state pension rises in line with inflation, or wage increases, or by 2.5 per cent, whichever is the greatest – costs some £31bn a year; even if this figure stabilises as inflation subsides, an ageing population, living longer but in poorer health, will push the overall cost of state retirement age benefits well beyond the current figure of about £140bn a year, or 5 per cent of GDP.
Given that these benefits constitute by far the largest component of the total social security bill, welfare reform is impossible without some way of putting them on a more sustainable footing.
To the dismay of some, Ms Kendall has taken one immediate step in that direction by bringing forward the next statutory review of the state retirement age, which has already been raised by successive governments. While natural justice and practicalities will protect many who are now in their sixties, for those currently in their forties and fifties, facing further postponements in their state pension eligibility is akin to chasing the proverbial pot of gold at the end of the rainbow (and it’s not that golden, either).
It is true that life expectancy nowadays is far higher than when the Liberal chancellor David Lloyd George established the state pension in 1908 – it now stands at 82 years, against 52 in the Edwardian era – but no one can make sensible provision for their retirement if their state entitlement keeps disappearing over the horizon. If it is to be raised – perhaps to 70 or so – to take account of (sometimes expensive) advances in healthcare and a changing society, then it should be kept there permanently.
There is, therefore, much for Ms Kendall and the Pensions Commission to do – especially in making the country, and particularly the parliamentary Labour Party, face up to those “tough choices” that politicians themselves so often talk about but ultimately duck. Policy must be evidence based, and thus persuasive, and the commission will help with that.
One thing that would be highly perverse in this context would be for the chancellor to attack savings, and tax pension pots, in her next Budget. Rachel Reeves herself has spoken of the imperative to increase investment by pension funds in productive infrastructure schemes. It would hardly be sensible, then, to start taxing them even more heavily, or to force them into unsuitable or risky pet infrastructure projects that will leave pensioners shortchanged.
The updated strategy for pensions, both state and private, will also need to be meshed with whatever reforms to the way we pay for social care eventually emerge from the Casey Review, commissioned by Wes Streeting. Younger folk have more than enough to deal with today, and find saving difficult. Yet one distant day, when they are too old or sick to work – unlikely as it may seem now – they might be grateful that Ms Kendall, otherwise long forgotten, put provisions in place to make their lives a little easier.
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