A Move to a State Pension of around £140 a week in today’s terms
UNISON is not in principle against a simple, flat rate, easy to understand state
pension – which would at least ensure that a full National Insurance contribution
record would achieve a state pension that exceeds the Pension Credit thresholds.
UNISON also welcomes the fact that nobody will actually receive less state pension
than that they have already accrued up to the date of implementation.
However we have a number of significant concerns relating to the flat rate state
pension proposals outlined in your consultation paper, which are as follows:
1. Limiting changes to future pensioners seems inherently unfair given that
many pensioners today do not have adequate state pension income,
particularly women, and take-up rates of the Pension Credit are poor.
2. It would seem that a significant number of retirees would not qualify for the
full-rate of state pension as they have previously been contracted-out of the
Additional State Pension. Your consultation paper gives no estimates of the
total number of people likely to fall within this category as well as
assessments of their typical entitlement. Without such information your
consultation is somewhat misleading.
3. Furthermore, members of contracted-out pension schemes could find that
they are no better off under the proposals and given a likely increase in
National Insurance contributions and a reduction in the benefits offered by
their private pension scheme could well be worse off in an overall financial
4. Adopting a flat rate state pension will lead to the cessation of contracting-
out which is likely to destroy good quality pension saving further as
increased National Insurance contributions result in a dumbing down of
existing pension provision.
5. Given that the Government have stated that “any options for reform must
cost no more than if the current system continued” it’s clear that the
overall state pension package will continue to be one of the worst in
Europe. The Budget simply needs to increase.
6. A flat rate state pension of £140 a week will not be sufficient to assume that
members of NEST and auto-enrollment paying minimum contributions will
receive adequate pensions.
7. The poorest pensioners should continue to receive essential non pension
related payments such as cold weather payments and council tax benefit
Expanding on these points in more detail.......
1. It’s unfair to restrict to future pensioners
Given that a significant proportion of today’s pensioners struggle to make ends meet and
have for many years received a relatively inadequate state pension which has not kept
pace with earnings, current pensioners will justifiably feel this to be yet another kick in
the teeth for them and could lead to serious resentment and social unrest.
This April the state pension went up by £4.50 a week, but the reality is that millions of
pensioners have already seen this swallowed up by increases in VAT, food and fuel prices. It
is widely recognised that Britain has one of the least adequate state pensions in Europe
and 1 in 4 older people still live below the official poverty line of £178 per week. Pension
Credit is not claimed by thousands through a combination of self-pride and complexity.
It cannot be right that many of the most in need of state pension reform will effectively
not be covered and as always will be expected by the Government to just get on with it.
2. Many people won’t get a £140 a week and many will not be any better off at all
It really needs to be stressed and better demonstrated in your consultation paper that
many pensioners will not receive the “minimum” flat rate state pension courtesy of being
a member of a contracted-out pension scheme.
It is far from clear what exactly such members could expect to receive from the State and
an Impact Analysis needs to be undertaken to show just how many pensioners after
implementation would not actually receive the flat rate pension envisaged and indeed
what they could reasonably expect their entitlement to be. Indeed there is a real
likelihood that many members with contracted-out rights could be worse off in an overall
financial sense given a potential increase in National Insurance contributions, a reduction
in the level of their private pension scheme benefits as a well as a possible state scheme
offset applied to their Final Pensionable Salary definition.
There will of course be numerous people who have already or will accrue state pension
entitlements well in excess of £140 a week meaning this proposal has no real bearing on
them. Perhaps other than in some cases that their State Pension Age could be higher as
part of the overall raising of ages to help offset the costs of introducing a minimum flat
rate state pension.
3 & 4 Increased National Insurance contributions and the final nail in the coffin for
defined benefit pension provision
As private sector defined benefit provision has continued to erode, removing contracting-
out would merely be another nail in the coffin for defined benefit schemes as well as
creating potential consequences for public service pension schemes as both members and
sponsoring employers will have to pay more in National Insurance.
At a time when public sector employees are about to be asked to increase their overall
pension contributions, an additional increase in National Insurance costs could push more
workers away from pension saving altogether. Unless communicated properly, the changes
would also do little to encourage members to pay more into their pensions.
A higher flat-rate pension may sound like good news in the long-term but, unless
sponsoring employers of contracted-out schemes make further changes to their schemes,
they will face extra costs and scheme members will see their pay-packets hit with extra
National Insurance charges. In total, these amount to 5.3% of relevant salaries, or around
£105 a month for someone on average earnings – hardly trivial amounts.
