Coalition State Pension Reform


 

stevewebb_2000709cMy sincere thoughts on Coalition State Pension Reform:

Whilst im not against pension reforms per say I have to lodge my concerns of what I think may happen for the our children of tomorrow. Like I said from the beginning  I would like to see some reforms to our welfare system which is inclusive  to all and not exclusive to the many but to the few.

Who would have thought  that when our voters could not decide which political party to put into office that we would end up having a Conservative and Lib Dem(Fibdems) Coalition in place and the attacks like our state pension, and welfare which includes our housing, and NHS.

Lets not jest with ourselves and face some home truths for a moment when I look back into our history of the Mix Economy of Welfare in the UK I concluded:

The mixed economy of welfare:

The theme of most welfare histories is ‘the coming of the welfare state’ as though all previous forms of welfare were temporary and incomplete, that it was inevitable Britain’s welfare should be ultimately dominated by state provision, and that, somehow, the journey is now at an end. However, if we step back only 100 years – and use this as a vantage point to look forward – we would have a very different perspective. In the 19th century Britain’s welfare was characterised by voluntary provision, with mutual and friendly societies delivering a whole range of benefits. Local authorities and voluntarily run hospitals, together with a national system of panel doctors were financed from health insurance contributions, which were set by the state and collected through mutually owned societies.

If we move back further still we gain yet another perspective of how welfare was delivered collectively, free of the state. In mediaeval times many hospitals were church run, though the word hospital should not be understood in today’s terms. Back then such places were communities where the elderly and frail in particular were looked after.

Parishes, the first basic administrative units in Britain, also had a responsibility to their poor. The Elizabethan Poor Law enshrined this right with the practice of sturdy and less sturdy beggars being sent back to their parish of origin ostensibly for help. This system, although modified, remained largely intact until the offensive launched by the Utilitarian reformers. For them, no fiddling with the facts was beyond the pale if it could discredit the old regime. The new poor law of 1834 was the result of this campaign, and where the principle of ‘less eligibility’ was enforced – help in the new system would only be offered if a person came into the ‘House’, as the poor law institution was known – a standard of living awaited them which was below that on which the poorest labourer could survive.

Lloyd George did not therefore invent the welfare state. As we have seen it was already very much in existence. But he did, along with a young Winston Churchill, refine the concept and drive it forward into the arms of the state – surprising for a Liberal politician. But we have jumped too far ahead in our story.

The 1906 landslide victory of the Liberal Government was not based on a programme of welfare reform. Indeed, it did its best not to discuss it. But reform came. In order to protect the friendly societies a non-contributory, means-tested old age pension was introduced for those of 70 or more. At the time average life expectancy for men was 48 years!

National health and a more limited coverage, unemployment insurance, were introduced by the 1911 Act. Contribution and benefit levels were laid down by Parliament, but friendly societies and mutually-owned bodies operated the health scheme.

The insurance principle was advanced to finance this new welfare because the Liberal Government was anxious not to raise income tax and alienate the bedrock of its support. It therefore followed Bismarck’s lead. In Germany Bismarck had faced even greater resistance to a tax-based welfare. The German Chancellor did not then have the power to levy taxes on income. The insurance principle, now regarded as a crucial aspect of state welfare, was originally met with considerable hostility. Lloyd George won over the initial opposition with his tripartite financing from worker, employer and taxpayer. Hence his cry to the workers of ‘7d for 3d’.

Neville Chamberlain added to this insurance base with the Widows’, Orphans and Old Age Contributory Pensions Act of 1925. Pensions were paid from 65 and widow’s benefit introduced. But these inter-war years were dominated by unemployment. And it was the financial chaos resulting from botched attempts to provide income for the mass unemployed, while maintaining an insurance fund, which helped reposition trade unionists, and others, on the question of state or voluntary based welfare. The use of a household based means-test for unemployment assistance added grist to the mill for this campaign.

