The basic state pension in Britain is worth only 17% of earnings the lowest in Europe, £102 pw for a single person, or just over £5,000 a year. The average in Europe is 57% of average earnings, around £14,000. Even in the Netherlands, the second lowest, pensions are worth twice what they are here. Hardly luxury, but at least it is just about possible to live on it. The UK pension simply isn't enough to live on.
People here are expected to save for their retirement. But the iniquitous means testing that is applied to the pension credit actually discourages people from saving. Which is why so many don't. The average private sector pension is only worth around £20 a week, and yet this can disqualify a pensioner from receiving the pension credit which bumps the state pension from a £102 to £137 for a singe person. And to add insult to injury, this is classed as taxable income - unlike tax credits or interest on an ISA. Britain has the most complicated pensions system in the world, and many people who are eligible for the pension credit don't manage to complete the pages and pages of form filling.
Let the public sector workers keep their pensions - but only if the rest of the working classes are given similar security. The danger is that the majority of workers, who are not employed by the state, and who cannot afford any pensions, will refuse to continue to pay, through their taxes, for the relatively generous pensions of public sector workers. There has to be some kind of equity here.
From The Herald: 31/11/11
Welcome to the politics of fear. Following the gloomiest autumn budget statement in living memory – not even in the 1970s were so many facing so great a decline in their living standards – you can almost feel the fear spreading across the land.
Fear among the 80% of workers who have been told that they face the largest fall in living standards since the 1930s, a real cumulative drop of 10% by 2016. Fear among the millions of pensioners living on savings that are being destroyed by the collision of near zero interest rates and inflation at over 5%. Fear among families who see food and fuel bills racing out of control. Fear among the soon-to-be retired who realise that they face a catastrophic fall in their standard of life over the next decade, now that the pension ladder has been pulled up. And this is if the eurozone doesn't explode.
It's no accident that the nearest thing we've seen to a general strike since the 1970s has been over pensions, something that scarcely figured in trade union disputes in the past. The driving force of contemporary politics is fear for the future - only most people don't have unions to give expression to this anxiety. Union membership has halved since 1979, partly because of Tory trades union legislation and largely because the world of work has changed. Unions traditionally thrive in industries where there are large stable workforces with security of employment, and outside the public sector that just doesn't exist. Millions are in short term and temporary jobs, there are millions of non-union migrant workers willing to work for practically nothing. Half of all employment growth is in small and medium firms which can't afford to offer job security or pensions and go out of business if there is a strike.
Yesterday's strike was a remarkable success for the unions who organised it. It shows that it is possible to get at least some workers out on the streets. But the government is showing few signs of giving in to union demands. George Osborne clearly believes that this is the last stand of the British trades union movement; that they have walked into a “trap”; and that it will be for the public sector unions what the miners strike in 1984 was for the private sector. The government is confident that the majority of voters will see it as the defence of privilege by a group of relatively well paid employees who have pensions that no longer exist outside the state.
Here's a statistic to think about. At present annuity rates (that's what you get when your savings are converted into a pension) to buy an index linked pension of £24,000 - roughly what a teacher gets - a 60 year old would need to have saved over £600,000. It is impossible for normal people to save anything like this. The average personal pension savings “pot” at retirement is currently £30,000, which will generate about a £1100 a year, most of which is lost because the pensioner loses entitlement to means tested pension credit. And remember, a third of British workers, round 8 million, have no pension at all.
I'm not indulging in striker bashing here. But as the strikers' placards said yesterday: “Everyone deserves a decent pension”. It is one of the defining features of a civilised society that it ensures that those too old to work are kept in material security. But there is astonishing public ignorance about how much this costs in the age of quantitative easing and high inflation. What we are witnessing is an unprecedented combination of a debt crisis breaking at the moment when the baby boomer bulge is about to retire. The numbers of Britons over 65 years of age will double from ten to twenty million by 2050. Meanwhile, the economy is mired in the longest economic depression since he 1930s..
The only way to make the numbers work is economic growth. If by some miracle the eurozone sorts itself out, China's property bubble doesn't burst, America pays its deficit and world trade resumes, then things might be different. Government finances would improve because more people would be at work paying taxes and fewer would be unemployed receiving benefits. But of course, it isn't growing. The British economy is likely to be in recession in the New Year and any pick up in growth is going to be very slow, and the Office for Budgetary Responsibility says that by 2015, public debt will have risen – even with the Chancellor's austerity measures – from 67% to 78% of GDP.
This is touch and go as far as the bond markets are concerned. Britain has avoided a sovereign debt crisis by devaluation and quantitative easing, but this can't go on indefinitely. If you take public and private debt combined, Britain is one of the most indebted nations in the world, with 400% of GDP on tick. If British interest rates increase even slowly, this could become unmanageable and hyper-inflation or debt default will be the only way out, because there will be no eurozone bail out fund for us. And of course, if there is a break up of the eurozone most of our banks will have to be rescued again.
So fear is what we are faced with, all of us except the very wealthy, for the foreseeable future, and the trouble with fear is that it feeds on itself. Everyone will be cutting spending this Christmas. Families will be trying to save to pay inflating bills for food, energy, motoring costs. Anyone with anything left over will be saving for the future. This withdrawal of cash from the high streets makes the economic depression even worse because shops and factories close and more people are out of work, leading to more debt. It's what Keynes called 'the paradox of thrift' – meaning that for individuals saving is a good thing, but for the economy as a whole it is a disaster.
Now we all know what Roosevelt meant when he said in 1933, that we have nothing to fear but fear itself. Fear is itself an economic variable, a feedback loop. It will take real political leadership and imagination to break the cycle, guide us out of this climate of fear. There is no sign of it yet.