I am fortunate that I was born in 1956. Lucky me.
The Centre for Policy Studies calculates that the average person born in that year will, in their lifetime, secure from the benefits system just shy of £300,000 more than they ever paid in taxes. This is largesse unstainable.
By the ‘benefits system’, one significant component is the State Pension with its increasingly expensive ‘Triple Lock’.
Of course, many pensioners will be surprised and outraged that that their state pension is described as part of the benefits system. After all, they believe that they earned their state pension through contributions during their working life, when they paid National Insurance. They are mistaken. The State Pension is a contributory benefit: you qualify by making the requisite contribution, but you do not ‘earn’ it. National Insurance is a tax. The payments go into the same general taxation with Income Tax, Excise and VAT etc, which pays for all government current expenditure.
There is no fund where your contributions are invested to pay for your pension, as would be the case with a private or work-place pension scheme. Current taxes pay for current state pensions, and future taxes will pay future state pensioners.
If we ‘earned’ our state pension through our contributions, then we could expect to benefit from the size of the contributions that we made, which is not the case. Contributions are percentage of income, so, depending on their higher income, some workers will pay much larger contributions, but they will still qualify for exactly the same monthly benefit payment.
In any event, let’s be honest, the qualifying contributory principle has been thoroughly undermined over the years. You can qualify for national insurance contributions whilst living on social security benefits.
The Centre for Policy Studies calculates that the average person born in that year will, in their lifetime, secure from the benefits system just shy of £300,000 more than they ever paid in taxes. This is largesse unstainable.
By the ‘benefits system’, one significant component is the State Pension with its increasingly expensive ‘Triple Lock’.
Of course, many pensioners will be surprised and outraged that that their state pension is described as part of the benefits system. After all, they believe that they earned their state pension through contributions during their working life, when they paid National Insurance. They are mistaken. The State Pension is a contributory benefit: you qualify by making the requisite contribution, but you do not ‘earn’ it. National Insurance is a tax. The payments go into the same general taxation with Income Tax, Excise and VAT etc, which pays for all government current expenditure.
There is no fund where your contributions are invested to pay for your pension, as would be the case with a private or work-place pension scheme. Current taxes pay for current state pensions, and future taxes will pay future state pensioners.
If we ‘earned’ our state pension through our contributions, then we could expect to benefit from the size of the contributions that we made, which is not the case. Contributions are percentage of income, so, depending on their higher income, some workers will pay much larger contributions, but they will still qualify for exactly the same monthly benefit payment.
In any event, let’s be honest, the qualifying contributory principle has been thoroughly undermined over the years. You can qualify for national insurance contributions whilst living on social security benefits.
The generosity of our state pension depends not on our contributions but upon a ‘contract’ between generations, where current taxpayers provide the benefit for existing pensioners, in the expectation that future taxpayers will, in turn, similarly pay for the current tax-paying population when it reaches retirement.
This expectation that future generations will continue to be able to afford to pay pensioner benefits is put in jeopardy by the Triple Lock which ensures that the State Pension rises every year by whichever is the greater measure between average wage rises, inflation, or 2.5%. This year alone it adds £18 billion to the bill, a total current State Pension bill of some £150 billion annually.
This expectation that future generations will continue to be able to afford to pay pensioner benefits is put in jeopardy by the Triple Lock which ensures that the State Pension rises every year by whichever is the greater measure between average wage rises, inflation, or 2.5%. This year alone it adds £18 billion to the bill, a total current State Pension bill of some £150 billion annually.
The State Pension was conceived as a minimum provision in old age, with the expectation that it would be augmented by pensioner’s own savings.
As the working population footing the bill is shrinking as a proportion of the total, and the retired are living ever longer, we simply cannot afford to carry on with the generosity of the Triple Lock.
This is particularly the case when you consider that my ‘class of 1956’ and our like, have generally enjoyed house price equity and a private pension provision, about which subsequent generations can only dream.
Residual pensioner poverty must be addressed by targeted help. The nation cannot afford to make ever more generous provision to all pensioners.
The Triple Lock had a purpose, which was to restore the value of the State Pension which had been eroded over many years. We must hold politicians to account as to what the proper target relationship is between average wages and the pension, and an expectation of when that target relationship will be achieved, at which point the Triple Lock can, having secured its aim, be disapplied. Otherwise we’ll all end up as beggars.
The Triple Lock had a purpose, which was to restore the value of the State Pension which had been eroded over many years. We must hold politicians to account as to what the proper target relationship is between average wages and the pension, and an expectation of when that target relationship will be achieved, at which point the Triple Lock can, having secured its aim, be disapplied. Otherwise we’ll all end up as beggars.