There is a dangerous myth abroad, and it is this: that the pensioners of today constitute a uniquely fortunate generation, whose luxury cruises, second homes and bus passes are coming out of the birthright of the young. Those in their twenties and thirties, it is argued, can’t go to university, can’t get jobs and can’t afford houses because their greedy grandparents are gobbling everything up. Even when these oldies finally pass on, so the argument continues, they will have spent so much that there will be nothing to bequeath and, even where there is a decent inheritance, it will be so rare as to have the effect of increasing, not diminishing, inequality.
It must be a comfort for the under-30s to believe this. It gives them an excuse to do nothing other than bemoan their lot. But it flies in the face of the facts. Despite the fees, there are more people in higher education than ever; we still have one of the highest rates of home-ownership in the developed world; and the travel business is hardly languishing for want of young holidaymakers. A narrow group of today’s pensioners may never have had it so good, but the later baby boomers – of whom I am one – are on the cusp of having never had it so bad.
The end of final-salary pension schemes across most of the private sector makes retirement income a stock market-linked lottery. For those who did as they were told and saved in their prime, derisively low interest rates have reduced any income from that prudential nest egg to almost zero. No wonder the so-called silver generation is returning to the jobs market. Those of us who come after will need the equity in our homes to live off – not least because the level of the state pension in the UK is among the lowest in Europe.
The age when a working lifetime of National Insurance contributions would yield an income to sustain you is over. A full state pension currently brings in a little more than £5,500 a year. The odds are that, if this is your only income, you will qualify for a range of benefits, including pension credit, because even the state recognises that its pension is not enough.
This, of course, is one reason why a reforms of the state pension system are in progress. The state pensionable age is rising and being equalised between the sexes. A new workplace scheme has been launched that is supposed to make it simpler for people to contribute and – perhaps – make the eventual returns fairer and more predictable. This Government has also announced that a new flat-rate state pension is to be introduced that should effectively exclude the need for pension credit. The start date, though, is 2017, which will fuel resentment among those who just miss out.
There is another reform, however, which to my mind is overdue. It might sound bureaucratic, but it would carry serious practical and moral weight. At present, the state pension is treated as part of the welfare budget. It comes under the Department for Work and Pensions, currently headed by Iain Duncan Smith, whose central project is the introduction of universal credit. And while the DWP is the biggest spending department in Whitehall, the state pension – as ministers lose no opportunity to point out – is by far the largest single component. At £74bn a year, it constitutes 47 per cent of welfare spending. That is four times higher than the bill for the next biggest category, housing benefit (£17bn); six times higher than the total bill for disability living allowance, and nine times higher than the total for jobseekers’ allowance (£5bn). (All the figures relate to the last financial year.)
But why should the state pension be treated as a welfare payment? Why should it not come under the Treasury, like child benefit or tax credits? Or, better, have its own department? The state pension is not welfare, as most people would define it. It is a payment that has to be earned every step of the way; if you haven’t worked the requisite number of years, you do not receive the full whack. To regard it as a sub-category of government munificence is not only quite wrong, but also misleading.
You can understand why it has suited successive governments to lump the state pension with welfare. It allows ministers to expand or contract the benefits bill for whatever presentational purpose suits them. Look at the vast budget of the DWP, they might say, to support an argument that it should be cut. Or, they might say, bear in mind that state pensions account for by far the largest portion of welfare spending – so stop going on about the undeserving poor; the Government spends far more on pensioners (who have worked for every penny they get).
Separating the budgets would make such sleights of hand more difficult. It would make it easier for taxpayers to see exactly how much is spent on what they would regard as welfare, and judge for themselves whether it is too little or too much. It would also make it harder for any government to argue that the huge cost of pensions has a knock-on effect on the funds available for other benefits, or vice versa. Best of all, though, it would give pensioners an honoured category of their own, underlining the idea of the state pension as neither a privilege nor a handout, but an earned entitlement – and a pretty ungenerous one at that.