The great pensions rip-off

Someone's raiding the pensions piggy-bank: Government changes mean the rich will be subsidised by the poor.

Someone’s raiding the pensions piggy-bank: Government changes mean the rich will be subsidised by the poor. [Picture: The Guardian]

We all know that pensioners have a charmed life under the current government – right? Pensions take up around half the £160 billion social security budget and there are other perks like the cold weather payment during the winter months, free bus passes and free TV licences – right?

They get a triple-lock inflation guarantee, under which the state pension rises according to the highest of CPI inflation, the rise in earnings or 2.5 per cent. They get Pension Credit (otherwise known as the Minimum Income Guarantee) to ensure they receive a weekly minimum of more than £140.

So no matter what happens to the rest of us, they’re in clover – right?

Not really.

Just taking those examples, Tory Liam Fox wants to cut the cold weather payment down to nothing, and the Liberal Democrat Vince Cable wants to means-test or tax pensions. The free TV licence will disappear if the rising clamour to privatise the BBC receives government blessing.

Then there’s the fact that the age at which we can start drawing our pensions is rising – from 65 (for men) and 60 (for women) in 2010 to 68 (for both) by 2046, which may seem a long way into the future but in fact affects people from 2016 onwards.

The government is bringing this in because people are living longer, and this may seem like a reasonable idea – until one takes into account the fact that life expectancy is hugely dependant not only on where you live but on your social class as well.

For example, in Kensington and Chelsea, average male life expectancy in 2010 was 85.1 years, and average female life expectancy was 89.8 years. In Glasgow at the same time, average male life expectancy was 71.6 years – 13.5 less than men in Kensington and Chelsea – and average female life expectancy was 78 years – 11.8 years lower than in Kensington and Chelsea.

Between 2004 and 2010 the gap in life expectancy between the two places increased by one year and 1.7 years for men and women respectively, indicating that health inequalities across the UK are increasing.

Social class also has a huge effect on life expectancy, with people in higher managerial and professional occupations likely to live 3.5 years longer than those in routine occupations.

But they all pay National Insurance contributions for the same period of time – 30 years – in order to qualify for the state pension. This means working class people living in social housing are likely to be paying towards the pensions of upper-middle class professionals in penthouses, as well as their own.

Now the government is introducing the flat-rate pension for people reaching the state pension age who have made 35 years’ National Insurance contributions. The payment will be £144 per week at today’s prices.

People who have built up large savings for their retirement will be considerably better-off because pensions will no longer be means-tested (Pension Credit will be phased out).

Existing pensioners will remain in the old system and are likely to be worse-off than those who qualify for the new pension.

People aged in their 20s at the moment may also be worse-off than under the current system (so, even with pensions, the Coalition government has found a way to attack the young).

And people who have not paid National Insurance for at least seven years in total will not qualify for the new single-tier state pension at all.

Workers who belong to contracted-out final salary schemes pay lower NI contributions at present, but these will rise after 2016. Public sector workers in such schemes will have to pay more.

The couple’s pension rate, which is lower than the individual rate, is being phased out. This means around 30,000 women due to retire in and around 2016 are expected to lose out, as they were relying on their husband’s NI record for a state pension income and will no longer be entitled to it.

We already knew all of that.

Now, the National Federation of Occupational Pensioners says the government is proposing changes to workplace pension schemes that will undermine benefits, increase pension poverty and widen the gap between the private sector and public sector schemes, according to Mature Times.

The proposed changes mean companies will be allowed to change their scheme rules to remove the inflation link for pensions, increase their pension age and get rid of other benefits such as pensions for spouses. This significant downgrade of pension provision means scheme members could reach retirement and then realise that the expected return from their pensions has been severely reduced.

Put it all together and the less wealthy are being subjected to another rip-off – this one delayed until retirement. Who knows how much energy bills will cost by then? How many of us will have rent to pay, or mortgage payments to complete? How much will the weekly groceries cost? Will the equivalent of £144 per week be enough, by then?

And – in the current cutthroat times – how many of us will survive to find out?

23 thoughts on “The great pensions rip-off

    1. Mike Sivier

      Pension Credit plus your pension should bring your weekly amount up to around £142 if you’re single, and something like £217(?) if you’re in a couple. You have to include the amount of pension you receive as well.

      1. michaelt100

        Pensioners should not be subject to means testing for State handouts. They should receive a much higher State pension making no need for intrusive demeaning State handouts.

      1. steve mclean

        It should be means tested, why should rich people who don’t need, get it, they shouldn’t get cold weather payments either if they are rich, the Tories are a***holes….

  1. Pat Roberts

    I worked for 50 yrs,but paid a married womans stamp until my children were older and i receive £89 a week and £20 private pension,I have £41 a week pension credits.I have never earned enough to have any savings after my husband went off with a younger model.And you think we are living in clover? I am one in a majority,not a minority,we are very poor.A quarter of my monthly income is gas and electricity? Where do you get the idea we live a charmed life? Is struggling to heat or eat a charmed life after working and paying in for 50 yrs?

