2.1 million pensioners currently live in poverty

Financial knives are being sharpened against UK retirees. Major political parties, think-tanks and newspapers think that they have never had it so good and want to slash the real value of the state pension.

They are all troubled by the possibility that as a result of the triple-lock, next April the state pension might rise by around 8%. The triple-lock formula was implemented in April 2011 to curb erosion of the value of the state pension. Under this, each year the state pension would increase by the highest of the three variables – the rate of inflation as measured by the Consumer Prices Index, average wage increases or 2.5%.

For the year 2022-23, the government suspended the triple-lock and pensions rose by only 3.1% when the formula should have resulted in a rise of around 8.5%. This deprived pensioners of £5.4bn, a sum lost forever. It also reduces the base for rises in future years. The Conservative government wants to repeat the cut and the Labour Party has refused to commit to continuation of the triple-lock. Their cold political calculations pay no attention to the human cost.

Around 12.6m retirees (6.8m females, 5.8m males) receive the state pension. In March 2022, the cost was £104bn (£100bn in 2021) which stimulates the local economy as retirees tend to shop locally. Despite the triple-lock, 2.1 million pensioners live in poverty. The Marie Curie Charity reported in 2019, 93,000 people died from poverty and out of this 68,000 were pensioners. Each winter, thousands freeze to death as they can’t afford to heat and eat.

The major reason for pensioner poverty is low income. As a fraction of average earnings, the UK state pension is well below the EU and OECD country average. From April 2023, the full state pension for post-2016 retirees is £203.85 a week, or around £10,600 a year. Of the 3,057,000 retirees eligible for this rate, only about 50% receive the full amount. The rate for pre-2016 retired persons is £156.20 a week, or around £8,200 a year. Of the 9,576,000 eligible retirees for this rate, only about 75% receive the full amount.

With various top-ups, such as the earnings-related additional state pension, as well as inheritance of some state pension from a late spouse, the average amount in February 2023 was as follows:

	Male	Female	Total
Pre-2016 State Pension (basic State Pension, plus Additional Pension for those reaching State Pension age before 6 April 2016)	£178.67	£152.90	£163.61
New State Pension (for those reaching State Pension age from 6 April 2016)	£175.54	£170.61	£173.11

Despite gender equality laws, women continue to receive lower state pension than men’s as they are penalised for domestic and caring duties.

Many retirees also have income from private and occupational pension schemes. Like any other income, they are taxed at the appropriate marginal rate of income tax. Pensioners also pay council tax and indirect taxes, such as VAT.

The state pension is the only or the main source of income for majority of retirees. The annual average amount actually received (see above table) is between £8,500 and £9,000, and is likely to be higher as a result of the 10.1% increase in April 2023. Retirees also receive £10 Christmas bonus (unchanged since 1972) and Winter Fuel Payment of possibly between £100 and £350 depending on household circumstances. However, millions receive less than the headline amounts. Out of 12.6m retirees, 3.6 million receive less than £150 per week. The average full-time worker’s annual wage is around £33,000 though there are considerable regional variations. The state pension actually received is less than 50% of the national minimum wage.

Successive governments have hiked the state pension age (SPA). Until April 2010, the state pension age (SPA) was 60 for women and 65 for men. Now it is 66 years for both men and women and is set to rise to 67 between 2026 and 2028 even though life expectancy is declining. The objective as former Chancellor George Osborne put it was to save “half a trillion pounds”. Such crusades make no mention of the poverty, insecurity and death inflicted on seniors.

The hikes in SPA mean that people pay national insurance contributions for a longer period but draw pension for a shorter period. Each hike in SPA results in a wealth transfer from the poor to the rich who tend to have longer life expectancy. Undeterred, politicians like former Conservative Party chairman Ian Duncan Smith wants to increase the SPA to 75. Due to lower life expectancy, people in areas such as Scotland and Blackpool will receive little or no state pension.

An 8% rise in the average state pension of £9,000 or even £10,000 is easily affordable as the National Insurance Fund account has a £57bn surplus.

Trade unions, the young and old people must oppose cuts to the state pension. We all need to campaign to have it aligned with the minimum wage, as this is the only way of preventing chronic poverty for future retirees. Defined benefit pension schemes have disappeared. Millions of workers are unable to save sufficient amounts into private pension schemes as their incomes have been systematically eroded. Workers’ share of GDP, in the form of wages and salaries, is around 50% , compared to 65.1% in 1976. With government imposed austerity and real wage cuts the average real wage has remained unchanged since 2005. The wealth of the under-40s, which make up nearly half of the population, has shrunk from 7.53% in 2010 to 3.98% in 2019. Almost a third of 18- to 34-year-olds have stopped or cut back on their pension contributions in order to save money. Poverty, insecurity and premature death await tomorrow’s retirees.

The alignment of state pension with the minimum wage is affordable and feasible, not only from the National Insurance Fund surpluses, but also by ending tax perks of the rich. For example, by restricting tax relief on pension contributions to the basic rate of 20%, up to £14.5bn can be released each year. A modest wealth tax on just 140,000 richest individuals can generate over £10bn a year. Further amounts can be raised through financial transactions tax, charging national insurance on unearned income, and aligning capital gains and dividends taxes with the rates applied to wages.

It is shameful that a country that has bailed out banks and handed nearly £1 trillion of quantitative easing to speculators is contemplating inflicting more misery on its senior citizens. 12.6 million senior citizens and millions of young people have the power to resist hardship and must exercise that in the next general election.

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

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