There is a myth that as a country we cannot afford our state pensions. And that myth is central to Iain Duncan Smith’s proposals to raise the state pension age to 75.
But there is a problem with the premise of IDS’s bright idea. The reality is that according to the OBR, public spending on the state pension is expected to rise by less than 1 per cent of GDP between 2017-18 and 2022-23.
In the even more distant future, the OBR forecasts that by keeping the current system in place, by the 2060s when those people currently in their twenties are drawing down on a state pension, our country will only be spending around 2 per cent more as a share of our GDP.
No government wishing to be re-elected will ignore the largest voting bloc in the country, therefore there will need to be some form of income support for this group. The cost increase is clearly not beyond the realms of manageability under current forecasts.
The real concern is that of taxation. Because at the same time, the OBR is predicting that receipts will be equivalent to 37.2 per cent of GDP in 2023-24 – a level last seen in the mid-1980s.
This concern can be solved if you have a government that is prepared to raise the level of tax. But current Conservative governments do not show this willingness.
Just look at proposals around corporation tax to reduce the headline rate to 17 per cent. This means that from next year the government is planning to forgo around £6bn in tax revenue annually in a giveaway that’ll benefit big multinationals. It also means that as a share of GDP, corporation tax receipts are forecast to fall by 0.1 per cent of GDP over the next five years. This is all before their plans to leave the EU without a deal and the hit to our economy that will result.
The next issue that comes to the forefront is that of intergenerational inequality. Iain Duncan Smith’s proposal presumes that the youth of today are better served by working more and earning less than their grandparents when they reach their old age. It is perverse.
Millennials are already set to have a worse offer than the baby boomer generation in adult life, but there are some boomers who wish to impoverish their prospects even further. When you couple this with the future catastrophic impact of climate change, it would be an inheritance that no one would wish on any future generation.
But this isn’t just generational warfare, it’s also class warfare. The poorest pensioners are the ones who are most reliant on the state pension – moving the goalposts is a callous response to a rise in poverty among the elderly. Under IDS’s plans, the elderly will have to work longer in an unforgiving job market typified by low wages and zero-hours contracts. Do we really want to condemn a 70-year-old to in-work poverty? It’s utterly cruel.
The very idea of making older, poorer people work longer or survive on less generous social security payments should sicken us all. But this isn’t just the Tories being callous; there’s an ideological driver behind the proposal – the continuation of the private sector in pension policy, and the shift of risk from the state to the individual.
Pensions are just deferred earnings. In a state system we pool risk via taxation. If you have to work longer before you retire, then you have to pay more for a longer period into a private pension fund too, which means more management fees for the fund helping maintain their profit margins. These fees, especially the more hidden ones, can add up and detract from your savings. It also means that in a private scheme if returns on the investments are low, then the growth of your pension can be further impacted.
Given the prospect of continued low interest rates, those with the largest pots may not feel the twin pinch of low returns and high fees as much as those with much smaller ones built up on lower incomes. The state, with the security of future taxation, is best placed to cover this risk for the majority of us. Undermining the state pension only damages yet another vital safety net provided by our welfare state.
But this is by the by. The focus of our discussion should be on how we can create a system where people work less for more, rather than the other way around. Working lives should be shorter, and the remuneration for a life in the workplace should be larger.
Serious government policy in the 21st century should focus on how we ensure everyone from cradle-to-grave shares in the wealth of our nation. A universal basic income, a shorter working week, and the maintenance of the triple lock system: these are the policies of tomorrow put forward by the left. The Tories’ competing vision? Work until you drop.
James Mills is a former strategic adviser to Jeremy Corbyn
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