Unfair, unwanted and unnecessary - the latest pensions betrayal
Posted by Christie Malry on October 26, 2010 at 10:32 am
Perhaps it's a bad idea to get worked up about policy proposals that have only been leaked - in a very tentative and outline form - to the Daily Mail. But the coalition government's ideas for reforming the state pension are shaping up to be a complete disaster.
Work and Pensions Secretary Iain Duncan Smith and Pensions Minister Steve Webb are suggesting a new ‘single tier’ state pension which would replace all existing payments. If paid at the expected £140 a week, that would mean an income of £7,280 per year or £14,560 for a pensioner couple.
This all sounds good, doesn't it? Well, no. It marks the final nail in the coffin of the origin of the modern welfare state - that the benefits you take out are commensurate with those you pay in. Beveridge's vision was that it was necessary for people to pay in to the system in order to bind them into a contract with the state and to prevent the moral hazard of rewarding those who pay in nothing. That would end with a state pension based on residency only, with no variable portion related to contributions.
The proposed changes will penalise heavily those who paid additional amounts to the state to buy extra years of national insurance. It looks like it may completely kill off the State Second Pension (S2P). So all those people who have contributed into S2P (and SERPS before it) may find they get nothing for their many years of contributions. Could this be the final irony - that those who opted out of SERPS - having been told for many years they were stupid for contracting out of SERPS and should get back in immediately - were right all along?
It's also yet another very unwelcome change to the state pension system, after so many years of tweaks here and tweaks there. The 1997 pension tax credit change that Gordon Brown brought in was very damaging. And then the 2006 A Day regulations were supposed to be a wholesale bonfire of pensions law that was supposed to put us in good stead for a generation. It hasn't even lasted five years.
While government keeps tinkering with long term saving, people won't bother with it. If they think they're going to get ripped off or trapped in a dead end savings scheme, they'll spend their money elsewhere. And all the while, people aren't saving enough for their pension. Spending money is good for the economy now. But a generation of poor pensioners and their welfare and healthcare bills comprise a very shabby legacy to leave our children.
If this replaces SERPS (now S2P), then it'll give a double benefit to public sector workers. Their pension schemes are contracted out of SERPS / S2P, effectively making the employees' contributions even lower (because part of their NI payments were diverted into the pension scheme). So now they will get the full public sector employees' pension AND the higher basic State pension.
I'm sure that government is convinced that people don't understand S2P, so they feel they can safely remove it and nobody will notice. You're dead right about the public sector benefit, too.