A number of constituents have written to me to complain about various aspects of state pension reform. A mistake common to most of them is that they treat their contributions as if they were savings that had been paid into a retirement fund – on which they are entitled to draw when fully paid-up, and that any reform constitutes a change in the terms and conditions upon which they made their contributions in good faith.
The system just doesn’t work like this, and most people should be very glad that it doesn’t. For the overwhelming majority of us, had our national insurance contributions been paid into a savings fund, they would never have generated anything like the level of income in retirement that the state pension now affords. So, for most of us, it’s a bargain.
Our contributions, are in fact just taxes. They qualify us to receive a pension but they don’t pay for it. They just go into the total available to pay for all government expenditure, including, of course, the current pensions bill. So, in a sense, our national insurance contributions are paying the pensions of those who are already retired, in the expectation that the national insurance contributions of younger earners will pay for our pensions when we retire.
This leads to the critical need for reform: as we live longer and are retired for so much longer, the proportion of those of working age is shrinking relative to that of those in retirement. If the bill for pensions is to remain affordable for the working age people who are having to pay it, then we need to reduce that bill by either cutting the pension or by delaying the retirement of those who receive. Delaying the pension is much the more sensible course.
Under the Pensions Act 2011 the pension age for men and women accelerates to reach 66 by 2020. One of the current campaigns argues that this disproportionately affects women in their mid-fifties (born after 5th April 1951) and that for them the change should be reversed. I recognise the complaint of those who now find that they have to retire later (my wife is one of them), but the line has to be drawn somewhere – to the frustration of those just the other side of it. The campaigners need to explain why these particular women should be protected from a rise in State Pension age, when women just days younger – and men of all ages- will wait longer for their state pension.