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BeeHive  >  BeeLines  >  Blair and Brown Pension Agreement

Blair and Brown Pension Agreement

The papers today are full of leaks about a supposed deal that has been forged between the Prime Minister and the Chancellor of the Exchequer on the way forward for pension policy in the UK.I donít know if what Iíve read in the news is true or not, but if a compromise has been reached then I suppose itís about time as other Government Ministers have already announced that the White Paper on pensions will be published by the end of May 1.Or to put that another way, pretty much straight away.

To my simple way of looking at things it all seems as if policy is being put together on the hoof if something as mega as a White Paper (which will lead to immediate changes to the statute book) can be put out just days after the fundamental issues are resolved.I mean, do those civil servant guys write quick or what?But maybe I just donít understand enough about the process of how things work these days.Perhaps there are a whole load of White Papers just sitting there on the shelf simply waiting for the fundamental details to be filled in?

What has apparently been agreed at the highest level of Government is that future increases to the Basic State Pension may once again be linked to increases in the general level of earnings rather than price increases as at present.The basic pension used to be linked to earnings increases until 1981 when, as youíll know, that link was broken.Since then the annual amount of the pension has become worth less and less and if things are left this way long enough the pension will become just that; worthless.This continual degradation of the value of the Old Age Pension has led us to the current position where nearly half of those who are retired have become eligible for means-tested handouts from the state to help make ends meet in retirement 2.Thatís awful if you think about it, and itís not something for us to be particularly proud about as a nation.Itís one thing getting free bus passes and the like, but quite another to get a decent pension entitlement so that you donít need to rely on freebies that someone else decides you need Ė I think Alan Pickering said something like that on the radio this morning while I was waking up.

The Pensions Commissionís report pointed out that if things stay as they are then we†could have over 70%†of the retired population queuing up for means-tested handouts by 2050 3.Thatís pretty frightening in itself, but the knock-on effect that has on pension saving for those currently at work is possibly even worse.What is the point of saving for a pension if you end up getting penalised for saving in order to qualify for the means-tested benefits?The Pension Credit system we have right now does just that to millions of people when they hit retirement Ė a hell of a way to find out that saving wasnít a smart thing to do after all.A bit of a shock I should think to those hit by it.If somethingís not done about this soon then no-oneís going to get too excited about saving for their own pension are they?

Well it looks like something is going to be done about it after all.Phew!Just in time!Well, maybe.But maybe not.It depends on exactly what is going to be done and whether itíll be enough to stop the rot.

It looks like the agreement that has been reached by the top guys may be that the link to earnings could be restored not straight away, but from 2012.But what doesnít appear to be on the cards is any chance that the past damage to the Old Age Pension is going to be put right.I donít think anyoneís talking about a big rise in the level of the state pension, but rather a (not too quick) fix to stop things getting any worse.That will stop the spread of means-testing from 2012 onwards I guess, but it wonít reverse it.

So, I shouldnít think we should get too excited about the headlines weíll probably see in the papers over the weekend.Weíre still a long way from the day when a pound saved in a pension scheme will make savers at least one pound better off than non-savers.In the meantime weíre still on Crazy Street.

Steve Bee

12 May 2006

Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.

1 - UK Parliament† - Commons Hansard Debates text for 8 May 2006 Volume No. 446 Part No. 146 - Pension Reform.

2 - UK Parliament - Lords Hansard text for Thursday 4 May 2006 Volume No. 681 Part No. 140, Column 610.

3 - The Pensions Commission, 'A New Pension Settlement for the Twenty-First Century' - The Second Report of the Pensions Commision, 30 November 2005.