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Issue No. 88 Spring 2023
Paul Laxton
PENSIONERS UNDER SIEGE?
Many of you will have seen the outrageous suggestion from a 'think tank' called the Adam Smith Institute that state pensions should be denied to those pensioners whose wealth measured in terms of pensions and property exceeds a million pounds. I was immediately struck by the contradiction of a free market think tank advocating a socialist wealth tax. At best its assertions are misleading, and sometimes downright untruthful. Take first of all the assertion that 'only' 18% of pensioners live in poverty. How does this square with the fact that nearly half of state pensioners do not pay income tax, in other words have an annual income of less than £12,570? Living off an income that low cannot be anything other than exceptionally challenging if you live alone.
The Adam Smith Institute would no doubt argue that there are numerous pensioners living in high cost homes in London and the Home Counties, along with other property hotspots, and that is how they arrive at that figure. No doubt many of those pensioners bought their homes in places like Barnet and Bromley fifty or more years ago, when it was still possible for people on average salaries to get on the property ladder in desirable suburbs. It is not their fault that quite ordinary homes routinely sell for a seven figure sum.
So, what are these pensioners supposed to do to replace state pension income? That question is not answered by the authors, but in my view there are only two possibilities. One is equity release, which I venture to suggest is already used by low income pensioners. The other option, a move to a lower value home in a cheaper area, smacks of a form of ethnic cleansing. In reality it is not an option at all, since the surplus cash generated would still be part of your wealth for state pension eligibility purposes. You could hardly think of a better disincentive to downsize and free up family homes.
That takes me on to the key questions. Is there the political traction to bring this about and will we be affected? The answer to the first question is 'no' at this stage, but the political landscape could change. According to the Intergenerational foundation 27% of pensioners are millionaires when their pension and property assets are added together. Consequently it will require the remaining 73% to broadly uphold the principle of universality. 85% of pensioners vote in elections, compared to 67% nationally, and just 47% among the 18-24 age group. However, once the pensioner vote is not seen as monolithic, it appears at first sight to present a political opportunity. As better off pensioners, we would be vulnerable, but fortunately it would be very difficult to devise a formula given that the inflation figures used to uprate the state pension are not known from one year to the next. The same problem applies to our civil service. pension, which is funded from general taxation rather than an accumulated ‘pot’.
The Daily Mail has its own formula for calculating public sector pensions, which is equally misleading and intended to fuel only envy and division. Typically the paper assumes 25 years of pension payments, but builds in an allowance for inflation before coming up with a figure that looks astronomical, but in fact has no more purchasing power than a static calculation. lt is even more misleading if the public sector worker still has a substantial time left to retirement. This is the sort of thing we are up against when defending our civil service pensions.
However, returning to the theme, there is another difficulty in making this idea work, one that should have been obvious from the start. The fact that a substantial number of pensioners will not survive anything like 25 years after retirement makes it virtually impossible to devise a scheme that cuts off your pension when you reach pensionable age, unless of course your house has already reached the magic million in value. OH, and what happens in the event of a property crash? In their enthusiasm to raise what they see as a £25 billion annual bonanza, the ASI doesn't seem to have considered the administrative nightmare that would ensue. The 'think tank' doesn't seem to have done any detailed thinking.
Does that mean we can ignore the threat of attacks on our living standards? Changes to the inflation proofing of our civil service pensions would require primary legislation and I have seen nothing to suggest that there is any appetite to change the settlement reached in 1972. The triple lock is another matter. However much we might feel entitled to our state pensions, the fact remains that they are defined as a benefit under the 1947 National Insurance Act. This means that the government can make changes via the budget, which by convention cannot be challenged in the Lords.
My own suggestion is that come the next election as many pensioners as possible should be badgering the candidates to promise to protect the triple lock. I can see no other way to preserve it not only for ourselves but for future generations who will not have the benefit of the more generous occupational pensions that we enjoy. Joining that campaign is not an act of selfishness. Indeed, it could be argued that older people have a duty to protect and enhance the rights we enjoy so that our children and grandchildren are not disadvantaged.
PAUL LAXTON, EDITOR
