Britain's pensions timebomb won't be defused anytime soon

Grey power means even the well-off will continue to receive a state-subsidised old age.

by Matthew Gwyther
Last Updated: 28 Apr 2017

Pensions. Now, come on - don’t scroll down. Avert your gaze to the window. Or doze off. This is important. We’re talking more than triple lock abolition here. The OECD has just suggested that we stop paying the state pension to the wealthiest 5-10% of the UK population. It says that the current state retirement benefit - £6,359 for the basic version and £8,296 for the ‘new’ variety introduced this year - is unaffordable, despite the readies offered to retirees being among the meanest of the 35 OECD members. Just shows how well off they think we are as a nation. The cost of the state pension will rise from 5% of GDP in 2021-22 to 7.1% by 2066-67.

Well, good luck to the political party that includes this measure in an election manifesto. With the Grey Panthers in militant mood - voters in large numbers for Brexit - few can risk annoying them as they turn out with monotonous regularity at the Polling Station. ‘We didn’t spend a lifetime paying our stamp to be treated like this!’ Even scrapping the Winter Fuel Allowance for those elderly who can afford to burn ten pound notes is likely to get thousands of oldsters protesting in Parliament Square after getting their cut price pre-noon lunch at Wetherspoons.

Our state pension system may not be a funded scheme but it’s clearly regarded as a firm social contract. The howls of rage at the suggestion of denying it to the well off comes, quite understandably, from those who have worked often for 35 or 40 years paying National Insurance at not inconsiderable levels, have not claimed benefits and expect to get something back at the end of it. They protest that they’ve already lost tax relief on their mortgages, don’t qualify for child benefit and have ensured that they don’t become a burden on the state by putting away large sums into private pensions. They want, indeed, expect something back.

But we all know that something is going to have to give. It was only last month that the government received the most recent of dozens of reviews highlighting the near impossibility of carrying on with the status quo. John Cridland recommended that pushing the eligibility year back to 68 by 2039 should be forced through. The current cost of pensions is £100 billion per annum and, unlike the Norwegians who squirrelled away the oil money, we have to pay out of regular annual income. The demographics look pretty scary: the number of 100 year olds is forecast to rise from 6,000 today to 56,000 by 2050.

One of the arguments against such a move is made by those who point out that the state pension is taxable anyway. So those who continue to receive income in substantial amounts after the age of 65 can wind up paying 45% or even more back to the revenue anyway. Then there’s the problem of complexity. Measuring who should no longer receive the pension would not be easy, or cheap. It might cost more to implement than it would save. Tax planners will have a field day gaming the system. Trust lawyers would move into overdrive transferring assets to children and grandchildren.

The problem with this is that one suspects that many of these wealthy retirees are asset rather than cash rich and many have their wealth tied up in domestic property. If any pension measure were to force the elderly to sell off property then a minor price crash would more than likely be the result. That may be welcomed by the Milennials of Generation Rent but they're all such a bunch of snowflakes that they don’t go out and vote anyway. So, the OECD measure is not likely to win favour but the unaffordable Triple Lock will almost certainly be dispensed with - after the election.

Well, it’s a start. But the pensions problem is not going to go away. Like the poor - and perhaps the wealthy oldsters too - it is always with us.

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