I’ve talked a couple of times recently about pensions in the context of the GERW study, and the way in which the total apparent revenue and expenditure in Wales in such an approach is impacted by demographic flows. But the issue raises another question as well because whilst the level of pension is consistent across the UK, the level of wages is not.
The new state pension is currently set at £155.65 per week (although not everyone will get that, of course). The average wage in Wales is £473.40 per week and that in the UK as a whole is £528 per week (source). So in Wales, the pension represents around 33% of average earnings, but in the UK as a whole it represents around 29% of average earnings. This makes it look superficially more generous in Wales than in the UK as a whole. (And much of what I say in this post could also be said about other benefits.) But in the context of GERW, this is another factor which inflates the size of the fiscal gap in Wales compared to the UK as a whole.
Is this an argument for ‘regional’ levels of pension? No doubt some would see it as such, but for me it raises two other, rather different issues. The first is this: ‘at what proportion of average salary should the state pension be set?’. It would be nice to believe that that question had been answered – or even asked – in setting the current level of the pension, but it doesn’t seem to have been. It’s been more a question of starting where we are and determining the basis on which any rise in pensions has been calculated, usually with political advantage more to the forefront of the mind than any rational consideration about the ‘right’ level of pensions.
It is, however, an issue that an independent Wales would need to consider, even if many nationalists would prefer not to think about it at present. I’d like to believe that an independent Wales would be aiming to ensure that the average income of retirees was higher than the 33% level rather than lower; but the underlying point here is that there’s nothing particularly special about the position in England. An independent Wales would not be bound by what has happened or will happen across the border. And whilst making international comparisons is never straightforward because of differences in other factors, most EU member states pay pensions at a higher rate compared to average earnings than the UK.But it’s the second issue which concerns me more, and that is that the apparently more generous level of pensions in Wales is actually more to do with the low level of wages than the high level of pensions. Because the highest-paid jobs are elsewhere, partly because of the centralised nature of the UK, Wales ends up as a (comparatively) low-wage economy compared to the UK as a whole. But there’s nothing necessary or inevitable about that; it’s a direct result of our status and role within the UK. It follows that changing that status is key to changing the nature of our economy. And changing the nature of the economy is the key to setting the level of pensions.