Steve Bee: Can the state pension deliver what’s needed?

steve bee

I have always thought the old-age pension, as it used to be called, was a good idea. The idea was it should provide working people with a bedrock on which to build their lifetime savings. There is, though, clearly a danger in providing a basic pension for all in that it has to be sufficient to provide at least a subsistence level of income for anyone who chooses to make no other provision for themselves.

Others still may be unable to make further provision in terms of personal savings and the state-provided pension therefore needs to be of sufficient value to keep them from the ignominy of additional means-tested support; the availability of which would merely serve to undermine all additional pension saving by everyone else.

William Beveridge summed this up succinctly when he said: “The state, in organising security, should not stifle incentive, opportunity, responsibility; in establishing a national minimum it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family.”

Fine words, but words that were not acted on by succeeding generations of politicians as they managed the decline of our state pension over the second half of the 20th century. We had to wait until the second decade of the 21st century for the abandonment of the disastrous 1960s experiment that saw the state take on provision of a second, earnings-related pension for half the UK workforce, before we were able to finally introduce a single-tier, subsistence-level pension for our older citizens.

That new state pension should provide the clarity and certainty Beveridge envisioned and encourage widespread pension saving under the auto-enrolment reforms. We have a real chance that the vast majority in the UK workforce will be able to accumulate lifetime pension savings through workplace pension schemes.

But there is much talk these days of the affordability of state pension entitlements. Many say the state pension should not be an entitlement, but a benefit. That  goes against the grain of what social security is all about.

Beveridge, again, explained as follows: “Any plan of social security worthy of its name must ensure that every citizen, fulfilling during his working life the obligation of service according to his powers, can claim as of right when he is past work an income adequate to maintain him.

“This means providing, as an essential part of the plan, a pension on retirement from work which is enough for subsistence, even though the pensioner has no other resources whatever; some pensioners will have no other resources. It means also providing a pension which is not reduced if the pensioner has resources.

“On the contrary, direct encouragement of voluntary insurance or saving to meet abnormal needs or to maintain standards of comfort above subsistence level, is an essential part of the plan for social security. It follows the plan must include provision of pensions up to subsistence level, given as of right to people who are past work, regardless of the other resources that they then possess, but in respect of service and contribution during working life.”

Steve Bee is director at Jargonfree Benefits