In a speech last week Nigel Farage formally committed Reform UK to the state pension triple lock if he wins the next election, promising to fund this by cutting the benefits bill. How, he didn’t say, suggesting a failure to really understand the nature of the bottomless pension pit problem. It’s one that faces him or any incoming government, the truth of which is that the pensions system itself is one great benefits scam. This was clearly explained by Chris Philp in a series of articles he wrote for TCW earlier this year. We are republishing this three parter this week under a more forthright heading, in the hope of getting the message across, not just to Nigel Farage, but to Ben Habib and Rupert Lowe as well.
Chris’s challenge to all these leaders of new parties on the ‘right’ is two fold. First for them to call out the two parties of government responsible over 3o years for wrecking the original auto-enrolment scheme that made working people save for pensions; turning it into a benefits scheme which allows people to avoid work for life. How this was done incrementally they can read in Parts 1 and 2. Second, for them to be bite the bullet and be bold enough to announce the solutions he sets out in Part 3 – including limiting the pension rights of anyone not working a total of 35 years (including all recent arrivals, but not limited to them).
AS SOMEONE with experience of working in the pensions industry, I’ve read and listened with gritted teeth to the incessant calls to reduce pensions, the triple lock, pension contribution allowances etc, until I finally felt obliged to put finger to keyboard and try to get some of the facts out there in the hope of influencing policy-makers on any part of ‘the right’ who will listen.
I have to wonder why nobody is talking about these facts, especially those on the right, since the State Pension has been transformed by socialist policies from an entitlement for working people into a lifelong benefit for non-workers.
Let’s start with the deplorable situation with the State Pension which was originally designed to be something one earned by working over a lifetime. The costs over time are shown in the graph below:
Qualifying for the State Pension
Currently, to qualify for a State Pension one needs at least ten years of National Insurance contributions, with 35 years needed to achieve the maximum (albeit paltry) State Pension.
However, the simple fact is that we are now giving it away to large numbers of people who have contributed nothing at all. The graph also overlays (the dotted vertical lines starting at 1996) each change to the system by governments which caused these giveaways.
Giveaway 1: JSA – Tax and NI ‘credits’ on benefits
When Jobseeker’s Allowance (JSA) replaced Unemployment Benefit, it seemed a small, even pointless, change. But there was a monster lurking unnoticed below the surface – people receiving out-of-work benefits were now to be given tax and NI credits. These credits give the same entitlement to the State Pension (and other benefits, such as yet more out-of-work benefits) as any NI contributions which other people make through working. We started moving away from a contributions-based system. Prior to doing some research for this piece, I had only a vague memory of the government changing the benefits system in this way and I expected to find a Labour government’s fingerprints all over it, so you can imagine my surprise when I found that this started in 1996 (just before the Blair landslide). Presumably John Major has a lot to answer for here.
Giveaway 2: The 0 per cent NI band
Since 2001 there’s been a ‘0 per cent band’ for Employee NI contributions whereby employees earning over about £6,500 a year are credited with a full contribution for State Pension and benefit entitlement purposes even if they don’t actually pay NI contributions.
It’s yet another way that people who never actually pay NI are simply deemed to have done so. These are obviously low earners in terms of salary, but many people have control over salary levels so it needs to be looked at, especially since they may also qualify for:
Giveaway 3: Pension Credit
Any UK resident of State Pension Age (SPA) can claim Pension Credit as long as their income is below a threshold, currently £227.10 per week for single people, £346.60 for couples. They receive an amount which brings their income up to the threshold.
Although technically this can be in addition to any State Pension they receive, since the full State Pension is currently only a mere £3 a week above that threshold, it creates the somewhat ridiculous situation that people on the full State Pension cannot claim Pension Credit. Which matters, because:
Pension Credit has additional benefits
Recipients of Pension Credit qualify for many other benefits such as housing benefit, council tax exemption, free TV licence (for those over 75), NHS help with dental and sight care, travel costs for hospital appointments, cold weather payments, and help with heating bills.
The reality is that Pension Credit recipients are often substantially better off than those who actually earned their pension. Those who have a full pension get £3 more, those who may have contributed nothing are given pretty much the same income (just £3 a week less) plus all the above benefits – which is actually a massive difference, all for potentially for doing nothing for their entire lifetime.
Eligibility
Let me just emphasise that key word above – any UK resident above SPA can apply for Pension Credit. Yes, ‘resident’ not ‘citizen’. That means anyone who wandered into these isles and qualified for residency can simply rock up and get themselves all that money and additional benefits – they can be better off than many people who have worked here all their life.
How many people are getting these giveaways?
We don’t know. The government publish no official statistics which allow us to tell who earned their pension and who didn’t.
Why did they do this?
Again, we don’t know, but perhaps we can hazard a guess. Last century, there were many very poor pensioners living below the breadline. It was an embarrassment to the government of a supposedly first-world country. The triple lock was invented to ensure that people trying to live on the State Pension became no poorer – but only relative to the rest of society, they were still very poor. Worse still, we were starting to see some people arrive at SPA having made no provision at all. And pensioners are not entitled to out-of-work benefits etc, so it was a dilemma.
So my personal take on this is that they found a way to give away money, pretending that they were pensions by blurring the lines between those who earned them and those who didn’t. And no politician has ever solved the problem (or has even wanted to surface the goings-on for fear of being expected to try to solve it) so here we are, 30 years later, with increasing numbers of non-pensions being paid and increasing numbers of new arrivals claiming them. We are at breaking point.
So is a pension a benefit or something else?
Well, nowadays it’s both. Which is presumably what they intended. For those who worked and fully paid their NI it’s the ‘contractual entitlement’ that it was designed to be. For those who didn’t, it’s a benefit cunningly hidden behind the cover given by the genuine pensioners.
Part Two will discuss some important myths and facts about pensions, before Part Three looks at solutions, which are easier than it might seem.
