Five pension policies to solve intergenerational inequalities

The House of Lords published a report into intergenerational inequality this week. Quilter retirement policy head Jon Greer explores five pension policies put forward in the report

The financial bond between generations is at threat of eroding. Figures from the Office for National Statistics show there is drastic divergence in disposable income for retired and non-retired households, with retired households having significantly more money than in previous years. Between 2006 and 2018 household income for the non-retired rose by 36% and retired rose by 60% while costs rose by 31% for non-retired and 38% for retired. 

On top of this the latest report from the House of Lords select committee shows we are reaching a stage where generations may be benefiting more from social policy than they are contributing to it in their lifetime.

The number of retired people is only going to grow as people live longer, draw the state pension for longer and increasingly tap into the NHS for medical treatment and local authorities for social care. That combined with a fundamental change in family structures means a fundamental rethink is required, and it does not appear that tweaking the current system by increasing the rates of existing taxes, is going to adequately address this issue. Clearly the whole system needs a rethink.

The report flags five important pension-related policies that need to be addressed. And while the report doesn’t have all the answers, these issues are clearly ones that need to continue to be examined.

Jon Greer is head of retirement policy at Quilter. 

The financial bond between generations is at threat of eroding. Figures from the Office for National Statistics show there is drastic divergence in disposable income for retired and non-retired households, with retired households having significantly more money than in previous years. Between 2006 and 2018 household income for the non-retired rose by 36% and retired rose by 60% while costs rose by 31% for non-retired and 38% for retired. 

On top of this the latest report from the House of Lords select committee shows we are reaching a stage where generations may be benefiting more from social policy than they are contributing to it in their lifetime.

The number of retired people is only going to grow as people live longer, draw the state pension for longer and increasingly tap into the NHS for medical treatment and local authorities for social care. That combined with a fundamental change in family structures means a fundamental rethink is required, and it does not appear that tweaking the current system by increasing the rates of existing taxes, is going to adequately address this issue. Clearly the whole system needs a rethink.

The report flags five important pension-related policies that need to be addressed. And while the report doesn’t have all the answers, these issues are clearly ones that need to continue to be examined.

Jon Greer is head of retirement policy at Quilter. 

1. Older workers need to continue to fund national insurance contributions

As we live longer, we work longer and so it makes logical sense that we pay more into the system. However, it does raise the question of fairness and what national insurance contributions (NICs) are for?

Clearly they do not pay for the state pension, although the right to the state pension it is secured through their payment. The purpose of NICs is considered by the House of Lords report, which points out there are strong arguments for the government to consider greater alignment of NICs and income tax systems. This has been in the background of the political agenda for some time and a concrete look at the two systems will need to be considered.

2. There should be an assumption of the employment status of ‘worker’ by default

Bogus self-employment is a huge issue, made worse by the murky water between who is self-employed and who is a worker. The short-term benefit of this proposal is understandable: it will ensure people are automatically given rights such as pension contributions, certain protections, statutory sick pay etc.

However, it is not a long-term solution. We need clear boundaries and definitions of those two groups. One that ensures people get the rights they deserve but British business does not fall apart. No easy task, but one that cannot be ignored.

3. Remove the triple lock

The removal of the triple lock, which ensures state pensions rise by the highest of wages, inflation or 2.5%, is not a new proposal.

But it is one no political party has felt strong enough to tackle for some time. By ignoring it, politicians are kicking the can down the road.

The House of Lords' proposed replacement, to raise the state pension by the average earnings or inflation when it is 'unusually high', is sensible and ensures the system continues to function. It needs to be taken seriously and weak political parties are ignoring the long-term impacts.

4. Reconsider age-related benefits

Other age-related social security payments have been criticised because they do not appear to be well targeted to achieve their purpose.

Generally, those that cannot afford certain things (TV licence, bus pass, fuel payments) should be subsidised directly by the government rather than qualify just by age.

5. A plan is needed for mid-life MOTs

A toxic combination of socio-economic factors, including longer lives, more freedom in pensions and reducing state benefits, mean people now need to be engaged with their later-life savings more than ever .

A mid-life MOT is not a new proposal and unfortunately the House of Lords paper doesn’t bring some of the challenges of the policy any further forward beyond pointing out it needs more thought.

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