Pension plans

The White Paper on Pensions has now been published, outlining plans for a flat-rate National Insurance pension. The first announcements stressed that it would be widely available, but the detail means that people will need to have made contributions for 35 years’ contributions to get the full pension, and the transition will be painfully slow: the government expects that 80% will be on the new pension by 2030. It will improve the position of women and self-employed people, mainly at the expense of higher earners who will lose earnings-related benefits.

It won’t be a universal Citizen’s Pension – there will still be some people who don’t qualify, and so there will have to be a Pension Credit to provide a minimum income for the people who are left out. This should cover many of the people who currently receive Pension Credit, who are entitled to Pension Credit but don’t receive it, or who are debarred from receiving it because they hold inherited capital. However, people who have paid less than 35 years will have pensions reduced proportionately and the long transition will mean that Pension Credit will be around for many years to come.

It won’t be a return to the Beveridge scheme, either. The Beveridge scheme was supposed to provide an adequate, flat rate pension, and the current scheme reasserts that principle. Beveridge, however, but it was based on a flat-rate contribution – without that arrangement, Beveridge believed, it would not really be an insurance scheme. Nor will this be; paying earnings-related contributions for flat-rate benefits is taxation under another name. The reason Britain moved to provide earnings-related pensions (SERPS, and then the State Second Pension) was the realisation that continental schemes were protecting pensioners rather better than the Beveridge scheme did.

There will still be holes, however. One big question concerns housing costs, and how they will be met – as things stand, HB and CTB calculations together can remove most of the money received just above current pension levels. Another is what happens to pensioners now; some of the people retiring this week will still be around in thirty years’ time. The money to pay for pensions is not saved – it comes from the current working population. Existing commitments to earnings-related pensions will have to be maintained for some time, but the quick, and fair, solution, would be to extend the universal, non-contributory pension for the over-80s so that the entitlements of the current generation are respected while they move over time to a more generous and more secure set of arrangements.

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