Solving the Pensions Crisis

by Lynne Jones MP July 2002

As I write this piece, I have two images in my mind. The first is of Margaret Thatcher’s tearful exit from Downing Street. The second is a Steve Bell cartoon depicting two statues: one supported on a solid platform with the word Beveridge, the other a crumbling mess, entitled Blair verbiage. Even the most powerful eventually fall and what matters is the legacy they leave. The foundations of the welfare state introduced by the Attlee Government are still strongly supported today whereas Thatcher is largely discredited. How will people view the Blair/Brown period ten years after they go, as they inevitably will? What will people think of those who unquestioningly went along with their tinkering?

Though there has been a large number of weighty review documents and exhortations to reform and modernise, the Labour Government’s policies have largely developed in a piecemeal way with no consistent principles. Brown is trying to remodel himself as the heir of Bevan on the back of the welcome increase in funding for the NHS. But, if he really believed that a publicly funded NHS is the most modern and rational policy, he would also be advocating free long-term care and minimal means-testing in the social security system.

Following the debacles over lone parent benefits and the 75p pension increase, the Government did act to make amends. Families with children and pensioners have benefited greatly from extra spending but we now have a system that is so complex that it will be easy for less generous future governments to unpick without people understanding the consequences until it is too late.

Despite Blair’s statement in Prime Minister’s Question Time on 20 October 1999 that "we are well on the way to formulating the right framework for pensions in the future" the pensions system is today seen as being in crisis. The means testing now inherent in the system does not encourage those who can to save more. Over half of final salary occupational schemes, have been closed, with more closures on the way. Now the Government is saying it is considering making it compulsory for workers to contribute to stakeholder pension schemes. But these are simply money purchase private pension schemes with a cap on administration charges. They are still subject to the vagaries of the stock markets and come with no guarantees on outcome. It is unlikely that they will provide either the value for money or the security as the same amount of investment in a decent state earnings-related pension – a choice now denied as a result of this Government’s legislation. Don’t be fooled by the concept of the state second pension (SSP) as a more generous version for low-income workers. The combination of SSP and the basic state pension (BSP) will have a lower value as a proportion of average earnings than the BSP alone when it was linked to earnings. In 2050 even more people than today will be retiring with a pension that is less than the means-tested pensioners’ benefit (currently named the minimum income guarantee).

No wonder committed members despair and there is no inspiration for young idealistic people to want to join the Party. Time is running out to create a legacy to be proud of but all of us who adhere to our basic socialist principles have a responsibility to do our best to bring this about.

I have consistently argued that the best way of removing perverse incentives is to raise the state pension to the level of the minimum income guarantee so that it is higher than the Government’s planned level for the combined BSP and SSP. Restoring the earnings link will then ensure that pensioners benefit from rising prosperity. Detailed proposals to achieve this have been put forward by the Institute for Public Policy Research. If the official retirement age is increased to 67 by 2030 (not unreasonably given increased longevity) it will cost no more than the Government is planning. Please respond to the Labour Party’s consultation on "a modern welfare state" by supporting the IPPR proposals on pensions. I will be posting my own response on my website,

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