To avert a major humanitarian and economic crisis, governments need to be bold and commit to aligning the state pension with the living wage
Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.
Death and taxes may be the only certainties in life, but poverty in retirement is increasingly a harsh reality for UK retirees. It will be even more so for future retirees as low wages and unchecked corporate profiteering has reduced chances of adequate savings for old-age, and people will be forced to survive on the inadequate state pension.
The UK has over 12.7m retirees. For the pre-April 2016 retirees, the state pension is £169.50 per week or around £9,000 a year conditional upon National Insurance contributions. Only 75% of the pre-2016 retirees receive the full amount i.e. nearly 2.4m people, mostly women miss out.
For post-2016 retirees, the state pension is £221.20 a week or £11,500 a year, all conditional upon National Insurance contributions for qualifying years. Only 51% of the post-2016 retirees receive the full state pension, i.e. nearly 1.7m, and once again women lose out as they are penalised for being child bearers and carers.
A minister informed parliament that the “lowest State Pension amounts in payments are less than £1 per week”. When asked to publish the median state pension, the Minister replied: “There are no plans to publish the median weekly amount”. Despite hikes in the state pension age and the Equality Act 2010, women continue to receive lower state pension than men’s. Those not receiving the full state pension may be entitled to mean-tested benefits such as Pension Credit and housing benefit, if they can negotiate the bureaucratic maze. Nearly 1.4m pensioners receive pension credit, worth £3,900 a year, and last year £2.2bn went unclaimed.
Based upon the past data, the average state pension may be around £9,000-£9,500 a year and is the main or the only source of income for majority of retirees, especially women. This compares with median wage of £28,104 a year and average wage of around £35,200 a year. The headline minimum wage for 37.5 hours a week is around £22,300. Pensioners are expected to survive on the state pension which is less than 50% of the minimum wage and barely 26% of the average wage. It is even worse for pensioners who choose to live abroad with their loved ones. Their state pension is frozen and not increased each year. Some pensioners may receive work pension, but the future is bleak as DB schemes have vanished and low wages prevent people from saving for retirement. Some 28% of over-55s have no other pension saved apart from the state pension. Nearly 32% of Britons are unable to save for pension due to low incomes. Due to gender pay gap women are more likely to heavily rely on the state pension.
Our political establishment is all too willing to condemn current and future pensioners to poverty. Chancellor Jeremy Hunt complained that annual salary of £100,000 is not enough. Former Prime Minister Boris Johnson complained that the then PM salary of £141,000 is not enough to live on and described income of £250,000 as chicken-feed. Former Chancellor Kwasi Kwarteng and former health secretary Matt Hancock demand £10,000 for a day’s work. Tory MP Peter Bottomley says he can’t live on an MP’s salary, currently £91,346, but they all expect pensioners to live on £9,000-£9,500 a year.
The UK state pension, as a percentage of average earnings, is one of the lowest in the developed economies. Pensioner benefit spending for 2023-24 is estimated to be £138bn, of which £125bn is spent on state pensions. According to the OECD, the UK was spending around 5.7% of its GDP on state pensions and related benefits, compared to 16% for Italy, 13.9% for France, 13.5% for Finland and 10.4% for Germany. More recent estimates for the UK suggest that it may now be 5.9% of national income, still well below the spending by major European countries.
Despite a variety of benefits and the triple-lock, some 2.2m UK retirees, including 1.25m women, live in poverty. Some 2.5 million retirees skip meals and 1.3 million are at risk of undernourishment. Around 68,000 retirees die in poverty each year. Despite winter fuel payments, last year there were nearly 5,000 excess pensioner deaths from cold as retirees have to make tough choices between eating and heating. A study covering the period 2012-2019 noted 335,000 excess deaths (48,000 a year) in England, Scotland and Wales due to poverty and austerity. Over one-third of the deaths were under the age of 65 years i.e. majority were senior citizens. Mortality rates increased, especially for women.
The plan of the political establishment is to make older people work longer, effectively prevent people from claiming the state pension after lifelong payment of taxes and national insurance. The state pension age is currently set at 66 years and is due to increase to 67 in 2026-2028 and to 68 from 2044. Some want to pile on the agony by hiking the state pension age to 71. Tory MP Ian Duncan Smith wants to make people work until they drop by hiking the state pension age to 75 years of age. UK life expectancy is stagnant or shrinking. Due to poverty, low wages and lack of access to good food, housing, hospitals, family doctors and dentists healthy life expectancy in England is 62.4 years for males and 62.7 years for females; 61.1 years for males and 60.3 years for females in Wales.
In sharp contrast, France is to increase the state pension age from 62 to 64 by 2030. Poland reduced retirement age to 65 years of age for men and to 60 years of age for women.
Each hike in the state pension age results in wealth transfer from the poor to the rich. On average the rich tend to live 10 years longer than the poor. Life expectancy in Blackpool is around 73.4 years, compared to 86.3 years in affluent Kensington and Chelsea. So the rich will receive the state pension for a longer period than the poor.
Too many spin pensioner poverty as an old versus young issue, forgetting that today’s young people are tomorrow’s retirees. In time, today’s low pensions will haunt them too. The real issue is nothing to do with age. It is a class issue, connected with low wages and inequitable distribution of income and wealth. The UK is increasingly a place where a small minority of people have excessive wealth and the rest struggle to make ends meet. The top 1% has more wealth than 70% of the population combined. Just 50 families have more wealth than 50% of the population. It needs to be redistributed to enable people to live a dignified life.
To avert a major humanitarian and economic crisis, governments need to be bold and commit to aligning the state pension with the living wage, within the lifetime of a single parliament and enable senior citizens to live with dignity. Contrary to the right-wing commentators, the state pension is not a burden. It keeps retirees nourished, heated and active. It improves physical and mental health, reduces pressure on the NHS, GPs, care services and reduces demand for social security benefits and related administration. It also stimulates the local economies as pensioners tend to spend locally. Pensioners pay income tax if their total income exceeds tax-free personal allowance. They also pay council tax, VAT and other indirect taxes.
A country that can bailout banks and energy companies; fund wars in Ukraine, Afghanistan and Iraq, and hand out billion is subsidies to rail, steel, oil, gas, auto and internet companies can also fund the state pension to enable people to live with dignity. For example, by taxing capital gains at the same marginal rates as wages, around £12bn a year in additional revenues can be raised. The same remedy for dividends can raise another £4bn-£5bn. Levying national insurance on recipients of capital gains and dividends, currently exempt, can raise another £8bn-£10bn. Restricting tax relief on pension contribution to 20% for all will generate £14.5bn a year. Since 2010, HMRC has failed to collect over £500bn in taxes due to evasion and abuse. Some £570bn of UK citizens’ assets are held in offshore tax havens and HMRC has no idea of the level of tax evasion. So, investment in HMRC can generate billions of pounds. Additional revenues can be raised by wealth taxes and a financial transactions tax.
Pensioner poverty in the world’s sixth largest economy is a political choice, and needs to be challenged in the next general election.
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