Many of the younger Labour MPs who entered Parliament in 2024 possessed a burning ambition to address what they call “intergenerational inequality”. Or, crudely, to bash the Boomers.
MPs like Torsten Bell, former head of the left-wing Resolution Foundation, has long believed that the over-65s are being cosseted by the state, despite many enjoying healthy private pensions and considerable asset wealth from decades of real estate price inflation. Many pensioners are mortgage-free, while those under 35 feel locked out of the property market.
TRIPLE TROUBLE
The focus of resentment has been the so-called state pension triple lock, introduced by the Conservative prime minister David Cameron in 2011. It was intended to eradicate pensioner poverty by increasing the state pension annually by the rate of inflation, average earnings or 2.5 per cent, whichever is the highest.
Many MPs and some economists believe the triple lock is simply unsustainable. The new Labour Prime Minister, Andy Burnham, agrees and, in his first speech to the Labour Party Conference as leader today he announced that the arrangement will end by 2030. Thereafter, the state pension will thereafter only keep pace, broadly, with prices. But make no mistake this is intended to deliver a cut in the state pension bill of around £15 billion.
And it is not as if the basic state pension is exactly a king's ransom. At £12,500 it is half the National Living Wage and barely enough to survive on in an age of food price inflation. Yet nearly 1.5 UK pensioners somehow have to live on it. Many more are living just above that limit wirh private pension payouts in that average only around £2,000 a year
Comparisons are difficult, but there is no doubt that the UK state pension is one of the lowest in the OECD. In some European countries, like France the state pension is linked to lifetime earnings.
PUBLIC SECTOR PENSIONS AT RISK
Pensioner poverty is real and getting worse. 14.6 million people in the UK are not saving enough to provide a comfortable life in retirement. The state pension is becoming a more important component of retirement earnings going forward.
Private pensions were supposed to take up the slack but aren’t.. The median private pension “pot” is £48,000 according to the ONS . For comparison an average UK teacher pension of £15,000 would require a private pension fund of £270,000 to pay for it. Yet most teachers believe their pensions are nugatory.
Defined benefit pensions have disappeared outside the public sector. Freezing the state pension is going to raise serious questions about the fairness and viability of so called “gold plated” public sector pensions. Just wait.
THE STATE PENSION IS ALREADY TAXED
There is a further misconception. Many people believe that the pension is a universal benefit and is not taxed. That may be the case for the souls condemned to live on this miserable stipend, but not for the majority of pensioners who have other occupational or private pensions. For them, the state pension very much is taxed, at 40 per cent if their overall income is over £50,000 ($60,000). The state pension is simply added to other sources of income.
That the triple lock is supposedly unsustainable at around £15 billion a year is perhaps another indication of how much poorer the UK has become in recent years. Andy Burnham said that the money saved would be used to help pay for social care for elderly people. But there is no clear indication of how this reform might work.
NATIONAL CARE SERVICE
At present, anyone possessing more than £23,000 in assets has to pay their full care home costs, which can easily amount to £1,000 a week. This means most have to sell their houses to pay for care. Burnham suggested today that he would help older people in care to retain the value of their homes. But that would be a big ask. The Instifute For Fiscal Studies believes that cutting the triple lock will not pay for Burnham’s proposed National Care Service, free at the point of need.
The former Tory Prime Minister, Boris Johnson, promised in 202O to do something very similar. Care home costs, he said, would be capped at around £85,000. He even introduced a new tax, the Social Care Levy, to pay for it. But the scheme never got off the ground. Labour did not seek to revive it - until now.
The problem with the triple lock is that it is not actually a tax like income tax, but rather presents itself as a contributory insurance scheme. Workers in the past had to buy 44 years' worth of National Insurance 'stamps' to qualify for it.
This has, not surprisingly, led to current recipients believing that it is theirs as of right, related to what they have paid into the scheme. But in reality, it is not. Their contributions may go into an HMRC fund called the National Insurance Fund, but, perversely, it is not used to pay for pensions which come from general expenditure. Go figure.
WINTER FUEL PAYMENT PART DEUX
This is one reason why some leading trade unionists say that the Prime Minister is most unwise to fiddle with the triple lock. Sharon Graham of the Unite union told the conference that it may create a similar row to Keir Starmer's attempt to cut pensioners' entitlement to the Winter Fuel Payment in 2024. The Labour PM was forced into a U-turn, but only after months of negative headlines.
Burnham will be hoping that this move will at least signal to the bond markets that his Labour government is serious about tackling the welfare bill, which is forecast to reach £400 billion – a third of all government spending – by 2030. It might well indicate that this Labour PM is indeed serious about making those difficult decisions - but only if he sticks to it.
On the other hand, it may simply lead to accusations that Labour is punishing pensioners in order to protect the six million or so adults in the UK who are not in employment . At least pensioners have put in the hard yards, working for over 40 years. Many will be furious if they think they have done all that simply in order to fund a generation who don't seem to want to work at all.
And one final point. Unlike young people on benefits, pensioners tend to vote.
I'm less concerned with the triple lock than the massively underfunded public sector defined benefit schemes. Even with changes to base them on average earnings as opposed to final salary they create massive difference in the quality of retirement that two people living next door to one another might enjoy depending on which one was a public sector employee. Gordon Brown was the architect of this in 1997 and like many 'new' Labour polices the majority of the electorate and paying the price to keep the Labour bloc vote happy.
To misquote an erstwhile Labour leader "For the few, not the many".
Annoyingly when they say the basic state pension will not be taxed they conveniently forget that most people were contracted into SERPS. So pensioners who were contracted into SERPS already pay tax.
So pensioners who do receive Serps will be worse off.
If you live on a state pension and are forced to live in private rented property at say £1000 a month will simply not be able to pay the rent and face homelessness.
That will really help as they will be forced into council temporary accommodation costing the country more than it saves.