Beveridge

An enquiry was established in 1941 to propose how best to tidy up state welfare. Beveridge seized the opportunity, rewrote the script, and then redesigned the contours of British welfare. The publication of his report was fortuitously delayed. When it was produced in November 1942 it followed hard on the heels of the Allies’ first major victory of World War Two. Implementing Beveridge was immediately seen as part of winning the peace.

The prize was security ‘from the cradle to the grave’. Although largely a synthesis of ideas (including Beveridge’s) which had been around for some time, it was the blueprint for conquering Want, one of the five giants Beveridge declared should be slain by way of post-war reconstruction. Each giant was countered by:

  • The 1944 Butler Act which reformed schooling, the commitment to full employment in the same year.
  • The Family Allowance Act of 1945.
  • The 1946 National Insurance Act
  • The 1948 National Health Act, aimed at achieving that very objective, and established for the first time a national minimum.

But, as always, the world did not stand still. Although for sometime in the 1950s and 1960s welfare provision did just that. How to finance the NHS increasingly became a key political issue. Insurance benefits were not paid at a high enough level to prevent many pensioners from becoming poor, and by the 1970s full employment began taking a battering which it has had to endure until recently. The political caravan had once again moved off in search of new ideas.

Thatcherism

There was never a coherent Thatcherite approach to welfare. Following the main haemorrhage of manufacturing jobs in the 1981-82 recession (exacerbated by the inept handling of the exchange rate), the formal abandonment of a full employment goal looked like a mere precaution against future political failure. The NHS budget continued to increase, driven upwards by a growing demand set by a combination of rising expectations, by health consumption becoming a lifestyle-type choice, by advances in medical technology, and by a rapid growth in life expectancy.

Welfare bills were confronted in two ways. Insurance benefits were hacked back with an ever-growing number of individuals pushed on to means-tested support rising from one in six of the population in 1979, to one in three in 1997. But the biggest savings for taxpayers (paid for by less generous pensions) came in 1980 with the switch to increasing the state retirement pension only in line with prices, and not by earnings if these were rising faster – as they invariably did.

By 1979 occupational pensions had grown from the modest initiatives recalled earlier into the great welfare success of this country. Alongside these pensions the Tories planted individually owned schemes, known as personal pensions. The advent of these schemes was their major welfare innovation. This advance, however, has been hampered by miss-selling – i.e. persuading people to leave occupational schemes almost invariably against their best interest – often accompanied by the imposition of very high charges and the absence of an employer’s contribution. Even so, by 1979, Britain had more assets owned by occupational and personal pension schemes than the whole of the asset portfolio owned by other European Community schemes combined.

And yet welfare bills continued to escalate in an apparently unstoppable fashion. Welfare was about to undergo another major rethink.

Welfare and character

When welfare was run by friendly societies and mutually owned organisations few questioned the fact that welfare affected how people behaved. Welfare was not simply strictly policed; the range of benefits full recognised the danger that some people would claim benefit to which they were not entitled if the regime was slack. Welfare was seen not merely as a means of meeting a need, but by its organisation, and the means by its delivery, it was conceived as a tool for building good character.

The biblical view of human nature – its fallen status, yet conceived to be redeemed – was lost sight of in left-wing intellectual circles by the 1960s. Welfare was by them seen primarily as an act of altruism and this paternalistic view was advanced behind the cover of politically correct statements, so much so that even the Right lost the confidence to mouth, let alone act on, the broader, age-old understanding of mankind.

The resulting paralysis of both will and mind resulted in little concern for how different types of welfare (insurance or means-tested) affected behaviour; and to raise the question of fraud was to be automatically deemed politically unbalanced. ‘Thinking the unthinkable’ was the task for Labour’s final years in opposition before 1997, and was part of the strategy of making Labour electable. It was never meant to be an activity undertaken in government.

Thinking the unthinkable in Opposition took place across five inter-related areas.

