Why We Moan About Pensions (Since You Asked).

 

The I've Been Everywhere Man

There’s a lot of anger going around about pensions. The old are outraged about the state pension being called a benefit.  The young are outraged that their National Insurance is paying the pensions of old people. 

As usual, there’s a lot of misunderstanding. It feels like Governments of the past 40 years were happy to let punters think they were "buying" a pension with their national insurance contributions. But now they want to postpone (by raising the state pension age) or cut back the rate of pension the Govt (Tory & Labour) has been reminding us that the State Pension is really a Benefit. It's just another gift they can withhold or reduce.

And the biggest self-inflicted myth, is probably that pensions were going to provide us with some future life of luxury. The idea behind the state pension was always that it would stop you from falling into absolute poverty. It was never going to provide you with the life of the “I’ve Been Everywhere” Man in the TV adverts.

At heart, pensions are too damn complicated and we don’t think about them til it’s too late!

Is the State Pension a right or a benefit? If you check out the 1946 National Insurance Act, you’ll see that it set out a list of benefits that “insured persons” could receive, and Retirement Pensions (Section 20) were one of those benefits. The more recent Pensions Act 2014 also states at para 1 “This Part creates a benefit called state pension.” 

But I sympathise with the deluded majority who thought the State Pension was some kind of investment we had paid for with our National Insurance contributions. That was the original intention of the Beveridge Report, but the 1948 Government realised that it would leave them no way of paying for that first generation who would become eligible by age, without having made any National Insurance contribution. So right from the start, those National Insurance payments were funding the existing pensioners . And State Pensions have been fiddled with by so many successive Governments that the more you look at it, the less certainty you have.

The sad fact is, for most of our lives we gave very little thought to pensions, other than having the vague and fuzzy notion that we would somehow be taken care of when we were 60 or 65. That even applies to HMRC staff – who some outsiders would probably have expected to have nailed our pension calculations down to the button.

During HMRC’s office closure programme, one of the biggest shocks we got when we trooped into our Pre-Redundancy courses was to be told that we wouldn’t get a full state pension because we had spent most of our career “contracted out.”  The pension forecast confirmed it. Even if you had the 35 or more “qualifying years” of National Insurance payments, you wouldn’t get the full rate of state pension because until 2016 (when all “contracting out” stopped) we had paid a lower rate of National Insurance contributions. We all came out stunned. But we shouldn’t have been.

The idea behind “contracting out” was that, instead of paying into the state second pension (or SERPS) we’d pay into out works pension (those “Gold Plated” pensions* everyone is always going on about). So the deduction from the state pension is just some inflation adjusted balancing act (the calculations are explained on gov.uk, if you can follow them). 

(*Sarcasm directed to the “Gold Plated Pensions” myth comes from the fact that the work pensions were based on your salary. If you were on the lowest grades, you got the lowest pay and the lowest rate of work pension. More tin foil than gold-plated.)

When I dug out my original Particulars of Employment from HM Customs and Excise, I found that it said, “your appointment is pensionable from the outset under the Principal Civil Service Pension Scheme (PCSPS). …The PCSPS is contracted out of the State Earnings Related Pension Scheme (SERPS)…You do not have to belong to the PCSPS. You may opt out to be covered instead by a personal pension or SERPS.”  

So, I knew in theory. I’d signed the Particulars of Employment to agree. Although I can’t say if I gave any thought to pensions when even the old retirement ago of 65 seemed like some far distant appointment. Looking at a payslip from 2006, I can see now that  it shows payments labelled ”NI Contracted O”.  But did I take in what that means? Probably not.

Will I be better off with my State Pension and Works Pension combined, rather than just having that full rate of State Pension and a lower Works Pension? Probably. 

Pensions were something a long way off in the future and we were too busy getting on with our lives (I can see that likes of Frances Ford Coppola whacking us round the head with a book of log tables and shouting, “stupid boy, it’s the most important calculation of your life!”)

And that was before they started shifting the State Retirement age upwards. Once again it was something that may have been discussed in the news. And we might have paid some attention to it*. But again, it was too far in the future to think about.

*Yes, Waspi women, I know you didn’t know about it.

To go back to the beginning, one of the reasons we’re now getting agitated about the State Pension is the suspicion that the Government is going to cut it. That’s not a baseless decision. Every Government has been saying the Triple Lock is unsustainable. But none of them have been willing to remove it yet. Still, with the new Labour Government seeming to be addicted to making decisions that are painful for other people, this may well be the moment. 

My State Pension is like some mythical grail that I’m holding my hands out and groping towards. I just hope that by the time I finally get my hands on it, I don’t find that all the honey has been drained out of the pot.

When it comes down to it, the decisions are made by the sort of people who are already wealthy and will never have to rely on just the state pension. In the same manner, politicians say we should keep on working into our Seventies, although their experience of continuing to work (tootling into town one day a month to exercise a company directorship or steer the board of a charity) will be very different from the majority.

For the young, I can only suggest you pay more attention to your retirement income than we did.


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