Charles Amos studied Political Theory at The University of Oxford and writes The Musing Individualist Substack.
Rachel Reeves has recently decided to withdraw the winter fuel allowance of £200 for the 10 million pensioners who do not receive pension credit, saving the Treasury approximately £1.4 billion. This is an entirely commendable and courageous move on her part.
Yet I can already hear the united howl of most pensioners against it: ‘I’ve paid in all of my life; I’m entitled to the winter fuel allowance!’ Mainstream politicians are often quick to bend to this form of plea. Should they? No. The average pensioner has not paid in a net sum over their life, and, accepting the welfare state requires redistribution, requires some to get less than they ever paid in. That is the nature of social democracy.
The basic idea behind the mentioned retort of middling pensioners is they should get out of the welfare system what they have paid into it. In addition to this, many believe the state pension system works like an insurance company with each person having their own pot which they build up over time.
Indeed, national insurance and the required payments you make over your life to get a full pension suggest this is the case. In reality, the state pension has always worked via the working population paying for the pensions of older people. William Beveridge’s proposal for a fully funded system was largely brushed aside by the National Insurance Act of 1946 because such a proposal would not have allowed politicians to pay out pensions to those who had not paid in (and gain votes in doing so).
As an Institute for Fiscal Studies report puts it: “Over time, the link between a person’s contributions and the pension income that person receives has become even weaker, as NI rates are now set simply according to the overall budgetary needs and distributional objectives of the government”.
The average pensioner born between 1946 and 1961 has or will receive about £1.20 for every £1 they have paid in. Given Reeves is proposing to take away the winter fuel allowance from 10 million out of 11.4 million receiving it, pensioners should fully accept her proposal, because, they have never paid in enough to warrant having it in the first place.
Instead, Reeves is simply ensuring average pensioners get what they have paid in. I am sure many pensioners will question this evidence given it leads to a conclusion they dislike. Yet simply considering the national debt of £2.5 trillion equating to £37,368 per person shows the average pensioner has taken out more than they have paid in.
To ensure no shred of doubt here it should be noted since 1970 there has only been a budget surplus for five years, meaning, the average taxpayer has not paid in on a net analysis for the vast majority of the fifty years gone.
As the Resolution Foundation notes: “The surplus received by the baby boomers and generations that follow is effectively an additional cost passed onto future generations.” And its future generations will have to bear the cost of such largesse in either higher taxes or fewer services because current spending is simply unsustainable.
Were welfare spending to continue as it does today by 2066 the national debt would be 230 per cent of GDP and debt interest a staggering 9 per cennt of GDP. Removing those unrealistic assumptions confirms something many younger people have always thought, namely, baby boomers have taken the most out of the state and lived up their twilight years on the credit card of tomorrow’s generations.
For the sake of argument though let us accept the 10 million pensioners have net paid in across their lives. Would this warrant them claiming they are entitled to their winter fuel allowance? According to the social democratic beliefs which the vast majority of them hold the answer must surely be ‘no’ as well.
Social democracy mandates redistributing income from the rich to the poor based on alleviating poverty, ensuring equality of opportunity, and reducing inequality. All of these objectives almost necessarily dictate many people will end up with less than they paid in. Given pensioners take no issue with the top 1 per cent of earners paying 29 per cent of income tax, but certainly not receiving 29 per cent of the benefits of it, parity of reasoning dictates they accept what they pay is not necessarily what they ought to get out either.
Many organisations such as the National Pensioners Convention have argued the winter fuel allowance should be kept to ensure pensioners don’t fall into poverty. According to them, two million pensioners are already in poverty which allegedly means they live in “damp, cold homes, washing in cold water and not using the cooker, all to save money”.
Put dramatically this is said to create a choice between heating or eating. Is this the case? Looking at the household expenditure of the bottom quintile of over sixty fives shows they spend 17.8 per cent of their income on recreation, restaurants, hotels, alcohol, and tobacco, so, no.
This equates to about £2,100 a year, meaning, poor pensioners need not reduce their heating or food expenditure at all; instead, they simply need to shave down their leisure expenditure by ten percent. Will there be a small number of exceptions? Of course. The overwhelming majority of pensioners though will not be put into poverty due to this bold policy of Labour.
Although I believe the thinking of social democratic pensioners to be incoherent when it comes to pension policy, I am sympathetic to the idea of reciprocity embodied in their mantra of “I’ve paid in my whole life’”.
This idea of reciprocity should not remain a glib phrase though. Granting people are entitled to what they have paid in and democracy cannot take from this sum – that each person has authority over their own pension sum – then people are entitled to the national insurance payments that constitute that sum too.
People having authority over their national insurance payments though dictates they should have the freedom to refuse to make them, that is, to opt out of paying national insurance and forgo a state pension. Strange would be the moral reasoning which claims people are only entitled to their money once the government has taken it.
At this point, I suspect many pensioners will realise many of the poor only receive a state pension due to redistribution which would end with the possibility of the rich opting out of an actuarially disadvantageous scheme. This would almost certainly happen given the top 2 per cent of earners pay 39 per cent of income tax and probably a similar figure for national insurance. And it is at this point poorer pensioners will probably drop the sentiment underlying the phrase: “I’ve paid in all my life”.
These poorer pensioners will have to fall back on their poverty as the source of their plea for £200. Yet their poverty plea is phony; indeed, pensioners must be called out on it. To make up for the loss of the winter fuel payment the poorest quintile of pensioners would only have to reduce their spending on restaurants and hotels by 45 per cent.The very poorest will still get a winter fuel allowance.
Many pensioners should not receive the winter fuel allowance because they have not paid into the welfare system on a net analysis. Regardless of this point, pensioners’ support for redistribution undercuts the moral idea they are entitled to what they have paid in any way, by their implicit admission.
The choice between heating and eating many poorer pensioners pretend they will have to make is made up and should not be taken seriously as well. It’s about time many pensioners in this country get what they deserve: less.
