Liz Kendall, Work and Pensions Secretary, has warned in a speech to the IPPR think tank that the welfare system would collapse had she not gone ahead with her cuts of £5bn to disability benefits.
The largest single element of the welfare budget is state pensions, costing £124bn, 46 per cent of it, in 2023-24. The inevitable question is: why chip away at relatively small benefits instead of trimming the biggest one?
It was a rise in average earnings last autumn that pushed state pensions up by 4.1 per cent last month. They are now running at 5.5 per cent and may rise even further through the rest of the year. It’s true that in real terms the value of pensions is being eroded by higher-than-expected inflation, and true, too, that more pensioners are being pulled into paying income tax. Nevertheless, the possibility of an increase of six per cent in earnings would lead to an even greater pension bill next year.
Triple lock is massively popular
On the other hand, the UK state pension remains one of the lowest in the developed world, expressed as a proportion of average earnings, and it should be increased until it reaches the average level of comparable countries.
Indeed, just last month, Kendall explicitly confirmed that the lock would continue for the life of this Parliament: “Our ironclad commitment to the triple lock,” she said, “gives pensioners across the country the certainty and security they need to live a full life in retirement”.
This may not seem a great way to fund pensions, but this was the way Otto von Bismarck set up the first state pension system in Germany in 1889 and has been the model for the world. But when he did so, not only did most people die within a few years of stopping work, but initially, the age of retirement was set at 70. So a lot of people paid into the system, but not many collected.
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So what’s to be done? Increasing the retirement age would help, but that is extremely difficult. Changing disability benefits to encourage people who might be able to work into some form of activity – this new plan may help, too, but again, it’s very difficult. The main area where things might really change for the better is finding ways to keep older people in the workforce.
Tensions between young and old
It’s not easy. There are technological and skills barriers. There are tensions between young and old because they often have rather different social attitudes. Some companies may have a bias against older staff, and some older potential employees may find it tough to change the way they work.
But – and this is surely the most powerful argument of all – there is solid evidence that people who work longer have health and cognitive benefits from the activity, assuming, of course, that they enjoy what they are doing.
So, no easy solutions, but there are ways forward that would be politically more palatable than dumping the triple lock – and would bring health and social benefits too.
Need to know
Talking with a not-for-profit foundation, Brave Starts, that specialises in getting over-45s back into work, I feel that many of the barriers are attitudinal rather than tangible.
But just as often, it’s not a specific skill issue, more one of doubts about “fitting in”, of finding that people of different ages work in different ways, and of the use of language.
It’s complicated and worth reading in full, but the main messages are that the greatest benefits from work go to women who live alone and who otherwise might have become more isolated, and that women in physically active jobs gained, but those in mainly sedentary ones didn’t, and actually lost ground.
Does this also work for men? Probably yes, but it was easier to do the study for women because the increase in retirement age made sampling a more straightforward task.
In this instance, I think the IFS is right about the broad message, however, and I will be fascinated to see what more comes of all this. It is particularly important post-Covid, because the change in work patterns – fewer physical meetings, more home-working – may have negative health consequences that will take years to emerge.
Leave aside all the criticism of people who are resisting going back to the office, that they are slacking. Just ask whether they might be damaging their own health and that of their colleagues with their new working patterns.
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