  • It was not simply a question of the size and the rate of growth of social security expenditure. The key issue was the growth of means-tested welfare and in particular how this form of provision affected the actions of recipients.
  • Welfare was not therefore seen as a neutral agency operating in society. Rather it was one, which, for good or ill, helps determine motivation, shape action and thereby determine character.
  • Welfare had to work with the grain of human nature. Self-interest, one of the most powerful of human instincts, had to be the cornerstone around which welfare reform was built.
  • A clear distinction had to be maintained between the means and the ends of welfare policy. In order to gain adequate universal pension coverage for instance, new partnerships between the private and mutual sector were necessary.
  • Welfare reforms were not merely an add on to the government’s constitutional reform programme. Proposals for building up membership organisations which are separate from the government on the one hand, and privately owned companies on the other, would have a central role in rebuilding civil society which itself was an aim of welfare reform.

The present Government has now embarked on its programme of welfare reform. Time will tell how well it succeeds in implementing the unthinkable. Making reform workable is a more important objective. As I resigned as Welfare Reform Minister I will inevitably be seen as a biased observer. And bias in the welfare debate is something about which readers should continually be on their guard.

One notable academic observed that to study welfare was to highlight the values of the society within which that welfare was provided. I would argue that our values determine to a large extent what we observe. Hence it was observers believing in state collectivist solutions who have generally written up the story of the coming of the welfare state and the final arrival of state provision. Any deviation from this model is seen not just as defeat, but as essentially retrogressive. That view is now under attack.

As one of those who first questioned the inevitability, let alone the desirability of state provision being welfare’s final stop, and who seeks to present welfare developments as a continuous story, I am open to the charge by those who believe in the correctness of state welfare solutions, of being equally biased.

David Cameron insists that the coalition proposals on the state pension are “fair,” but they are a typical “hardship today, jam tomorrow” Tory offering.

Many people anticipating retirement life on the current state pension of £107.45 will look at Cameron’s headline figure of £144 and think they’re in heaven, but, as ever, the devil is in the detail.

Means-tested benefits for pensioners already work out at £142.70 a week, which indicates that the government is not injecting substantial sums into the pension pot.

Most voters has always opposed means-tested benefits and supported demands by the pensioners’ movement and the trade unions for a state pension as of right on which retired people can enjoy a decent standard of life.

The government is flirting with decency by offering a non-means-tested increase in the basic pension, but it is demanding huge increases in employer and employee National Insurance contributions that will affect about six million workers.

It won’t affect government ministers, MPs, company directors and top City businessmen because they already have personal arrangements that render the state pension irrelevant.

What is planned by the Tories and Liberal Democrats is the usual redistribution of poverty within the working class, designed to provoke complaints by those who lose out against those who gain.

Those who lose out will be the majority, as GMB national officer Brian Strutton has made clear, pointing out that, for instance, the Local Government Pension Scheme (LGPS) will be weighed down by the extra demands imposed by government.

Hammering LGPS contributors and the scheme itself with a £6 billion tax burden risks undermining its viability and cutting low-paid workers’ purchasing power.

Work and Pensions Secretary Iain Duncan Smith wallows in the duplicity that is typical of this government, claiming that concern for women is a major factor in this change.

Taking women for granted as carers or as parents taking career breaks to raise children has scarred the pensions and benefits system for decades.

The scandal could and should have been dealt with long ago but for a lack of political will.

Duncan Smith’s “good news for women” rhetoric is shameful for a politician who knows that gender justice formed no part of the government’s motivation and who cannot be unaware of the scale of hardship that this measure will impose on millions of low-paid workers who depend on the state pension.

In any case, National Pensioners Convention general secretary Dot Gibson points out that five million older women pensioners are likely to miss out on these new arrangements.

Also missing out are 1.8 million current pensioners who would be eligible for means-tested benefits but prefer not to submit themselves to examination.

Gibson sums up the government approach as a “con trick,” explaining that future generations of pensioners will have to pay an extra five years worth of National Insurance contributions, work longer before they can retire and end up with less than they can get today.

It’s difficult to argue with such a summation, which emphasises that state pensioners are being robbed once again by those who have no stake in the state pension system.

