Pensions—a lot done, much more still to do

Old age pensions were originally introduced in 1908. They weren’t generous, at five shillings a week—the equivalent of £23 today—but they did provide for the first UK state pensions, financed out of central taxation.

That world was not as different from ours as we might think. Just as researchers like Rowntree and Booth highlighted the link between casual work and poverty, there is concern today about low-paid, insecure work. Those who are not sure how much they will earn week to week may well see paying into a pension as less of a priority than keeping up with household bills.

What reforms are required? Auto-enrolment is generally regarded as a success. Ten million workers saved for a pension under the scheme in 2018. Nevertheless, average contributions remain too low and the threshold too high. Department for Work and Pensions statistics show that as a result of pension inequality, 37 per cent of female and 28 per cent of black and minority ethnic workers are not eligible for the scheme. The persistent low pay that is a feature of the UK economy has to be tackled if we are to improve the situation for working people in retirement.

The exclusion of the self-employed from auto-enrolment also needs to be addressed. Fifteen per cent of the workforce is now self-employed, but the number of such workers saving into a personal pension fell by a third between 2013-4 and 2017-8. The government says it will address issues with auto-enrolment in the mid-2020s once it has bedded down. That’s simply not good enough. There is no reason to delay when these issues have serious ramifications for people.

Of course, poverty in retirement isn’t just a worry for future generations. Although support for pensioners has been cut much less severely than working-age benefits since 2010, cuts to Local Housing Allowance have impacted on older people in the private rented sector and there were 400,000 more pensioners living in poverty in 2017-8 than in 2010-1.

The last Labour government introduced Pension Credit and took action to maximise take-up. In contrast, there is currently no target for increasing take-up under the Tories. In fact, last year the government actually restricted eligibility so that couples on low incomes, where only one partner had reached state pension age, would have to claim Universal Credit rather than Pension Credit. New claimants could lose out on over £7,000 a year as a result.

Labour broadly supports the government’s pension schemes bill. Nevertheless, there must be a question mark over its claim that the protection of people’s pensions is at its heart after the introduction of “pension freedoms” which give such licence to rogue advisers, who put people’s savings for retirement at risk. The Financial Conduct Authority is currently writing to three quarters of those who advised individuals on pensions between 2015 and 2018 about “potential harm” in their defined benefit transfer advice. People must be able to access independent advice that they can trust.

If we want people to save for retirement, they need to have confidence their pension will be safe and provide the income they need. The Times reported in 1908 that people went to post offices in large numbers to obtain application forms for pensions on the day they were first issued, and in some places—like Birmingham—the supply was exhausted. It is possibly over optimistic to expect that level of excitement about pensions today, but the challenge for the government is to ensure everyone has enough to enjoy their retirement in dignity and comfort.