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Steve Bee: Baby-boomer myths and the state pension magic money tree

Contrary to the US and others, our real baby-boom did not happen until the 1960s. This is why we should fear even more shooting-from-the-hip reforms to the state pension system

In light of the recent announcement from the Government that the increase in state pension age is to be accelerated, we should now be in no doubt it is not something any of us can rely upon as part of our lifetime financial planning.

Any timetables issued from here with regards to its amount or the age at which we can expect to receive it should be taken with a hefty pinch of salt.

I would also not be surprised to see it become subject to a means test eventually. Indeed, there is much talk of that already. It seems moving the state pension goalposts is the magic money tree in our post-Brexit world.

Many put the changes we have seen so far down to a response to the so-called baby-boomers born in the 1950s reaching their 60s. But while it is true there was a post-war baby-boom that occurred through the 1950s and early 1960s, it was in the US not the UK.

Office for National Statistics data shows a short post-war spike in births for the UK population but that was over by the end of the 1940s. There was nothing unusual through the 1950s.

Contrary to the US and others, our real baby-boom did not happen until the 1960s. What does this mean? Our boomers are set to reach their 60s during the 2020s, which is when we should fear even more shooting-from-the-hip changes to our state pension system.

Since the early 1960s around half the employees in the UK have been in a company pension scheme and half have not. That ratio has not changed at all as our working population has grown from 18 million people back then to over 30 million today.

In short, we have always had far too many people completely reliant on the state pension for their retirement income.

With so many depending on the state for their wellbeing in old age, we really do need to take a careful, measured and open approach when making changes – something our Government is not particularly good at. Indeed, it is for that reason the Waspi movement came into being in the first place.

But the Government needs to do more than simply get better at informing people of life-changing decisions they feel required to impose on millions of older citizens. With the state pension in constant flux, something has to be done to encourage sensible levels of pension saving in the UK.

What has happened so far with auto-enrolment and what will happen as it reaches its mature state in the early 2020s simply is not good enough.

We need a clear roadmap for pensions and long-term savings that will result in less reliance on the state pension and we need it soon. Before the real baby-boom hits.

Steve Bee is director at Jargonfree Benefits

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. Christopher Petrie 28th July 2017 at 2:38 pm

    Why does changing the state pension age have anything to do with Brexit, as Steve implies.

    Increasing SPA has been going on since 1995, just after we signed the Maastricht treaty. These long term changes were nothing to do with a referendum held a year ago.

    • He was just describing the where we will be … a post Brexit society I don’t think he was linking the two things

    • I saw it as a general opinion that we don’t know what will happen after brexit (even more than we don’t know what will happen if we were to remain in the EU). People voted for complete uncertainty, which is what we will have for the time being.

  2. Too much money was wasted in expensive personal pensions sold by Steve’s ex-employers and colleagues – some of that would have gone a long way to plugging the gaps now appearing! They were designed to fleece customers, not provide adequate income in retirement!

  3. I’m fed up of people using Brexit as some sort of datum, a point in time, an era. Please stop it.

    • Why are you fed up with that evan? Is it the same as why I am fed up with people taliking about “Gold Plated” pensions? I’m not saying that is you, however.

  4. The increase in the UK birth rate in the 40s was known back then as the baby bulge.I remember it well as I was born right at the start of it in 1945.
    Borrowing marketing ideas from the US is all very well, but as Steve has pointed out, it is a mistake to take them on uncritically and without reference to UK facts on the ground.
    On another point altogether, Brexit does mark the beginning of an era. It is undoubtedly the most important event for UK since the war. Magic money trees have sprouted up and Brexit might feed and water these miraculous plants or kill them off altogether.

  5. i westminsterwills.co.uk 29th July 2017 at 11:51 am

    I fear the lies perpetuated about pensions need to be addressed. Fial salry schemes on offer by insurance companies such as Scottish Widows it appears were used to crosssubsidise their other outlandish and costly stupor of a rudderless and leaderless company severely lacking in knoeldge or competence. That is why they stopped paying in to the fianl salary scheme – which was the root casue of their eficit ever since. Interestingly the FCA do nto appear to accept that a company pension scheme in Default is a danger to someone who has saved all their lives for additional income in retirement ? Pesion raids by Gordon Brown and his succsessors – to OSbornes ” pension sfeedoms are merely engineered to recoup tax relief at a time when the UK Govt is insolvent and invaded by the Americans. Peopel need protection against Govt’s who infiltrate and extract peoples savings by any menas . In my opinion this is theft. We were instructed to Sign out of SERPS without proper knowledge of the repercussions – by insurance companies and their agents. We have been Robbed !

    • I agree with a lot that you say. I would also add that britain doe not spend as much on state pensions as many other countries. Just like it doesn’t spend as much on the NHS as other countries do their healthcare.
      Really, britain needs to cut more from pensions and the NHS, make them means tested (to discourage people from taking out needless savings plans for themselves) and just make more money available for tax breaks for the wealthy and be done with it. Well, that’s what this government would like anyway.

  6. I believe Danby is right I too am a Forty-fiver and part of that bulge.

    However I think a delve into the history of pensions might be of use.

    When pensions were first introduced at the start of the C20, SRA was 70 and the meagre pension was means tested. Longevity for a male was about 51. So not much strain on the exchequer!

    BY 1925 SRA was 65 and male life expectancy was about 64. HMRC still quids in!

    In 1960 Male life expectancy had risen to about 70 – so 5 years pension in payment.

    BY 2012/14 life expectancy had risen to 79 – 14 years in payment. This leads me to postulate that the retirement age (for non heavy manual work) should actually be at least 70.

    The main problem with the State Pension in my view is the expectation of it being paid far too early.

    If you really want to consider other changes then how about:

    State Pension means tested. it would mean that they could reduce tax as it would only be the least well off that would attract a State Pension. Also a cruel but true fact – the poorer you are the sooner you die (in general). So the savings multiply. The tax need not necessarily be reduced at contribution stage – although tax relief at contribution should be available at the highest marginal rate and there should be no limits (except perhaps withdrawal of the PCLS). Then private pensions in payment could be subject to a reduced flat tax (irrespective of other earnings) of say 10%.

    I guess this may satisfy all parties.

  7. When reaching my contracting out pivotal age some years ago I had a tough choice to take. Whether to trust a product providers investment performance or a politicians promise. Hmm….

  8. The state, under successive Governments, has not been open and honest with people about changes to state pensions that have had a very significant impact on benefits – that much is true, so much so in fact that a private provider, had it behaved similarly, would have been shut down.

  9. Let’s not forget 40 plus years of contributions to the state pension…some of us thought we WERE saving for our retirement. It’s unfair to infer this is a benefit, it is something we have paid into.

    • With respect Caroline, the word “benefit” is used across all type of pension to refer to the … er … benefits one can receive from the pension.

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