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Simplicity of state pensions is not the issue: it’s how much and when that matters

IDS’ side-kick, Steve Webb, unveiled the £144 a week single-rate state pension yesterday, triumphantly noting its simplicity. So which would you have – a simple pension or a decent pension? And £144 a week, less than £7,500 a year, is not a decent pension. It’s a shameful fob-off after a lifetime of working which is now being extended to the age of 66 from 2020 and to 67 from 2028.

Britain already has one of the poorest State pensions in Europe, and the government’s latest proposal will actually lower the proportion of GDP spent on pension-age benefits from 8.5% in 2060 under the current system to just 8.1%.

The £144 a week is far, far lower than the pension that would have been paid now if Barbara Castle’s SERPS 1970s scheme had been allowed to mature and not emasculated by the Tories in the 1980s, and lower even than the basic State pension would have been if Thatcher had not broken the link with average pay in 1980.

The real issue is whether it will take pensioners out of poverty. It won’t. The proportion of pensioners today living below the poverty line, defined as 60% of the median wage which is about £390 a week today, is 17%. Sadly the government’s real aim is not lifting all pensioners out of poverty, but rather shifting pension provision away from the State to the private sector.

The proposal of a £144 a week pension is deliberately set so low that it is meant to pressurise low-paid people into saving more for their retirement. But they won’t because they can’t afford it. According to ONS only 3 million people in the private sector are saving for retirement, and the number if getting steadily less – it’s already 0.6m less than in 2008. There are altogether more than 29m people in the workforce, of whom ONS figures show 21m, three-quarters, are not saving for a pension scheme.

Offloading pensions increasingly on to the private sector is therefore a sure-fire recipe for increasing poverty in old age. The bottom quartile, the lowest 25% of persons in the income distribution, simply cannot afford the costs of supplementing a very low State pension with large private pension top-ups. That situation is made much worse by the discrediting of private pensions through a legacy of low returns, mis-selling and over-charging – the habit whereby fund managers have grown fat from applying a range of large commissions and charges that are hidden from view.

Labour should be resisting this by exposing the real ideology underlying this latest Tory device to move ever further towards privatising public services. To praise the ‘simplicity’ of the scheme is laughably to ignore, or fail to misunderstand, its real meaning. There is no alternative to a properly funded, redistributive, moderately earnings-related public pensions scheme if we really want all pensioners to be free of the misery of poverty in retirement.

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