Mary Dejevsky

The war on pensioners

The average pensioner still has an income 25 per cent below the average worker. You wouldn’t guess that from the media

The war on pensioners
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Who controls the media in Britain? Depending on your political outlook, you might answer: the Conservatives, the liberal-left chattering classes, Rupert Murdoch or the BBC. But if the coverage of the elderly is anything to go by, then we can perhaps agree on one thing: the headlines are decided by a cohort of 25- to 45-year-olds who believe that other people’s parents and grandparents — a.k.a. Britain’s pensioners — have stolen their future, dashed their dreams and nabbed all the plush property.

How else to account for a headline such as ‘No pay rise? Blame the baby-boomers’ gilded pension pots’ and a plethora of articles maintaining that pensioners have ‘never had it so good’, at the expense of the young, who will be ‘boomeranging’ back to their childhood beds, too poor to buy a home until they are in their own straitened dotage. The source for one recent wave of generational alarmism was a report published by the Resolution Foundation, a generally laudable outfit which focuses on low incomes.

The Resolution Foundation has a new boss: David Willetts, a former Tory minister and a pioneer of generational jihad. Five years ago he wrote the set text on the subject, The Pinch, subtitled ‘How the baby-boomers took their children’s future — and why they should give it back’. Thankfully, he made little headway selling this argument to the Prime Minister and Chancellor, but his thesis suits his new thinktank, which has not been averse to a little granny-bashing.

But this was as nothing compared to the headlines generated by a recent report from that fount of economic truth, the Institute for Fiscal Studies, and a lecture by its director, Paul Johnson. Here is a taste: ‘Pensioners earning more than the average worker’ (Independent); ‘Why pensioners are probably earning more than you are’ (City AM); ‘Pensioners have more cash than those in work’ (Times). Again, we are invited to believe — in effect — that the young are broke because the old are rich.

The report argues that the increase in average pensioners’ incomes since the crash has outstripped the increase in the income of working households — ergo, pensioners have been unfairly protected. It was the latest restatement of a familiar theme: Britain is now a gerontocracy, with the government shamelessly favouring the old over the young.

But this is only part — and a very partial part — of the story. While pensioners’ income has risen more than that of workers, it rose from a much lower base. There is still a gap of around 25 per cent between the average worker’s income (£28,000 a year) and that of the average pensioner (£21,000). The UK state pension languishes far below that provided in most developed countries, and it is all that many pensioners have to live on.

Some of the media reports got around those awkward facts by talking about ‘net’ income. Pensioners were deemed to be better off (even described in some reports as ‘earning more’) than the average worker because they were assumed to have lower outgoings, notably on housing costs and dependants.

This argument is bogus in almost every respect. Even if most of those receiving pensions own their own homes, this does not relieve them of housing costs. They may no longer be paying a mortgage (at a time, by the way, when interest rates are the lowest they have been for more than a generation) but they still face maintenance bills on properties that are often older and more expensive to keep up than more recently built housing.

Those living in flats or private sheltered housing face service charges that have a habit of rising out of all proportion to the general level of inflation. And all this has to be paid out of incomes that are fixed — or, for fortunate ex-public sector employees, linked to what is currently a negligible rate of inflation.

Even if supermarket bills are falling because of greater competition, food and other costs tend to be higher for smaller households. Plus older people need services such as cleaning and care, which have to be paid for out of taxed income. Pensioners pay tax like anyone else. The NHS may be ‘free’, but declining faculties incur a host of other expenses, and means-testing excludes practically every homeowner, and a good many others, from council provision. The promised ‘cap’ on care costs has been postponed. How exactly are pensioners privileged?

Ah yes, the ‘triple lock’ — whose abolition is increasingly demanded by a vocal younger generation that regards it as an unaffordable luxury. This promise — that the state pension will rise every year in line with prices or wages or by 2.5 per cent, whichever is highest — sounds reassuring. But with inflation around zero, these rises go nowhere near compensating the retired for the dismal interest rates on their savings. The same applies to the annuities they were forced to take out (until this year, when some could supposedly opt for a Lamborghini instead).

If anyone deserves to feel aggrieved about the fallout from the financial crisis, it is not the young — who can still live on absurdly cheap credit. It is those who prudently saved for their retirement, only to face interest rates turning negative. And those same mollycoddled young have the nerve to resent the ‘triple lock’, which may limit some of the damage when inflation starts to turn up.

Most misleading and most pernicious in public relations terms, however, is the way in which the state pension is lumped together for government statistical and administrative purposes with benefits. A typical newspaper report will challenge the reader to estimate the biggest benefits charge on the public purse — teasing readers to say jobseekers’ allowance, or housing, or some such — only to floor them with the fact that it is none of these ne’er-do-wells who are squandering public money, but your granny and grandad.

The state pension, they will say triumphantly, accounts for one third — and rising — of all welfare spending. Add public service pensions and other pensioner benefits, such as disability and (a tiny fraction) winter fuel, and practically half of welfare spending is on pensioners. Cue fury among the young, who erroneously conclude that they are paying.

The state pension is one of the last truly contributory payments. To present it as just another handout and part of a ballooning benefits bill is an invitation to the young to resent the amount spent even more — and to the recipients to feel that they are being patronised. The state pension should be separated from the overall benefits bill forthwith.

There are rich pensioners, as there have always been, and there are many more who, thank goodness, are less impoverished in retirement than their parents were. To infer from a general improvement, however, that your average pensioner today is in clover, compared with their unjustly cash-strapped heirs, is a travesty that quite dishonestly stokes the fires of generational strife.