Spending Review: George Osborne’s pensions conundrum

The government - correction, any future government - is facing an increasing conundrum over what to do about pensions. Despite the hoo ha over today's Spending Review, the announcements the chancellor will make today will only apply to a small proportion of total spending.

The government – correction, any future government – is facing an increasing conundrum over what to do about pensions.

Despite the hoo ha over today’s Spending Review, the announcements the chancellor will make today will only apply to a small proportion of total spending. Only half of government spending is covered by Whitehall departments. The rest is annually managed expenditure, which is largely made up of state pensions.

In 2009/10, state pensions cost the Exchequer £66.8 billion. This is almost 10 per cent of all government spending. In 2007/08 the equivalent figure was £57.6 bn.

The rise in the number of those eligible for the state pension means the figure is set to rise faster in the coming years. The Triple Lock pension guarantee also means the state pension will very often rise faster than average earnings (as it is currently).

As the cost of looking after pensioners booms, the costs attached to being young and trying to make your way in the world are spiralling.

It takes young first-time buyers saving half their annual income more than 10 years to put together a deposit for a first home, and in London that figure rises to 24 years.

For those who own a house, however, property prices have quadrupled since the early nineties.

Young people are also much more likely than adults to be unemployed than other generations. In the last quarter of 2012, one in four young workers with five good GCSEs and 40 per cent of those with no qualifications were unemployed. Those who decide to go to university can expect to be saddled with debts that, in some instances, they may not pay off until they are in their 50s.

For those just entering the workplace, the minimum wage has already fallen behind inflation and some in the coalition have even called for it to be abolished altogether.

While it’s politically unpalatable to consider withdrawing benefits from the generation of pensioners who built the welfare state, in the next 10 years the so-called ‘Baby Boomer’ generation will reach pension age – a generation that has enjoyed free education, free healthcare, and who very often own their own homes.

So in effect, those who enjoyed the best of the post-war settlement are likely to be the last generation to enjoy the generous pension settlement.

At some point, however, whether we like it or not, this government or a future one is going to have to look at radical change to bring down the pensions bill.

Pensioners

However, without making people work considerably longer (which will bring its own problems), it’s going to be an incredibly politically risky issue to take on.

Not only are older people more likely to vote than any other group, but the wider public believes pensioners are the group most entitled to help from the government. According to a new IPPR/YouGov poll, pensioners come top when the public were asked which types of people they believed were most deserving of financial help from the welfare system.

In the same survey, a ‘young person leaving school but unable to find a job’ was considered most deserving of help by only 9 per cent.

The irony in the IPPR survey is found elsewhere, however. When asked who they believed was responsible for the rising cost of welfare in the past two years, ‘immigrants coming to Britain and claiming benefits’ came top.

As we’ve written before, migrants are overall net contributors to the economy (by quite a margin) and in the years to come it will be migrants who are, in effect, helping to pay for British pensioners.

According to today’s IPPR/YouGov survey, however, those receiving most from the system (pensioners) are the ones seen as the most entitled to more, and those making the largest net contribution (migrants) are perceived as the biggest drain on the welfare system.

Now perhaps you get an idea of just how politically hard it will be to get welfare spending down.

5 Responses to “Spending Review: George Osborne’s pensions conundrum”

  1. John Smith

    So, those who have paid 30/40 yrs of tax & NICS, to see State Pension going further & further back. Now its acceptable to say they may lose it?

  2. Fizzygal

    I did have free education to become a physiotherapist. My first pay packet was £98 a month. Income tax was 33%. I moved into my first home aged 32. I had 2 children and there was no maternity leave. I did get maternity benefit for several months. I have never claimed ‘the dole’ worked as a physio until I retired 6 months ago. I’m tired of taking the blame just because of when I was born. The lending strategy of banks and building societies is to blame for house price inflation. I might add we took a loss on the value of our house in the 90s and paid a mortgage at 16% interest rate in the late 80s. We baby boomers haven’t had it so easy either

  3. LB

    They aren’t spiralling out of control because of demographics.

    It’s because you and the other numpties spent the money. No other reason.

    Demographics is an irrelevance, you spent the contributions.

    Take a median wage earner – 26K, who has just retired. 40 years ago that was 800 a year. If their NI money had been invested – 627,000 pounds

    State pension 152,000 and that’s under threat because the state can’t tax enough to pay it.

    Where’s the state going to find the 734 bn that the pension debt is increasing by each year.

    So John, Fizzygal, you’ve been defrauded. You’re pension has been spent, and not a banker in sight.

    Fizzygal, low interest rates – government policy = higher prices. Mass migration = more demand for houses = higher prices.

    All roads lead to the state.

  4. LB

    As we’ve written before, migrants are overall net contributors to the economy (by quite a margin) and in the years to come it will be migrants who are, in effect, helping to pay for British pensioners.

    ===============

    Oh no they aren’t.

    The average spend per person per year in the UK, by the state is 11.5K a year.

    They are not paying 11.5K a year in tax. Starbucks does not pay it’s baristas 40K a year.

    There are vast numbers of migrants paying way less in tax than it costs to have here, and they will want pensions in their turn.

    Remember, the pensions debt is going up at 734 bn a year. That’s more than total taxation.

  5. LittleOddsandPieces

    SIGN EPETITION ON 38 DEGREES TO SAVE YOUR LIFE, LATE 50s and OLDER
    BRING BACK IMMEDIATELY STATE PENSION FOR WOMEN AT 60http://you.38degrees.org.uk/petitions/state-pension-at-60-now

    WHY SIGN?
    Pensioners pays around 40 billion a year to government.

    However long we live, in or out of work, over 75% of taxes come from Indirect taxes and VAT, even on food. Pensioners are not a burden on other taxpayers. We are all taxpayers, bar none.

    Working class pay more as a percentage of food money than any other income level by the sheer amount of stealth taxes on basic essentials. 60% of a litre of petrol is tax. Two taxes on unaffordable household energy bills.

    State Pensions are deferred wages from our youth, not some generous gift from government and other taxpayers, to be withdrawn at whim.

    There is a 50% unemployment rate over 50s, rising to 75% for over 60s.

    As benefits being lost to chronic sick and disabled, the state pension becomes a matter of life or death. Austerity Kills.

    AUSTERITY R NOT US – WHY AUSTERITY IS A SHAM
    Politicians are still flying about the world in club class.

    The welfare bill is rising to pay for private firms whilst the poor are being left with nothing and having to go to charitable food banks for food. So taxpayers’ money is being paid to the true scroungers, private firms involved in welfare reform. And these private firms’ profit has not helped deficit reduction or economic growth one iota.

    All the billions wasted on taking food out of the mouths of vulnerable adults, children and babies, could have been better spent in a recession by government investment in growth and jobs.

    Swans New Party Org UK

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