www.natpension.org.uk

The State Second Pension has been promoted as a replacement for SERPS that will eventually double the benefits of low earners. Particularly welcomed has been the proposal to provide contribution credits to those with interruptions in their working life because of disability or full-time caring responsibilities.

In reality, however, the new state pension does little more than start to fill the gap left by a shrinking Basic State Pension (BSP) and the much-lauded help for carers actually has less coverage than the Home Responsibilities Protection for the basic scheme. It does not therefore justify or compensate for the abolition of SERPS and should, more accurately, be seen as a replacement for the indexation to earnings of the BSP.

Projections by the Pension Provisions Group of experts, appointed by the Government to advise on pensions policy, show that both state pensions combined will not provide the same proportion of average earnings, over 20%, that was provided by the basic pension alone before the Tories abolished the earnings link. The lack of ambition in the pension reform plans for those that the Government says it most wants to help is clearly illustrated by the example given in last September's DSS publication "Opportunities for All" of a man earning wages of £300 a week which rise in line with average earnings for his working life of 46 years. The Government says that, when he retires at 65 in 2051, he will be the equivalent of £15 better off. In reality, he is unlikely to achieve an unbroken work record and so would probably receive much less than even this small sum.

On present proposals in the Pensions Bill currently being debated in Parliament, there is little chance of the Government achieving its aim of reducing pensioners' reliance on means-tested benefit. Ironically, the welcome decision to increase the level of income support for pensioners (redesignated as the Minimum Income Guarantee or MIG) and to aim to index annual increases to earnings rather than prices, compounds the problem.

In a written Parliamentary Question, I was told by the Pensions Minister that, assuming earnings continue to grow at 1½% faster than prices, it will not be until 2038 that everyone who has worked and contributed throughout a 49 year working life will receive a combined state pension above the level of the Minimum Income Guarantee. Even after all that time, the achievement is likely to be short-lived as indexation will be pegged to prices whilst the intention is that means-tested benefits will rise at the same rate as earnings, Our man in the example given above would soon be no better off than had he relied on Income Support. The Pensions Provision Group comments "Many of today's adults of working age will have to rely on means-tested benefits in retirement to a greater extent than today's pensioners".

Despite the fact that the majority of respondents to Government consultations on pensions want to see the BSP increased to at least the level of income support, so far the Government is maintaining the nonsensical position that our manifesto commitment to retain the basic pension as "the foundation of pension provision" can be honoured whilst sitting idly by allowing that foundation to erode away. Thanks to pressure from groups like Age Concern and the Pensioners' Convention, ministers are clearly conscious of charges that they are not doing enough for today's pensioners, hence the winter fuel addition and the free TV licences for the over 75s. But these one-off additions will do nothing to reduce dependence of future pensioners on means-tested benefits. Furthermore, the continued reliance on means-testing will discourage those on fairly modest incomes from saving and investing in funded pensions because they will be little or no better off than had they relied on the State.

Research carried out both by Nat West and Pearl on attitudes of unskilled and semi-skilled workers shows how difficult it will be to persuade modest earners in the £9,500 to £21,500 target band to put their hard-earned money into a pension scheme without a guarantee as to the final outcome. The Institute of Fiscal Studies, amongst others, have questioned the wisdom of the Government pushing such people towards personal pensions when they would be better advised to put any savings into other assets which would be disregarded when assessing entitlement to benefits. Who, they ask, would be liable if a selected provider of a stakeholder turned out to have a poor performance? As Watson Wyatt have pointed out, the State could end up paying generous rebates, costing far more than S2P foregone, and then find itself paying out a second time in income support through the Minimum Income Guarantee.

It is now becoming obvious that if the Government wants its reforms to last, it must increase the basic pension to at least the level of the MIG. This would cost about £2 billion extra but is affordable, given the £5 billion surplus in the National Insurance fund.

The Government must also take urgent advice on measures to simplify the arrangements for second pensions which are now horrendously more complex than even the system they are to replace. The only guarantee that successive governments will maintain any system is that beneficiaries understand it.

Many in the Labour Party still believe that revitalisation of SERPS, perhaps administered by independent trustees to stop future Governments watering it down again, with annual statements explaining entitlements and credits for carers, would have been the best means of assisting those with intermittent work patterns or frequent job changes. The burden of a growing ageing population on future generations is overstated, given the growth in productivity of the younger workforce that the Government says it is determined to improve upon. Also, for reasons explained above, the cost is likely to be less than the additional £16.5 billion a year the Government projects for the new second pension and enhanced contracting out rebates, let alone the cost of income support if stakeholder pensions fail to perform.

Jeff Rooker (10 March 2000) says that by 2051 a person who retires after a lifetime working on a salary of £180 a week will get a total state pension worth around 21% of contemporary average earnings. Big deal! That's less than provided by the basic state pension without SERPS back in 1980. Thus, perhaps unintentionally, Jeff reinforces my point that the State 2nd Pension is actually a means of compensating for the erosion in value of the basic state pension. Unlike the Minister, I do not consider 21% of average earnings to be a satisfactory pension for people retiring in the middle of the 21st Century.

RE: Pensions: a case to answer

Lynne Jones (Tribune, 4 February 2000) wrote a well-researched and well-argued article on pensions policy. Jeff Rooker's attempt to rubbish it (Tribune, March 10) is based on a series of misrepresentations.  Lynne Jones, says Rooker, "advocates keeping SERPS unchanged". Wrong. What she actually wrote was "Many still believe that revitalisation of SERPS ... would have been the best means of assisting those with intermittent work patterns or frequent job changes." But she also wrote "Its abolition now seems inevitable despite a manifesto commitment to retain it." 

Lynne Jones, says Rooker, "ignores the extra help the Government is giving to carers through the second state pension". Wrong. This proposal, she wrote, had been "particularly welcomed" - though she also noted that it compared unfavourably with the protection of carers' entitlement to the basic state pension. Lynne Jones, says Rooker, "suggests that upping the basic state pension to the level of the minimum income guarantee is the best way of helping Britain's poorest pensioners, which makes no sense whatsoever." What she actually wrote was that most respondents to Government consultations wanted such an increase. She did not suggest that it was the best way of helping the poorest pensioners - but, if she had, it would have made very good sense, since the poorest pensioners are the estimated 700,000 poorest pensioners who are entitled to but not receiving the minimum income guarantee.

Finally, Rooker accuses Lynne Jones of "ignoring the fact that the policies she refers to simply have not worked for large sections of the population".  On the contrary, the whole point of Lynne Jones's article was that present policies, including the continued erosion of the basic pension, are lamentably failing and that the Government's proposals will not achieve their stated aim of reducing future pensioners' dependence on means-tested benefits. She deserves a serious response.