Shocking state of the nation’s pensions

PENSIONERS may have enjoyed the second bumper pay rise in a row from Monday but celebrations were muted because the whole state pension is now bogged down in controversy and confusion.the triple lock has done its work again, handing pensioners an inflation-busting 8.5 per cent increase, on top of last year’s 10.1 per cent hike.

Yet the endless threats to its future have turned it into a political football and many pensioners fear that every year could be its last.

That is not the only controversy. Even if the triple lock survives, it does not apply to every element of the state pension.additional state pension and means-tested top-up Pension Credit are both excluded from the mechanism, leaving many feeling shortchanged.

Older pensioners who retired before April 6, 2016 on the basic state pension feel aggrieved because they suspect they are getting less than those on the new state pension.

Another issue is Chancellor Jeremy Hunt’s freeze on tax thresholds could push more than a million pensioners into paying tax, and many do not realise what is coming their way. Throw in the Waspi scandal, DWP pensions underpayments for women and the steadily rising retirement age, and the state pension is under siege on every front.

The UK state pension is the lowest in the developed world, with retirees in some countries getting three times as much, according to research published last week. How did our pensions get in such a state?

SHAKY

The state pension is supposed to be the bedrock of our retirement income. Yet it has always been built on shaky ground. Many understandably feel they are entitled to receive it, having made National Insurance contributions throughout their lifetime.

Yet the state pension is not an entitlement. The Government insists that it is a benefit. Many older people who take pride in never having claimed any state benefits during their working lifetime understandably do not like the idea.

The problem is there is no pot of cash to pay our pensions. Instead they are funded by today’s taxpayer contributions.

That is a real problem, as society ages and the ratio of workers to pensioners shrinks.that is why the Government is repeatedly pushing up the state pension age, even as life expectancy growth slows.

Paying NI contributions was a social contract between workers and the Government. Now that contract is close to being broken.

COMPLEX

Another major issue is that the state pension is horrendously complicated. Since April 6, 2016, there have been two state pensions, the basic and the new one. Plus there are a host of additions, including Graduated Retirement Benefit, the State Earnings-related Pension Scheme (Serps), State Second Pension and Protected Payments.

This system is now so complex it is almost impossible to work out what people are likely to get and whether they have been fairly treated.

This leads many to feel that they are hard done by, with the basic state pension now paying just £8,114, while the new state pension pays a maximum of £11,502.

Older women often face severe hardship, particularly after the death of their husband or divorce.

Means-tested top-up Pension

Credit should help the poorest, by lifting their incomes to a minimum basic level, but adds more complexity. Incredibly, 850,000 of the poorest pensioners do not get it because they do not even know it exists.

TAXING

This year has thrown yet another spanner in the works.with the personal allowance frozen at £12,570 yet again, someone on the full new state pension only needs to earn £1,068 a year from other sources before having to pay income tax.

More than nine million pensioners will pay income tax this year. Many will receive a tax bill out of the blue, most likely after they have already spent the money.worse, it could be backed by fines.they need to prepare now (we explain how on the next page).

‘Incredibly, 850,000 of the poorest pensioners don’t even know Pension Credit exists’

STATE

Since the 1980s, politicians have been working on the notion that most people would have ample company and personal pensions, so only needed the state pension for basics.

Yet our private pensions were ravaged by mis-selling scandals, while former Labour Chancellor Gordon Brown’s notorious stealth tax raid on the nation’s pension pots in 1997 destroyed our gold standard final salary schemes.the workplace auto-enrolment pension scheme has been a rare success story, giving millions of lower paid workers a company plan for the first time.

Finally, nobody likes to talk about the fact the UK public sector pension liabilities totalled £2.4trillion at the end of February, worth 88.5 per cent of our entire economic output for a year. How can the nation afford that?

With a general election coming, these issues need to be addressed.

But politicians would rather talk about anything else, as there are no easy answers.we cannot live with the state pension like this. But we certainly cannot live without it.