Sleepwalking to Pensioner Poverty
The UK Government’s proposals to change the flat-rate for the state pension from 2017 and the contributions that people must make to it will potentially have far-reaching consequences, not all of which are yet clear. As the argument rages, it’s worth looking at the position of pensioners in Wales today.
A total of 641,000 people in Wales currently receive a State Pension. How much someone gets depends on their National Insurance contributions, but even with a full contribution record the basic state pension is only £107.45. Those who have paid enough National Insurance contributions may also get an additional state pension which is linked with earnings or they may have a personal or occupation pension instead.
With such a low basic pension, some form of additional income is vital – yet only a quarter of the adult population below pension age contributes to an employer, personal or stakeholder pension (1) – below the proportion in England, Scotland or Northern Ireland. Significantly, it is not those in employment at the moment who account for this low rate – in fact the importance of the public sector means it has one of the highest rates of employees who contribute to a pension – it is the low level of participation of Wales’s self employed and the relatively high levels of economic inactivity which result in so few of the working age population paying-in. With employer final salary schemes closing at break-neck speed and the numbers paying into private pensions in virtual free-fall (2) people of working age in Wales are heading for poverty unless there is a change in provision.
For those who are on low incomes, there are a variety of top-up benefits such as Pension Credit and Housing Benefit, as well as various disability benefits and benefit premiums to help with particular circumstances. The difficulty is that the take-up rate of many of these means-tested benefits is pitiful – each year hundreds of thousands of pensioners struggle because they do not want to face the indignity of what they perceive as charity. Take up of Pension Credit, for example, is estimated at just 62-68% (3).
With such a low basic state pension, low take-up of top-up benefits (which themselves aren’t particularly generous) and such limited participation in employer or personal pensions, hundreds of thousands more people seem destined for a retirement on a very low income. Already about 15% of pensioners live below the poverty threshold (after housing costs) – their numbers could grow in the future.
So, some action on pensions seems right in principle and in practice. The only fly in the ointment is how different the tone is about this welfare benefit (which is after all half the total welfare bill) and its claimants, compared with the “skivers” who claim the other half of the budget.
Victoria Winckler is Director of the Bevan Foundation
(1) Department for Work and Pensions Family Resources Survey 2010/11 Chapter 8. http://research.dwp.gov.uk/asd/frs/2010_11/index.php?page=intro
(2) HMRC Personal Pensions Statistics http://www.hmrc.gov.uk/statistics/pension-stats/pensions-intro.pdf
(3) Department for Work and Pensions Income Related Benefits: Estimates of Take-Up. http://research.dwp.gov.uk/asd/index.php?page=irb
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