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From Survey, International Socialism (1st series), No.36, April/May 1969, pp.11-13.
Transcribed & marked up by Einde O’Callaghan for ETOL.
After many promises, the government’s major review of social security which began in 1964 came to eventual fruition in a White Paper on old age pensions which appeared in January 1969. Never was reformism so creeping. The higher pensions proposed will not come fully into effect until 20 years after the inception of the new scheme – i.e. probably not before 1992. No one who is over the age of 42 will get a fully matured earnings related pension. No proposals are made for alleviating the poverty of existing pensioners.
Their plight is scarcely obscure. Of a total of over 7 million retirement pensioners only 4 per cent have income above the average earnings of industrial workers (about £22.10.0d currently). The present old age pension – single person £4.10.0d: married couple £7.6.0d. is below the official poverty line. Three out of ten pensioners have to apply to the Supplementary Benefits Commission to have their incomes brought up to the official minimum, which is, for the old – if single, rent plus £5.1.0d. per week; if married, rent plus £7.19.0d. It is estimated that about 400,000 old people live on incomes which are below the official poverty line. These are people who are either not aware of being entitled, or who refuse to submit to means testing. If the poverty line were drawn just £2 a week per head higher than at present, then 75 per cent of all retired people in the country would qualify for supplementary pensions. Nearly one third of all pensioners are widows, and they are the poorest group among the elderly. Almost a half of them have to get a supplementary benefit compared with one fifth of other pensioners. If the poverty line were drawn just £1 per week higher than at present, then well over 80 per cent of widow pensioners over 60 would be eligible. The pension rate for a single person in 1948 was 19 per cent of average industrial earnings, in 1958 it was still 19 per cent, in 1968, 20 per cent. For some eventual beneficiaries the new pension scheme will represent no great improvement on the present system. When full pensions are paid out to those retiring after 1992, men whose average earnings have been the equivalent of £14 in 1968, will get a pension less than 30 per cent of average industrial earnings in the year they retire.
The new scheme is organised so that both contributions and eventual pensions will float upwards with increases in the average level of earnings of industrial workers. In this article all values are stated in terms of 1968 earnings level, though when the scheme operates, all contributions and benefits will be scaled up, as average industrial earnings rise above the 1968 level of about £22 a week. This procedure will apply to the periodic revaluation of pensions awarded under the new scheme. It is an attractive feature of the new provision (for those in the population young enough to get any appreciable benefit out of it) that benefits are linked to average earnings rather than a cost of living index. Benefits indexed to cost of living retain their purchasing power, but no more. If average earnings determine pension increases, the effect is to allow the pensioner to share in any improvement in average living standards that has taken place, since he contributed to the scheme, or was awarded his pension.
The change over from the flat rate national insurance stamp, to contributions based on a percentage of earnings, will increase the level of contributions made by all except those in low income groups. Under the new scheme a man getting average industrial earnings (£22 a week in 1968) will pay a total social insurance contribution of 29s.8d. a week – 5s.0d. more than at present. If his earnings are £27.10.0d. the contribution will be 37s.1d. – 11s.10d: more than at present.
However as the table shows in the early years of the scheme, there will be little relief to existing pensioners.
|
|
|
Extra Annual Expenditure |
|
Extra Per Week |
|---|---|---|---|---|
|
1978 |
£58 Million |
2s.6d. |
||
|
1983 |
£181 Million |
5s.6d. |
||
|
1988 |
£386 Million |
15s.7d. |
Not that, in 1978 for example, the extra £58 million will be used to improve the pensions of all existing pensioners. In the new scheme you only get benefits to the extent that you have contributed, so those who retire before the scheme starts in 1972 will be left out. The extra £58 million in 1978 will be shared out among the four million or so people who retire between 1972 and 1978. But the average extra weekly pension each will get will be no more than equivalent to 5s.6d. in 1968.
Over the next decade much more purchasing power will be taken from wage earners than will be transferred to those who have retired. The primary objective of the new plan is not to improve pensions, except in the very long term, but to help solve Britain’s economic problems according to the diagnosis that the Government cling to. Domestic consumption (ie standard of living of workers) has to be cut to increase the proportion of resources going into investment. What better than an increase in pension contributions, which combined with a much slower growth in pensions paid out, will result in an accumulated balance in the National Superannuation Fund, that is reckoned may be as high as £3,400 million by 1988. To this end, the standard of living of a generation of old people must be sacrificed.
Even a Labour government cannot avoid some degree of internal redistribution within a pension scheme if large numbers of lower paid contributors are to have pensions above the poverty line. In the new scheme the average pension paid will be 42 per cent of average earnings. If this percentage were applied uniformly down the income scale then anyone earning less than the equivalent of, £18 in 1968 would get a full pension in the 1990’s of less than the same relative poverty line that operated in 1968. As it is, there will be still some thousands of pensioners in the 1990’s, below the poverty line corresponding relatively to the line in 1968.
But it is in the private sector of insurance that the largest opportunities lie for any government which is seriously committed to social justice for the old. The government are to negotiate terms with employers and insurance companies whereby employees in occupational pension schemes can be contracted out of part of their obligations and benefits in the state scheme. The terms remain to be settled, but the weekly New Society suggests that
‘the contracting out terms are likely to be far too generous, with the result that, once again, occupational schemes will be subsidised by the state scheme.’
At any rate, the Life Offices Association and other private pension interests did not greet the White Paper with cries of woe and disaster. The Exchequer is and has been a generous contributor to occupational pension schemes, via the tax relief which employers and employees claim on their contributions. How much the total subsidy amounts to is one of the carefully kept secrets of British public life, but it cannot be much less than the £300 million which the Exchequer currently puts into the whole state scheme every year. About half of the employed male population now belongs to such schemes (though only a quarter of women employees) but on the whole it is the higher income groups especially among non-manual workers who enjoy the most favourable terms. The funds accumulated by occupational schemes now amount to over £8,000 million, and the rate of growth continues to accelerate. Occupational pensions account for a third of total personal savings and more than a tenth of total net savings made in Britain each year. There exist something like 65,000 separate occupational pension schemes, and the administrative costs must be spectacular. Such costs will of course include the profits made by companies who specialise in organizing such schemes. Occupational schemes in Britain controlled by employers and by their professional advisers; the role of trade unions and other employee associations in their running is minimal.
There can be no possibility of making adequate provision for existing pensioners, and those who will retire in the next decade unless the booming and privileged private sector is assimilated into a universal state scheme. Not only is the state expensively subsidising the private sector, but the national insurance scheme is being left to provide for the actuarial bad risks who are excluded for that reason from private schemes – lower paid workers, especially in small firms, unskilled workers, women, those already in middle age.
Between now and the next election, the public will hear much from Labour ministers about the felicities of the new plan. In some respects the claims will be genuine. It is an important new principle that both contributions and pensions in payment should be scaled up to match increases in earnings rather than tied to a cost of living index. The effect will be that pensioners will share in economic growth. The provisions made for widows are more substantial than at present. The abolition of national insurance cards and stamps and the computerisation of the whole system will save money.
But what must be hammered home is that the living standards of a generation of people at or near retiring age are being sacrificed to increase the proportion of national resources going into investment rather than personal consumption. That even when the new scheme comes fully into operation at the term of the millennium, the pensions provided in the state sector will be meagre compared with the provision for the salaried groups in occupational schemes. That the problems of social insurance will begin to be solved on the day that the insurance companies are brought under public control, and not by bigger computers and more ingenious statisticians. And that none of these things is going to happen until organised labour is prepared to defend the interests of the old by more substantial militancy than is expressed by passing resolutions at conferences.
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