In the 21st century, there is no justification for the continued existence of pensioner poverty in Britain. In a civilised society, we have a collective responsibility to those who have already made, and continue to make, a considerable contribution to the wealth and well being of the country and an obligation to ensure that they are able to share in the growing prosperity of the nation.
In recent times, government, leading academics and media commentators have tended not to use the word poverty when describing deprivation and disadvantage and have favoured the altogether less emotive term of ‘social exclusion’. Of course, this may simply be because no-one likes to accept that they are part of a system in which a significant proportion of the population are struggling to survive. It is unpalatable to modern sensibilities and, quite frankly, embarrassing.
But I would prefer to think this change of emphasis is a long overdue acknowledgement that poverty is not just about how much money one has – but also how that compares to the rest of society. Either way, these linguistic somersaults only serve to highlight a more fundamental problem – namely, of having to define poverty before we can actually start to address it.
But whether or not we consider average or median incomes as the best method for measuring such matters, there remain significant numbers of older people who do not have enough money to participate fully in the life of their communities.
In its defence, the government points to the fact that the income levels of pensioners have actually grown over the last 20 years – but, worryingly, so too has the gap between the richest and the poorest. For example, between 1979 and 1997, the incomes of pensioner couples in the top fifth of income distribution rose by 80 percent, but during the same period, the incomes of those in the bottom fifth increased by only 34 percent. For those people, their income was around £94 a week before housing costs. That, by any definition, is not enough to live on.
However, a more sensible starting point to this debate would be to determine how much money is actually needed to ensure that older people avoid poverty altogether. A recent report from the Family Budget Unit, based at Kings College, London attempted to find a formula for determining how much income was necessary to provide the basics of food, warmth and shelter and enabling someone to participate socially in the community.
When their research was published last year, it was suggested that in order to avoid living in poverty, a single pensioner and an older couple would need at least £90 and £135 a week respectively, in addition to rent and council tax. However, an estimated 52 percent of single pensioners and 24 percent of couples have net incomes below these figures.
A picture therefore emerges of fairly widespread pensioner poverty in one form or another. Further investigation also reveals the composition of those who find themselves in this situation.
There are around 10.8 million pensioners currently in Britain, almost seven million of whom are women. Many of the latter were unable to build up a decent pension income during their working lives because pension systems were originally designed for those with continuous full-time employment. The responsibility for caring for children and other dependents resulted in many of them spending years outside the labour market and consequently they have been ill served by employment-based pension schemes. Not surprisingly therefore, 60 percent of women pensioners do not have any form of occupational or private pension and two-thirds of those who claim income support are single female pensioners.
In addition, elderly people from ethnic minority communities face a greater risk of poverty in retirement. During their years in employment, just as with women, many of them received low wages and were unable to build up large savings. It may also be the case that some of them have experienced difficulty in getting state benefits, particularly when an already complicated system is in a different language. However, very little research has been done into the plight of this group of elderly people and calls have therefore been made on the government to address this.
However, by far the most financially vulnerable group of pensioners is the over 75s, who make up 40 percent of the pensioner population and number well over four million. As a group they are less likely to have an occupational pension or SERPS because such things were simply not available when they were working. They are also less likely to have large savings because they have been using what they have to fund their extended retirement and, because of their age, they are less able to earn even a part-time income. The fact is, the older they get, the poorer they become.
Evidence such as this has therefore prompted the government to declare its desire to tackle pensioner poverty as a matter of urgency. Much has been said, policies have been introduced and awareness campaigns launched. Some initiatives have in fact been welcomed by pensioners and their representatives – yet the overall perception and, I believe, the reality is that a significant number of older people remain socially excluded.
The government’s pledge to help the very poorest pensioners has relied largely on the introduction of a means-tested Minimum Income Guarantee. This has been set above the level of the basic state pension and linked to average earnings. However, despite a £15 million advertising campaign, some 700,000 pensioners out of around two million who are entitled to receive the MIG, do not claim. This is because means-testing fails on three main counts. It is more costly and bureaucratic to administer than a universal scheme; it is a complex system to understand; and it demeans those who have to parade their poverty in order to receive extra help, to which many of them feel they are already entitled. The poorest pensioners are therefore the very people the MIG was supposed to help – but missed.
