A winner for Brown? Just boost the pension

4th February 2008
By Noel Whiteside

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The honeymoon is over and the future of the PM looks bleak. The media hawks are gathering to pick over the bones of an apparently moribund government. Parallels are drawn between the plight of Gordon Brown and that of James Callaghan in the late 1970s. The Tory front bench smells blood; David Cameron is suddenly full of confidence when facing his new opponent across the dispatch box.

In terms of electoral support, the runes are not good. Opinion polls document the corrosion of New Labour support. What our PM needs is a new policy: an option that puts the Tories on the back foot. This means a return to pension reform.

‘At our best when we’re Labour’ was the rallying cry to the Labour Party faithful last summer, to massed cheers from the rank and file. Right, Mr Brown: let’s explore a new dimension on an old issue that can win back those votes necessary to secure you victory at the polls — and a second term as prime minister.

Not pension reform again

Yes, pension reform again. Appealing to pensioners is good politics. The old cast their vote (the young do not bother). The old care about pensions (the young don’t want to worry about that now). Demographically, there are more old (or nearly old) than there are young voters. These people have an active interest in retirement and pensions: now or in the immediate future, not in forty years’ time. It has to be a sure-fire winner.

Let’s go for the big one: a proper living pension, set at pension credit level, for all citizens over 78 years old. Let us do today what every serious pensions investigator — from Charles Booth to William Beveridge to Lord Turner — has advocated for over a century. Let us guarantee a decent income for all in their declining years.

But legislation to improve pensions is already in train …

Let’s face it, Mr Brown: the current reform package is not going to work.

The Institute of Fiscal Studies, hardly a hotbed of radicalism, has calculated that the new pension policy will have no effect on pensioner poverty levels over the next decade.  In 2017-18 there will be, as now, two million pensioners in poverty.

The offer to increase the old age allowance for those over 80 from 25p to 26p per week, announced on 14 January 2008, is an insult, not a help. Research shows those most vulnerable to poverty are single old ladies living alone, unable to decipher the complex pension credit claims form and its associated encyclopaedia of instructions. One-third of poor pensioners with a right to pension credit never claim it. Looking at the benefit hoops they are expected to jump through, this is hardly surprising.

Nor is the advent of personal accounts under the National Pensions Savings Scheme (NPSS), going to make any difference. Low earners, and those who become low earners, might contribute initially, but will opt out. Think how many low-paid workers have stayed on as regular contributors to Stakeholder Pensions since 2001, Mr Brown, and you will catch my drift. Can you seriously imagine their sisters and daughters suddenly transformed into serious savers? I can’t. We live in a ‘spend now’ society, encouraged for decades by extensions in personal credit, and it will take more than another state-sponsored pension saving scheme to change that.

The problem is that most women cannot follow the male career path. Family obligations create different female working lives that impede the capacity to save regularly, which tends to decline with childbirth and the transfer to part-time employment. Such obligations also include the provision of care and support for frail and elderly relatives who would other wise cost social services a fortune — as you know, Mr Brown. Do we really want to punish people in their own old age for taking on these responsibilities?

For the elderly, the chickens come home to roost when one partner dies and the annuity dies with him (it is usually him and his higher pension income). Leaving our isolated old lady faced with the complexities of pension credit and the ever-higher household bills. Both mental and physical agility have diminished and any ability to supplement her much reduced income has long disappeared.

So getting rid of pensioner poverty means …?

The IFS Report calculates that making the basic state pension universal and raising it to the level of pension credit would cost about £15bn per year. That would certainly reduce pensioner poverty, but it would be very expensive. We think, as life expectancy rockets up, a more sophisticated approach is needed.

Here, a universal state pension at subsistence level at 78 makes good sense. None of us know when we are going to die: none of us know, therefore, how much we should save for old age. We do know that the bills will go up — both the consequence of time (since when has council tax ever gone down?) and declining physical and mental capability (more heating: warmer clothing: more domestic help). There is no rationale for punishing the old for the crime of failing to predict their own longevity.

Mr Brown, you are Prime Minister now. The Treasury days are gone: you are free from the claws of the mandarins; you have new advisers, adopt a more visionary stance. Let Mr Darling, up to his neck with Northern Rock, worry about the Treasury. If he frets about giving state support to those very old who do not need it, tell him to tax it back.

Think instead of the mass gratitude of the baby boom generation: that vast army of 55+ who are nervous about income security on retirement. And think of how that transfers into votes — for you — at the next election.

Noel Whiteside is professor of comparative public policy at Warwick University and a member of the History & Policy group – www.historyandpolicy.org

Filed Under: , Pensions, Welfare, Poverty, Pensions Reform
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