Better Pensions
The state's responsibility

By Bryn Davies, Hilary Land, Tony Lynes, Ken MacIntyre and Peter Townsend.

EXECUTIVE SUMMARY

1. Introduction

• The right to security in retirement has been gravely weakened in the UK since the 1980s and has continued to erode since 1997. A consensus is emerging that the government is failing its responsibilities in this area.
• Our argument is that the attainment of better pensions cannot be left to individual initiative and private capital markets, and that private schemes should complement, not replace, adequate state provision.

2. The real pensions "crisis"

• The real pensions crisis is that there are currently too many people in poverty in old age, and that number is set to increase under current policies.
• According to the government's own illustrations, present workers on average earnings today must look forward to poverty in retirement.
• The crisis is worsened by the increasing reliance on means-testing with its recognized problems of poor and inefficient coverage, perverse incentives, and social division.

3. Saving for retirement: the wrong answer?

• The planned shift of responsibility for retirement provision onto the individual ignores the fact that private provision of pensions is less efficient and equitable than social insurance.
• Funded pensions are based on a rejection of intergenerational solidarity and an unfounded presumption that they result in increased capital investment.

4. The crisis of confidence in the private sector

• Confidence in the private sector is at a low ebb, as a result of a series of scandals, financial engineering and gung-ho investment strategies, and the failings of state regulation.

5. The place of occupational and personal schemes

• The coverage of occupational pension schemes is very patchy, being designed essentially for those with steady employment and earnings, and their results are generally modest.
• Money-purchase schemes, including the new "Stakeholder" pension, are poor value for money and cannot provide an assured level of retirement income.
• The role of the private sector should be to provide a voluntary supplement to a strong state underpin. "Contracting out" rebates should be used to draw better quality schemes into partnership with the state, not as a lever of privatisation.

6. Pensions for women

• Increasing women's activity rates do not mean that men and women are converging to a standard "traditional" pattern of continuous full-time employment for 40-plus years.
• SERPS was well designed to deal with broken employment records and in its original form offered better retirement incomes to carers than the new State Second Pension.
• As marriage and employment become less secure the need for pension provision which compensates for this insecurity becomes more rather than less important.

7. Pensions and disability

• The essential role of the state in pension provision is particularly apparent in the case of people with disabilities as private schemes cannot allow for periods of non-earning.

8. The Basic State Pension

• Since 1997 the value of the Basic State Pension has continued to fall relative to earnings across the rest of society and under present policies is likely to continue to do so.
• An increase to the level of the Minimum Income Guarantee and restoration of the link to average earnings would provide a genuinely guaranteed income for today's pensioners and a dependable foundation on which people in work could plan for their retirement.
9. State earnings-related pensions

• SERPS was developed in response to precisely the problems at the centre of the current debate, and has been remarkably successful in meeting its original objectives. It is only now projected to decline as a result of cutbacks made since the 1980s.
• The new State Second Pension offers a basis for developing a new earnings-related scheme that would give everyone the chance of an earnings-related top-up to the BSP and provide a strong underpin to private arrangements.
• Compulsion in second tier pension provision cannot be justified if those to whom it applies do not have access to an adequate, affordable and reliable alternative to private schemes.

10. Paying for pensions through social insurance

• The social insurance principle has been eroded since 1979 on both the benefits and contributions side, and its surplus misused as a convenient form of taxation.
• Stronger support would have considerable advantages: National Insurance benefits are socially inclusive, politically popular, administratively efficient and conducive to private saving.
• An independent National Insurance Commission is needed to restore confidence and protect the fund from manipulation for purposes other than pensions and other benefits.

11. Conclusions

• The further privatisation of pension provision offers neither the hope of improvement in the quality of life of today's pensioners nor any real security to the pensioners of tomorrow.
• Decent pensions for all are affordable in a growing economy and necessary in a society based on human rights. But to make it happen the public sector must take the lead.

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