Furthermore, government figures estimate that by 2003, the new Pension Credit proposal will result in around half the pensioner population, 5.5 million people, being subject to means testing of one form or another. Not only does this represent a break with the post-war consensus of needing to reduce the reliance on means-tested benefits, but it also signals a step closer towards phasing out the basic state pension altogether as the mainstay of pensioner income. For while it has not been expressed explicitly, the logical conclusion of existing government pensions policy will be a situation whereby the state pension is little more than nugatory and ever increasing numbers of older people rely on means-tested benefits to survive. It is also irresponsible to think that this is a short-term problem that will disappear as the make up of the pensioner population changes.
As a way of shifting the responsibility for pensions away from the state and onto individuals, the government is encouraging increasing numbers of people to make their own provision for their retirement through a combination of occupational, private and stakeholder pensions. But only recently, large companies such as British Telecom and others have announced that the benefits of their existing pension schemes will no longer apply to new employees. The well publicised scandals surrounding the mis-selling of private pensions and the current debate surrounding the Myners report have also deterred many from taking such a risk with their retirement income. Moreover, stakeholder pensions for the lower paid can only yield reasonable returns if large contributions are made.
Anyone on low pay will testify that putting money aside now, to benefit in 40 years time, is simply not an option. It is not surprising therefore that around 20 million workers are currently without any pension provision, other than that provided by the state.
Of course, it is true to say that those who are retiring now are better off than those who retired in the 1970s and 1980s – but it does not necessarily follow that they will still be in that position when they reach 75. Savings are used to supplement income, extra costs can be incurred as a result of deteriorating health or disability, and index-linked occupational or private pensions obviously decrease the longer they are drawn.
This government, and its successors, are therefore faced with two problems. The first is the urgent need to address the issue of poverty among today’s pensioners and the second is to ensure that the pensioners of tomorrow do not find themselves in the same position as their predecessors.
Despite years of repackaging and promotion of means-tested support, the most effective way of tackling pensioner poverty is through the basic state pension. It remains the most important part of a pensioner’s income and is received by around 98 percent of all older people.
But more important is the principle that is at its heart. Those at work, backed by their employers, pay National Insurance so that those who are retired can draw a pension. This is social insurance and I believe, its very nature, helps to bind the nation together. Quite rightly, it presupposes that as a population, working and retired, we have a common responsibility and obligation to each other.
However, this principle is undermined if the level of the state pension is kept low. In 1980, the then Conservative government abolished the link between the pension and average earnings. As a result, single pensioners have lost nearly £30 a week, so that the pension now stands at a mere £72.50 instead of £101.25. Therefore, despite pronouncements from think-tanks, economists and politicians, the basic state pension must be substantially increased to make up for its loss of value and the link with earnings restored.
Of course, paying a higher state pension to all does mean that even the very rich pensioners would qualify, but redistributive taxation could redress this anomaly. There should also be a reintroduction of the Treasury contribution to the NI fund, phased out by the Conservatives and a raising of the upper earnings limit on NI contributions. This would allow higher earners to contribute a fairer proportion of their income and add an estimated extra £4 billion a year to the fund.
An uprating of the 25p a week age addition, paid at 80, could also be made to address the fact that the oldest pensioners also tend to be the poorest. A £22 a week payment, phased in from the age of 70 would be a step in the right direction.
But contrary to what the government says, the cost of re-establishing and widening the principles of social insurance, as I have outlined, are not prohibitive. Already the NI fund has a usable surplus of some £10.5 billion and is set to rise to £12.2 billion by 2003. A recent report from the government actuary also states that the link with earnings could in fact be restored without any increase in contributions until 2007/8. Nevertheless, even if NI payments have to rise in ten years time, real net income would still be significantly higher than it is now and gains in productivity, employment and wages will bring even greater amounts into the NI fund. As the fourth strongest economy in the world, we are therefore more than capable of providing for much stronger pensions than at present.
Britain needs a comprehensive pensions policy which acknowledges the needs and aspirations of the older generation and delivers real financial security in retirement. The importance of reinvigorating the NI system – widening the eligibility for pensions, restoring the link with earnings and raising the level of the basic state pension lies, therefore, in the need for social cohesion.
Fundamentally, the provision for retirement is as much the responsibility of the community as a whole, as it is of the individual – but a society in which one quarter of the population spend the last 20 years or more of their lives in or on the borders of poverty is one which has abandoned that responsibility. That is something I, and millions of pensioners, are not prepared to accept.