    1. Mike Sivier

      I hate to say it, Pat, but I think you missed the point of this one.
      Did you not realise that the first few paragraphs are a reference to public perception of pensioners, before I went into what’s happening to the pension system and the grim reality that pensioners – and people coming up to pension age – are actually facing?
      Perhaps it’s the way I wrote it but I thought people would realise what effect I was trying to create.

      1. Joseph Smith

        Mike, sometimes a cynical obscure sense of humour gets lost in reality. I’m a pensioner in a couple, existing on state pension and PC. It’s simply not enough money. Like others, I paid NI contributions from the age of 16 until adverse health forced retirement at 63. The state pension is wholly inadequate! It needs to be at around £300/ £350 per couple per week. I don’t like being topped up by means tested pensions which gives those DWP B……ds a degree of influence and or control over my life savings and how long I can go on holiday. If the state pension, PC, winter payments etcetc are added together we are almost there it’s the means tested element which is grossly unfair restrictive and bitterly resented by thousands of pensioners. The caps are much too low and bear no relationship to real world expense. There’s an e petition to increase state pensions. The pensioner vote can and possibly will decide the next government.

    1. Mike Sivier

      Labour’s press team rubbished this story hours ago, on Twitter!

      “Labour Press Team ‏@labourpress
      “Re: tonight’s Telegraph story – Labour policy is a jobs guarantee for young people, not taking away benefits.”

      There was also some Scottish politician called Tommy Ball claiming Labour was saying it would pay less than the Coalition because the proposed amount of benefit was £56 and change. I had to tell him that the current amount payable to 16-24 year olds is £56 and change – the £71 amount doesn’t kick in until you’re 25.

      This is what happens when people are fed disinformation all day, every day.

  2. Andy Robertson-Fox

    All this and Steve Webb is still wanting to discriminate against 4% of the UK pensioner population world wide by, under Clause 20 of his Pension Reform Bill (now in the Lords awaiting its Second Reading), continuing the frozen pension policy.

    Never mind the triple lock despite contributing to the NI Scheme on the same terms and conditions as everyone else they are denied the annual increase…they get 0% year after year after year and why?

    Simply because they live in the wrong country – OK in the UK, EEA or a select little group including Macedonia, Israel and the USA the pension is uprated but live in , for example Canada or Australia or Thailand and no increases, ever. Frozen in Trinidad but unfrozen in Barbados, unfrozen in the US Virgin Islands but frozen in the UK Virgin Islands; there is even a road in the north American continent that has a line down the middle – the boundary between Canada and the USA with uprating payable on one side but not the other! Illogical and irrational and, believe or not most MP”s recognise it as an anomaly….but toe the party line and condone discrimination.

  3. Joseph asmith

    I worked in the financial industry 35 years ago, senior actuaries within the industry were telling governments of the time about the pension ” time bomb” the nodding donkeys in the DWP and government largely ignored them. And you are right Mike, the masses will always pay for the minority. But this government are particularly vicious mean short sighted stupid and Fascist in outlook. Until this bunch of self seeking greedy corrupt swine are consigned to whichever land fill site will take them we are screwed. But what alternative? Led by whom? Farage? Unknown but appears very right wing, millipede? Weak uncertain, another coalition? Not with the feckin Tories anywhere near surely.

    1. Cath White

      could not agree with you more Joseph but there is now a new party called Unity Left which has the values of the old labour party………….thats the one for me

  4. Caz Lennon

    The point is if you put money into a ‘savings account’ which the pension is, for x number of years with a maturity date at age 60 and then are told that actually you cannot start withdrawing until you are 67, that is theft. Where are the seven years worth of payments I made based on retirement at 60? Actually it was 59 when I started work.

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  6. Karen M

    One thing that has little value to politicians (since the nineties) is that while we are expected to live longer the years that the less rich among us will live will be dogged by ill-health. Poorer people will work to 68 but by then they will be expected to be living with long-term health problems such as osteo-athritis, heart disease, sight-loss, hearing loss and type 2 diabetes. Heaven help all of us on state pensions!

  7. beastrabban

    Reblogged this on Beastrabban’s Weblog and commented:
    In this article, Mike attacks Tory and Lib-Dem plans to cut and means-test state pensions. These will result in more pensioners living in poverty, and increase the difference between state and private sector pensions. My guess is that’s part of the policy. Under Major state sector employees were given the opportunity to opt out into private pension schemes. As these were inferior to the state pension scheme, there was absolutely no point in doing so. Clearly the Coalition’s paymasters in the financial sector feel they’ve been deprived of a lucrative market through this and the current state pension scheme, and so are trying to make it is as unattractive as possible. The attack on pensions in general, and public sector pensions in particular, was particularly evident on both sides of the Atlantic two years ago. The American and Canadian Conservatives loudly denounced their pensioners for greedily refusing to allow their pensions to be cut despite the Republicans’ and Tories’ claimed need to reduce welfare spending. Over here, the Daily Mail duly obeyed Tory Central Office by launching an attack on public sector workers for the apparent generosity of their pension schemes. Of course, it never once admitted that the real reason everyone else’s pensions were so poor comparatively was due to the Conservatives and their Neo-Liberal allies doing their level best to destroy union membership and cut everyone’s wages, pension entitlements and make working conditions worse.

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