5. The State Pension Budget
It is UNISON’s position that the state pension budget simply has to increase.
The 2005 Pensions White Paper set out estimates of future expenditure on state
pensions including the effect of the reforms that have now been introduced,
including the link of the Basic State Pension to earnings. This predicts an increase
in such expenditure, expressed as a % of GDP, from 5.2% in 2008 to 6.7% in 2050.
However, even incorporating this increase the UK will be noticeably spending vastly
less on state pensions than the majority of the European Union.
This is very evident from the European Commission’s own research 1 which shows
that by 2060 the UK will be third from bottom in pensions spending as a proportion
of GDP, with only Estonia and Poland spending less.
This research reveals France, Germany and Italy to be spending 14.1%, 12.7% and
13.6% of GDP on pensions respectively, in comparison to 9.2% from the UK.
Quite simply, a proposal to radicalise the state pension system for the 21 st century
is unlikely to be fit for purpose unless the Budget is increased to a level which is
more in keeping with our economic standing and competitiveness.
6. A flat rate state pension of £140 a week will not make the NEST and
automatic enrolment reforms work
The Independent Public Services Pensions Commission in their review of public
service pension schemes concluded that a typical retiree with a full pension
contribution history should expect to receive a pension income in retirement
(including state pension income) of between 50% and 80% of pre-retirement
income, with lower income earners needing a greater income replacement rate.
Given the minimum contribution rates required by the automatic enrolment and
National Employment Savings Trust regimes it is UNISON’s very firm belief that a
£140 a week state pension (i.e. £7280 per annum) is insufficient when added with
the likely private pension to be accrued from NEST/minimum qualifying workplace
pension scheme to generate pensions in retirement broadly equivalent to between
50% and 80% of pre-retirement income.
This is against the context that the typical defined contribution pension scheme
retiree today retires with an average pot of around £32,000 and annuity rates are
yielding about half what they were some 20 years ago. It is now a relative struggle
to find an annuity rate yielding in excess of 7%.
1 European Commission, Public Finances in EMU, European Economy No 4, 2010
It is complete fantasy to believe that an annual state pension of £7280 per annum
plus a minimum contribution NEST/qualifying workplace pension scheme will
generate an “adequate” income in retirement – and certainly not one envisaged as
sufficient by the Independent Public Service Pensions Commission.
7. The poorest pensioners should continue to receive essential non pension
related payments such as cold weather payments
UNISON is aware that Rachel Reeves, Labour’s pension shadow, has raised the issue of the
future of passported benefits including cold weather payments and council tax support
within these proposals, calling on the government to guarantee that the poorest
pensioners will still receive these if a flat rate pension of £140 a week in today’s terms is
UNISON would be strongly opposed to any potential move to offset Winter Fuel Allowance
and other “passported” benefits against a minimum flat rate state pension and wishes to
call on the Government to clarify its position in this respect.
Introducing a mechanism for State Pension Age increases
UNISON submitted a response in August 2010 to your consultation document on
increasing the State Pension Age.
UNISON does not support the Government’s apparent work till you drop ideology
and feels that it’s unreasonable to expect certain categories of worker in
particular to work for longer.
Although UNISON accepts that people on the whole may be living longer this does
not necessarily mean they are capable of or will be offered the opportunity/means
to work longer. This is particularly so in manual and physical occupations.
Furthermore, increased State Pension Ages and longer working lives is likely to lead
to increased health costs and put more strain on health services.
UNISON is therefore far from convinced of the Government’s justification for
increasing the State Pension Age past 65 and feels this risks excluding the very
people that need the state pension the most – typically low income earners in
manually intensive employment prior to retirement.
UNISON does not support the introduction of a fixed formula linked to life
expectancy because we do not believe there is sufficient justification for
automatically increasing this and feel a proper, informed, debate needs to pre-
date any move to increase based on the factual and circumstantial evidence
available at that time.
UNISON would also like to draw attention to appropriate notice periods for State
Pension Age changes, particularly given the calamitous decision of the Coalition
Government to bring forward the state pension equalisation timetable meaning
effectively that 300,000 women will lose out on 18 months of state pension income
and 33,000 on 24 months.
The second report of the Pensions Commission specified “at least 15 years” as
significant notice for introducing State Pension Age changes and UNISON would
agree that a sufficient notice period for change should be at least 15 years.