Connected Research

Union policy research in the 21st century

Pensioner poverty: what to do?

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Figures from Eurostat, the EU’s statistical publications agency, have been reported as confirming the relative poverty plight of UK pensioners, some 30% of whom (compared to an EU average of just 19%) have levels of disposable income which are lower than 60% of national median income.

The UK figure was the fourth lowest in Europe, ahead of only Cyprus and the three Baltic States of Latvia, Estonia and Lithuania (where the figure was the same as in the UK). At the other end of the scale were the Czech Republic and Hungary, where just 5% and 6% respectively of pensioners were this far from national median income. Indeed, four of the top five states were central and eastern European states formerly part of the Soviet bloc, the others being Slovakia and Poland (and the interloper being Luxembourg).

The data – based on 2007 figures – was cited by Age Concern and Help the Aged as evidence that the government needed to:

Find a more effective system to ensure benefits reach those who need them and meet the existing commitment to reform the pension system by 2012.

The charities commented that, even before the recession, the UK had made very little progress in tackling pensioner poverty, with levels remaining ‘stubbornly high’ in the previous four years; the supposition here being that, after recession (or during it), progress is even less likely.

As always, what must be done provides the key. The publication of the figures is timely because, on Thursday, the Department for Work and Pensions is due to release a review of efforts to tackle pensioner poverty.

The presence of ex-Soviet bloc countries so high on the list (though others – such as Romania, Bulgaria and, indeed, the Baltic States – were not so high) is perhaps no accident as they are surely likely to have much higher relative levels of state pension (it is relative poverty, not absolute poverty, that we are talking about here). State pensions at the sorts of levels that the international financial institutions would have derided as ‘unsustainable’ (Hungary’s own expenditure on pensions was one of the financial problems which engulfed eastern and central Europe earlier this year) and here where World Bank arguments for the ‘third pillar’ of private pensions saving were made particularly loudly. I wonder where they are now?

A much higher state pension is certainly one of the key ways of tackling pensioner poverty – the right to a basic state pension ‘set above the official poverty level and linked to average male earnings’ for every man and woman is the first point on the Pensioners’ Charter of the National Pensioners Convention. In the UK, we have traditionally relied on a mixture of state and occupational-backed provision – a combination which the Eurostat figures seem to confirm as having hardly been a roaring success. Furthermore, things are set to deteriorate substantially in the future, with the state pension having been allowed to start withering on the vine by the decision to cut the link between the state pension and earnings growth as far back as 1980 (currently due, rather belatedly, to be restored in 2012); while the flight of UK employers from decent occupational provision is in the process of destroying the occupational system.

Some tough choices must be made – and the timing is scarcely auspicious, either in terms of the electoral/political timetable or else in terms of the recession, while the Hungarian situation highlights some aspects of the difficult challenges inherent in improving pensioners’ relative position. Yet, despite the monies invested in counteracting the effects of the recession, the UK remains a rich country and one well-placed to tackle pensioner poverty. Unless the Conservatives are to break the national consensus around pensions established in response to the Turner Commission, the restoration of the link to earnings should take place and that should prevent the further decline in the value of the state pension (even if, by definition, it can’t actually improve its relative position). That, and my contribution to Yvette Cooper’s inbox as regards occupational provision, should be a start.

Anything else?

[Edit 31 July: If you read Polish, you can find a Polish perspective here].

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Written by Calvin

27/07/2009 at 4:16 pm

Posted in Pensions, Politics

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