“Daddy when you are 40 will you die?”
This question delivered by my four-year-old as we plodded over to nursery the other day, did little to improve my attitude to this rather imminent anniversary.
To my rather blunt pre-schooler, 40 is an age so far away as to be incomprehensible.
And in this, his approach is reminiscent of the public debate about ageing, and the state pension in particular.
Fortunately, this is a debate that should be enriched by the publication earlier this week of a report on state pension uprating by the Pensions Policy Institute, co-sponsored by the TUC and others.
For as 40 is to my four-year-old, so 70 is to most 35 year-olds. It is utterly remote.
So that makes it easy to throw around terms like “there will be no state pension when you are older”, without the implications hitting home. What will I be like if I hit 75, 80, 90? And what will my lifestyle look like without a state pension?
The numbers involved in discussions about the state pension are so large or so distant or so intangible to obscure rational debate about the core issues. Spending £92 billion a year on the state pension sounds like an awful lot. But 4.7 per cent of national income doesn’t.
The result has been a public discourse on state pensions that has been limited and disconnected from the lives of working people.
As a political issue, state pensions are often put in a box labelled “pensioners”. Debate has been limited to state pension age, in particular the energetic WASPI campaign regarding the accelerated equalisation of state pension age between men and women.
When people raise the issue of the triple lock, a mechanism that since 2011 has ensured that the state pension rises each year by the highest of average earnings, inflation or 2.5 per cent, it is often in terms of its impact on current pensioners. Or it is waved around as an example of pensioner privilege.
Obscured is the potential reliance of large numbers of current working age people on the state pension in their old age.
And the real hardship that could be caused if policy decisions were taken without considering the impact.
This is why the PPI report on is so important.
It goes some way to answering the all-too-infrequently asked question if we were to end the triple lock, how would that affect pensioners and working people?
One of the most striking figures is that if the triple lock was replaced, and instead the state pension rose in line with average earnings, there could be an additional 700,000 pensioners living in poverty by 2050 (a 4 per cent increase). Under a double lock, where pensions went up by the higher of Consumer Prices Index inflation or average earnings, there would be 200,000 more (1 per cent more).
That could mean, in total, 3.5 million older people living a lifestyle significantly below those of others in society. People’s grandparents, parents, uncles, aunts, brothers and sisters, not an anomalous blob of national wealth.
And the report also places the debate back in the arena of working people. These 700,000 people are today’s workers in 32 years’ time.
The impact, of course, is not felt equally.
The poorest pensioners would be affected more than others due to their lack of alternative income. A pensioner with income at the 10th percentile would experience a £700 a year drop in income (a fall of 7 per cent) under an earnings link by 2050. It would be £300 (3 per cent) down with a double lock.
And any change to indexation will affect women more than men: three in five of those in relative poverty over the age of 65 are women.
To offset this, private pension contributions would have to rise significantly. This is something that may be well outwith the financial means of workers or their employers.
Scrapping the triple lock (and raising the state pension in line with earnings) would force low earners to put an extra £540 a year into their pension to avoid hardship in retirement. Someone saving consistently from age 22 would have to find another £270.
So what are the policy implications?
We know from looking overseas that in every successful pensions system there is a very strong state element.
We also know that state provision in the UK is an outlier in its paltriness. Indeed the OECD has us at the bottom of the league among developed countries.
The triple lock is a means of gradually raising the state pension.
Increased private saving is likely to be a very inefficient way of to offset a less generous method of uprating.
The closure of so many defined benefit pension schemes and the provision of typically far less generous, and certainly less predictable, defined contribution pensions makes building up savings very difficult for many
The lack of wage growth, greater job insecurity and diminishing opportunities for training and progression for many younger workers doesn’t foster an environment where increased individual saving can offset the impact of getting rid of the triple lock.
We should pay heed to one of the key conclusions to this report:
“Under none of the indexation scenarios, does the State Pension provide full protection from poverty, or sufficient support to maintain living standards. Under all of the scenarios, some pensioners still experience poverty in retirement and many will need to save significant amounts into pensions, or other saving vehicles, in order to achieve adequate retirement incomes.”
What the triple lock is doing is slowly, arguably too slowly, improving poor provision for pensioners. The state pension is the mainstay of pension provision, a key (though on its own insufficient) buffer against poverty in old age.
And it is clearly in the interests of working people, young and old, to defend it with all our might.