All of us pay towards the multimillion-pound pension pots of the City directors, so it’s time that the richest in society paid their fair share in a progressive taxation system so that decent pensions could be provided for all.

See article from Perfessional Pensions below and make up your own minds:

The government will unveil its long-awaited state pension white paper, revealing decisions on the future of contracting out and increasing the state pension age in line with life expectancy.

State pension age

The state pension age is already due to rise to 66 by 2020 and 67 by 2028 due to changes brought in by the coalition (PP Online 29 November 2011).

However, Chancellor George Osborne has promised to link the state pension age to official life expectancy figures in order to prevent wrangling over the increase every few years.

Towers Watson senior consultant David Robbins said: “When the state pension age reaches 66 (2020) and 67 (2028) average life expectancy at State Pension Age would be c21.4 years for men and 23.9 years for women according to the assumptions used in the ONS’s population projections.

“If the government wanted to keep these numbers more or less steady thereafter, the ONS projections imply that SPA would need to rise to 68 by around 2036; 69 by around 2044; and 70 by around 2053.

“Male and female life expectancy are not projected to increase at identical rates, so it is not possible to keep life expectancy at SPA exactly the same for both.

“However, the government has not said that increasing the state pension age with life expectancy necessarily means keeping the average number of years spent in receipt of state pensions constant.

“It could instead mean keeping the proportion of adult life spent in retirement so that extra years of life are shared between work and retirement constant; an idea that has featured in earlier DWP analysis. In that case, the SPA would rise more slowly.”

Contracting out

Contracting out of the state second pension has been a particular sticking point for the Department for Work and Pensions while working on the reforms, torn between creating a simple system and unfairly cutting the entitlements of people in already suffering defined benefit schemes.

Any changes are likely to mean DB schemes must pay a higher rate of NI for members, adding to their costs.

Hargreaves Lansdown head of pensions research Tom McPhail said: “For those who contracted out of the second tier pension, anyone who has been contracted out of S2P or SERPS will have a one-off adjustment made to their £144 per week entitlement.

“The details are not yet available; however this deduction is unlikely to reduce the pension entitlement below the current basic state pension of £107.45 per week. This deduction reflects the benefits payable from their contracted out pension plan.

“Anyone who is subsequently then below £144 per week will build further pension entitlement by continuing to pay National Insurance.

“For those who are contracted in to the second tier pension, anyone who retires after 2017 with a combined entitlement of state and second tier pension worth less than £144 per week (under today’s system) will receive £144 per week if they have paid 35 years’ NI contributions.

“Anyone who is below state pension age in 2017 with a combined entitlement of state and second tier pension of more than £144 will keep that level of pension.

“However they will then get split indexation, with the £144 element going up in line with the triple lock and the balance above that going up in line with CPI.

“For those who have had both contracted in and contracted out periods, anyone who has been both contracted in and contracted out of S2P or SERPS between 1987 and 2017 will have a one-off deduction made to their entitlement based on the amount of time they were contracted out. An addition will then be made for the periods they were contracted in up to 2017.”

The end of means testing

An essential part of the coalition’s ideology on the welfare system is the notion that work and saving should be rewarded rather than disincentivised by means testing.

As such, the universal pension has previously been offered up as a way to end means testing by providing everyone with the same level of provision, regardless of any other income they have in retirement, provided they have paid enough NI.

Buck consultants managing director Fraser Smart said: “The new system will provide a simpler state structure and ensures that every single pound going into a top up pension plan will be to your benefit, which is absolutely vital when we are automatically enrolling every single employee into pensions over the next few years.

“It provides a much more reasonable minimum amount for the less well off without a complicated way of collecting it – £144 per week compared with £107 per week today and £142 per week for the means tested guaranteed minimum.”

Women and the self-employed to benefit

There have always been complaints that the current system penalises women and the self-employed. The self-employed can only receive a state pension of £107.45, but will see an increase to the same £144 per week as employed workers, provided they have paid the appropriate NICs.

Meanwhile, with the majority of S2P payers being men, the system is expected to provide more equality between men and women.

 

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