Perhaps it’s finally dawned on the government that they have an intergenerational inequality problem on their hands. The decision to suspend the pension triple-lock for one year to avoid an 8 per cent increase to the state pension would suggest so. Asset wealth is already excessively concentrated in the over-55s. To even this spendthrift government, a massive bump in pensions while the rest of the economy languishes is a step too far.
But that’s exactly what happens every year anyway under the triple-lock. The policy means that even when the rest of the economy stagnates, pensioners receive a boost. It is a feature of the system, not a bug, which came into place as part of the coalition in 2010 and has quite clearly run its course.
A guaranteed increase of at least 2.5 per cent, nevermind bumper years where we experience higher inflation or a 2.5 per cent earnings uptick, has seen pension pots steadily rise, while general growth remains relatively flat. Just look at 2015-16, when wages growth totalled a measly 0.6 per cent and inflation topped out at 1.2 per cent – pensioners were guaranteed an increase far surpassing anything their working compatriots received. I can only hope they spent the extra money on local businesses, what with not having to pay for bus fares, TV licences or fuel duty.
What was once a welcome and necessary reprieve from pensioner poverty has turned into a Ponzi scheme. It’s a myth that whatever pensioners paid during their working years is going to fund their lifestyle now. In fact, it’s the working population now that is supporting the pensioners of today.
The UK is not alone in its demographic crisis. As former Health Secretary Jeremy Hunt pointed out yesterday in the Commons, an ageing population with decreased birth rates is plaguing much of the Western world. But instead of taking the pandemic response as an opportunity to reform the way in which we structure pensions, the NHS and social care, this government has decided, yet again, to go with stop-gap measures.
It’s not an easy conversation to have: reform. Pensioners feel entitled to their state benefits – that they have made sacrifices in their lives which perhaps today’s young people would never dare. But we must also consider the way in which the system’s flaws impact pensioners’ own kin and kith: our broken social care system lets down those most in need, while pension benefits create an even more top heavy intergenerational balance.
Young people in the UK are not slackers. They are playing a game where the rules were devised when women stayed at home, houses cost only twice an average salary (as opposed to 8x), and university was free.
There’s plenty we can do to improve this. Scrapping the triple-lock would be a good place to start. Instead, peg pensions to a genuine measure of the rest of the economy, like inflation. Revisit the ways in which we structure pension pots to encourage more private pensions and savings. And, as is the theme of the week, reform social care: not by throwing money at the problem, but by creating genuine public-private partnerships, so that those with that can pay their own way do.
If we are to create a system which is sustainable in the coming decades, we don’t need to pit young against old. But we are in desperate need of fairer tax policies and a discussion of how our money is spent: before there is none left to go around.