AS WE APPROACH the END of the compulsory retirement age, there is a palpable sense of crisis over the British pension. The situation may be even worse for the French, Italians and Germans, but there is no getting away from the facts that the combined factors of an aging population, ideological constraints on raising direct taxation mid the persistent failure of the British to save for their long-term future means that a pension crisis is looming. The young are too few and, many would argue, overtaxed and overmortgaged. The elderly are too many, live too long and have saved insufficient funds for their own futures. Indeed, some of the most pessimistic commentators have wondered whether the pension as we have come to understand it can even survive its first one hundred years. For pensioners at the sharp end, battling with fixed annuities that fail to keep pace with council tax, let alone inflation, and a state pension that is derisory compared to those on offer in other countries, the situation looks equally dire. Even for those working in the public sector, recent newspaper discussion of their relatively generous final salary entitlements is probably bad news in the long term.
The attitude of the government has been very much hands-off; ministers have wrung their hands and tinkered around the edges with vehicles like the stakeholder pension, but they have been remarkably unsuccessful in encouraging enhanced levels of saving. This is not perhaps surprising. Other elements of government policy have included the removal of tax credits on the equity funds that underpin private pensions, a failure to intervene in the near-collapse of the old and once-respected Equitable Life following its failure to meet its guarantees to some policyholders, and failure to raise the threshold of inheritance tax. All these have, as the press has been keen to point out, acted as a disincentive to long-term saving.
In the light of these realities and other political constraints, the government has adopted a three-line policy on pensions and pensioners. Firstly, it has sought to enable people to work longer. The compulsory age of retirement is to be removed and there are to be financial incentives for people to work longer. Keeping older people healthier will allow them to work longer, so age discrimination in the health service is on the political agenda. More widely, age discrimination at work will be addressed with vigour. It is a short step from this enabling framework to a situation where people in their thirties and for ties will be told that pensions will start much later in life because they can expect to work longer.
Secondly, there has been a concerted attempt (not limited to pensions hut particularly effective in this area) to join the benefit system, pensions and work into a beautiful harmony. The majority of pensioners are linked to the benefit system in some way. That majority and the depth of their dependency on benefits will increase inexorably. It is again a short step from his situation to one in which older people are expected to work very much longer, with the benefit system kicking in and out as they are more or less capable of work.
Finally, there has been a concerted attempt to block any substantial increase in the existing state pension. The pension is linked to inflation (a measure that can be easily manipulated by simply changing file definition) rather than earnings. However, a combination of rising utility bills and local taxes in practice more than outweigh absolute weekly increases in pensions each year. The value of the basic pension is thus low and falling. It is withering on the vine. To holster it we have a variety of ad hoc schemes that attempt to focus resources on only the very oldest or poorest (for which, read most deserving?) pensioners. It is a cynical but short step from this state of affairs to a situation in which people are encouraged to question whether a 'right' to a pension is really worth having in financial terms. …