Trouble with politics of pensions

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Published: 15 April, 2010

What explains the low level of state pension in the United Kingdom compared with the rest of Europe and what can be done about it? Pensions activist Hugh Lowe (above) examines the problem

• THE government- appointed Pensions Commission (2004) concluded that the UK pension system was probably the most complicated one on Earth and the state pension one of the least generous in the developed world.
The cause can, at root, only be political in my view although at first sight it appears economic and financial.
A bit of history. 
Until the British state pension was born 101 years ago either you were a high-earner, saved up and invested for a pension or you depended on charity or the workhouse.
The state pension, which is funded by National Insurance contributions, partly removed this dependence on saving money, which average and poor workers hadn’t got, for the first time in British history. The level of NI contributions (paid by both employers and workers) must obviously determine the level of the state pension; and common sense suggests that the low level of NI contributions in Britain, particularly from employers and high-earners, accounts for the low level of the British state pension (less than £100 week) compared with the rest of Europe.
The inadequacy of the state pension prompted trade unions to seek a way out of pensioner poverty for their members. In the private sector they took the route of negotiating occupational pensions for favoured groups of workers. Paternalistic employers had introduced these for their workforces as a fillip, less costly than wage increases, and were willing to negotiate
With hindsight neither side seems to have really understood what they were doing but employers came out of their dreams, turning into nightmares, first and started to close or alter these schemes unilaterally – and are still at it. Few are now left for today’s workers to inherit.
The returns on the invested pension contributions were nothing like enough to pay the promised pensions, not even with tax and NI breaks, mainly for the well-heeled. Schemes spiralled into deficits as investment returns fell in a series of bursting bubbles and as predatory bank and fund managers charged more and more for less and less investment returns.
Neglect of increasing life expectancy did not help to balance the books either.
The root of the trouble was and, after all that has happened still is, that at the mention of investing on the stock market, eyes glaze over, mouths drool and reason and arithmetic, which did also predict the financial crash, goes out of the window.
Nonetheless we are all now being exhorted to turn the clock back to a grim time when saving for a pension was the only option. 
This skimming of the financial surface leaves out a great deal else about pensions, pensioners and their future.
For instance public services such as health and social care, free public transport etc are particularly important for pensioners and nearly everybody will need them one day.
The most efficient way to deliver them is “free at the point of use and paid for out of general taxation,” which the NHS pioneered.
For instance the Freedom Pass, which is indirectly paid for by taxation on Londoners, reaps the reward in later life of an average of about 19 years of totally free London public transport. A bargain.
Too simplified an account of the pension system or a mere list of pensioner demands, which I have avoided at the expense of wider cover, can be very misleading and anyone who really wants to understand the system should at least take the trouble to read, for example, a pamphlet – The Politics of Pensions – from the National Pensioners Convention 19-23 Ironmonger Row, www.npcuk.org price £1. Or the Chapter Who Stole our Pensions in the book Who Runs Britain?  by Robert Peston. 
Your local library probably has it.
Failing to do this kind of mental donkey work and/or not joining campaigns for a better welfare state could make you an unnecessarily poor, hungry and cold pensioner.
• Hugh Lowe, is on the committee of the Greater London Pensioners Association