Those of us lucky
enough to be in receipt of an occupational pension understand that the pension is
money that we earned while working, but with the payment deferred. Occupational
pensions are paid for partly by contributions made out of salary and partly by even
larger contributions made by the employers. I remember the Chief Accountant of
one company for which I worked selling the idea of making additional
contributions on the basis that, ‘for every pound you pay, you catch the
company for another two pounds’. The pension isn’t a generous benefit paid for
out of the goodness of the heart of former employers, it’s part of the salary we
earned, set aside for the future. And no-one ever, as far as I’m aware, has
suggested that it should be means-tested to ensure that it only goes to those
who ‘need’ it.
From the point of
view of the government, the state pension doesn’t work that way at all. From
their perspective, National Insurance is just another tax (hence the way the
Tories presented a NI cut as a tax cut) added to overall revenue, and the state
pension is just another costly benefit paid for out of current revenue. That
perspective is, though, simply a result of the way in which governments choose
to deal with the money. From the perspective of state pensioners, they
contributed throughout their working lives, and their employers paid even more,
in order to ensure a pension when they retired. In essence, the employers’
contribution – just like that made to occupational pension schemes – is part of
the salary of the individuals; the difference is about accounting, not the
underlying principle. From that perspective, it should no more be subject to
any form of means testing than an occupational pension.
Whether the winter
fuel payment should be considered as part of the state pension is a moot point.
I’ve never been a fan of it, and have always thought that, if the pension is inadequate
to cover living costs, the solution is to increase it, not supplement it with
random amounts. There’s something rather patronising about assuming that all
pensioners are incapable of budgeting for higher costs of fuel in the winter:
lots of costs vary over the year, not just fuel and not just in the winter. And
to the extent that some people do struggle to pay a peak in costs at one particular
time of the year, that struggle isn’t restricted to pensioners, nor to fuel. A
one-off annual payment for fuel is, at best, a partial solution to an entirely
different problem, a major part of which is that people’s incomes are
inadequate in the first place. In addition to that, the payment was made
non-taxable, meaning that not only did it go to everyone (like the pension
itself) but, unlike the state pension, the increase in earnings it gave to
those receiving occupational pensions as well was untaxable. Nothing was
recovered in tax from those who didn’t ‘need’ it.
If we see the fuel
payment – as I believe we should – as having been part of the state pension,
then what the Chancellor did yesterday amounts to a cut in the basic state
pension and an increase in the pension credits paid to the poorest pensioners - a transfer from an earned entitlement to a 'benefit'.
We shouldn’t be surprised at that. Coming back to occupational pensions, most
of us understand that if we pay less in while working, we get less out after
retirement. The Tory cut in NI works the same way – contribute less to pensions
and get lower pensions. They didn’t spell it out like that, of course; but the
reduction in government income nominally intended for pensions was always
likely to manifest itself in a reduction in the government expenditure paid for
out of that income (especially for any Tory/Labour government wedded to a silly
fiscal rule about balancing the books).
That doesn’t let
Reeves off the hook, though. Nobody compelled her to cut pensions rather than
restore the level of NI contributions; nobody compelled her to cut pensions
rather than increase taxes on the wealthiest. Those are choices she – and the Labour
Party – are deliberately making. The Tories may have created the problem through
unfunded NI cuts, but it is Labour which is choosing to impose part of the consequences
on pensioners.
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