John Macnicol: Losing out in the pensions minefield

FUTURE pensioners will be asked to pay five years extra National Insurance contributions, get a state pension that is less than they could earn under the current system and be forced to work longer before they can draw it.

There is a £29bn surplus in the National Insurance Fund, mostly created by pensioners some say we can’t afford to ‘feather bed’.

The full new single state pension which is expected to be around £151.25 per week. This is a maximum figure that, sadly, as many as four out of five pensioners won’t receive. Since the scheme is designed to be “cost neutral”, methodologically there have to be
‘losers’.

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Don’t save more than £6,000 for retirement if you think you may be made redundant or without paid work between the ages of 60 and 67, and need to claim job seekers benefits or its successor Universal Credit.

After 40+ years of private pensions, the average income from private/occupational pensions and annuities in the UK is still only £8,641 per household.

The value of the state pension has declined since 1980 – it fell from 26 per cent of average earnings in the late 1970s to 16 per cent now.

Though the UK economy is the sixth richest country in the world, we have one of the worst state pensions in terms of replacement rates.

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Contrary to claims otherwise, the Office for National Statistics projects the proportion of UK population aged 65+ to shrink down to 21 per cent – about 
what it is in Germany now (and Germany is held up as an economic example to us all).

This ageing of the UK population has been caused much more by the size of age cohorts (both birth cohorts and adult cohorts swelled by immigration) than by any longevity life expectancy gains.

Of those aged 65+ who live alone, 70 per cent are women. In 2012/13 the average gross income for a single woman pensioner was £298 per week. Your 
state pension will entitle you to live
in poverty (especially if you are a 
woman).

This situation is not helped by the extent to which all parties move the goalposts on pensions and that promises are regularly broken

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Current changes policy could result in a state pension age of 66 being established between 2018 and 2020, 67 between 2026 and 2028, 68 by the mid-2030s and even a suggested 69 by the late 2040s. At this rate of increase, a child born today would not receive a state pension until age 77.

Britain is best at increasing the retirement age (only four European countries plan to raise the retirement age by 2050).

Though the Government, economists and actuaries can’t predict the jobs and skills required in 2055, they apparently already know they can’t afford your pensions.

There is no correlation or relationship between future estimates of the NHS funding gap and state pension costs (despite claims to the contrary by the Intergenerational Foundation).

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Pensioners are arguably the most economically vulnerable group in modern societies since their ability to lift themselves out of poverty is very limited indeed.

The private pensions industry has always sought to shape state pensions policy in Britain, and successive governments have been overwilling to listen to it.

The new single state pension will cap/limit National Insurance contribution years at 35 (previously 30), though the Government now admits: “It is therefore possible that someone might have 35 qualifying years when the new state pension is implemented and not receive the full single-tier amount.”

Pension systems are notoriously complex and forbidding but are designed to be so!

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This complexity derives to some
extent from the inherent technical problems – funding mechanisms, eligibility criteria, risk equalisation and so on – which baffle all except those who work fulltime in the financial services industry; in addition, there are many future unknowns such as life expectancy projections, labour market participation rates and performance of the economy or the Stock Market. Adding to this inherent complexity is the problem of many vested interests, each with its own agenda.

John Macnicol is a visiting professor in social policy at the London School of Economics and Political Science. He is author of Neoliberalising Old Age, published by Cambridge University Press.