Another day, another pensions scandal. And another shrug of the shoulders from the political world at large.
On Thursday, the Department for Work and Pensions revealed that it owes 210,000 people, mostly mothers, a whopping £1bn in state pension payments. Around 43,000 of these people have already died, but an average of £5,000 is owed to each person affected by a fresh administrative blunder. Some may have lost up to £30,000.
The DWP first admitted its error last year when it said parents who had taken time off work to look after their children before the year 2000 could have missed out on vital national insurance credits that count to their retirement. This week, the huge scale of the problem, which affects women now in their sixties and seventies, emerged in the department’s annual accounts.
Yet you could be forgiven for missing it, not least as the only press release put out by the DWP about those same accounts was all about Work and Pensions Secretary, Mel Stride, setting a new target to cut fraud and error in the system by £1.3bn in 2023-24.
There was no Commons statement, no press conference, no proactive publicity about the Government’s own failure to pay out a similar amount of money legitimately owed to women who really need it in their old age.
Earlier this year, the DWP released figures showing the state pension underpayment rate was highest on record at 0.6 per cent – with some £670m not paid out – in 2022-23. This was mainly because of another blunder – 230,000 women missing out on uplifts in their pension when their husbands retired or die.
But aside from being more open about these historic wrongs, and doing much more to publicise the money people are owed, the Government needs to work cross-party on a bigger review of just how to meet the challenges of retirement for the future.
It’s worth saying that there has been some major progress in recent years for those of pension age. Thanks to New Labour’s drive to get down pensioner poverty and the Con-Lib Coalition’s “triple lock”, average pensioner income has for the first time in history been similar to that of people under 65. The political consensus that we built in the 2000s around a gradual increase in the state retirement age, plus the idea of auto-enrolment of young people into a workplace pension, have been in some ways the envy of other nations.
Yet there are new challenges – not least the fact that longevity is no longer rising but we are having children later – that merit a rethink about the way ahead.
In just one small example, a new report by the Institute for Fiscal Studies (IFS) this week found that nearly half of the older workers who quit the workforce during “the great retirement” during the Covid pandemic ended up in relative poverty.
In 2020-21, the 50- to 70-year-olds who had stopped working in the last year cut their food spending by around £60 per week on average, had lower levels of wellbeing and many lacked access to private or state pensions. Far from living it up on the golf course, these people were probably forced out of work by ill-health, even though their incomes relied on working.
While our auto-enrolment policy has been a big success, with private pension participation doubling to 86 per cent by 2021, it still fails the youngest and those on lowest incomes. The self-employed are often missing out too.
Fortunately, ministers have decided to back a private members’ bill by Tory MP Jonathan Gullis which will lower the eligibility age for auto-enrolment from 22 to 18 and abolish the lower earnings limit that prevents people in multiple, low-income jobs from saving from the first pound earned.
The “Gullis bill” has its second reading in the Lords next week and is expected to become law before MPs leave for their summer break. Yet what’s far from clear is exactly when ministers will enact the new powers the legislation gives them – and this kind of thing just can’t be subject to more inertia.
Of course, it’s rational that people in their thirties and forties, particularly during a cost of living crisis, are less keen on putting money into pensions than on other more pressing needs like childcare and housing costs. Piling cash into your pension in your fifties, after the kids have left home and you’ve paid big chunks of your mortgage, makes sense.
Yet the magic of compound interest (which builds up savings the younger you are) also means getting into the savings habit really early can be attractive. One study recently showed only a quarter of young people knew they could save more than their default contribution rate, or that their employers were willing to match extra contributions.
If someone in their twenties saved an extra 1 per cent a year, with their employer matching, they may be able to increase their pension pot in retirement by 25 per cent. That’s quite something when you consider the fact that young people are less likely to get on the housing ladder and will live in more expensive, insecure, private rented accommodation in their retirement. Pensioner poverty may rear its ugly head once more, but in different ways.
We also need a much greater level of financial advice and education for the young, who will be faced with complex decisions on how much and when to save and how and when to exercise pension freedoms. The IFS has launched its own review of the system, and if both Government and Opposition offered to build on that we could get long lasting cross-party change once more.
Some issues such as the scandal of underpayments to older women need real urgency right now. By contrast, we have the luxury of more time to get future policy right for those currently in their twenties and thirties. But that shouldn’t be another excuse for inaction and voters of all ages should pressure our politicians to help us secure the decent retirement we all deserve.
