Is the state pension reform set in stone? – A Mindful Money view

20th January 2013

Is the state pension reform set in stone? Day by day, as experts crunch the numbers and identify more losers, it feels as if the Government's state pension reform proposals are getting less and less popular, increasing the chances of substantial change. 

The reform is not due for implementation until 2017 well after the next election and it is already facing quite formidable opposition. We have already seen the hugely influential Institute for Fiscal Studies questioning whether it will really make people better off. Now it has a new critic, if not quite opponent, in the person of Sage director general Ros Altmann, a formidable campaigner for the rights of older people. Altmann supports the move away from means-testing in general as can be seen from this video featured on the the Telegraph a couple of weeks ago. But now she is questioning the detail as can be seen from this article in the Actuarial Post.  

This is the key passage – “Unfortunately, the new system proposed in the White Paper is substantially less generous than the proposals in the original Green Paper. Indeed, the proposed flat-rate state pension is 11.8% less than was suggested in 2010. The £144 a week after 35 years contributions (instead of £140 a week in 2010 terms after 30 years contributions) is worth £4.11 a year for each full contribution year, as opposed to the £4.66 a year which the Green Paper put forward. In addition, the new scheme will not start before April 2017, which is a year later than originally intended and this means many people will be left out who would have hoped to be included.”

We think the temptation for the Labour opposition to propose a more generous settlement probably by proposing amendments to the legislation will be almost irresistible. They may also make it a key theme for the general election campaign though of course ultimately any proposal must be costed. At the moment, over the long term, the Treasury will benefit. It may also be significant that the reform is being proposed by a Liberal Democrat pension minister Steve Webb thus minimising the chance that Labour could actually win a vote in the House of Commons with the help of some Lib Dem rebels. But the next government depending on its make-up could alter things.

However, while we think it is very important for individuals approaching retirement to think long and hard about what the reform will mean for them based on the current proposals, we also believe there is still a significant chance that things could change. You might even think about writing to your MP if you believe you are adversely affected and don't want to be. 


28 thoughts on “Is the state pension reform set in stone? – A Mindful Money view”

  1. JW says:

    Hi Shaun
    Excluding the housing market, borrowing costs bear no relationship to the BoE rate and very little with wholesale swop rates etc.

    Housing borrowing costs are being deliberately capped to fulfill a pre-election requirement to boost sale prices and give an illusion of economic recovery to the general populace. The same mechanism is repressing savings rates as the banks etc don’t need the retail savings. This in turn encourages more risky investments chasing returns so to suck in the retail investor to bail out ‘bubble’ bonds, equities etc.

    How much of those improved employment numbers are part-time and/or low paid jobs?

    ‘Its just an Illusion’ …Imagination replaced by Servitude.

    1. Anonymous says:

      Surely they’ve moved to employment as the “trigger” for forward guidance because it can be manipulated more easily.

      They will use this to hold rates as low as possible for as long as possible without, in their minds, losing credibility.

    2. Anonymous says:

      Hi JW

      I suspect that if and when we get sustained rises in interest-rates then suddenly the banks will be looking to link borrowing (but not savings) rates to them again!

      As to the break-down of the numbers we get this.

      “The number of people in full-time employment was 21.71 million for April to June 2013, up 31,000 from January to March 2013. The
      number of people in part-time employment was 8.07 million, up 38,000 from January to March 2013”

  2. ExpatInBG says:

    Hi Shaun,

    Sorry it’s off the Carney topic, but I’d like to mention the UK child trust funds, as another example of poor political management. I first researched them in 2003, as my son was receiving one. So I thought – I’ll pick a share tracker account with minimal fees, because I doubted I could select a managed fund that earned it’s management fees and delivered a higher return. At this point I discovered that Gordon had fixed these management fees stupidly high and tracking funds weren’t offered.

    CTFs are

    1 ) a waste of taxpayers money
    2 ) a subsidy for the finance industry
    3 ) more likely to go down in value than up after fees deducted
    4 ) will be worth almost nothing in 18 years time.

    1. forbin says:

      ah the great gordo !

      how this man ever got his hands on the economic levers I shall never know

      trust me , theres more to come on his “greatness” !

    2. Anonymous says:

      Just the fact that your child gets handed them at 18 was enough to put me off!

      1. forbin says:

        I did wonder at the time that being handed this money would then immediately mean said child was too rich to claim unemployment benefit …

        Seem though they will be worthless – another Baldrick’s cunning plan ?


    3. Anonymous says:

      Hi Expat

      What are the management fees on CTFs?

      1. Anonymous says:

        Hi Shaun,

        Memory says they were all 1.5%, but it’s been 10 years so I could be mistaken and the rules might have changed. The website is strangely silent on fees charged.

        Either way the younger generation are unlikely to receive much from this gimmick, when they will be bequeathed with a horrific national debt, extortionate rents and university tuition fees.

  3. forbin says:

    Hello Shaun ,

    Its quite possible to get unemployment down and employment up if we use zero hour contracts for all those currently unemployed

    the fact they will work no hours week to week is merely a detail


    PS: I actually wonder if this is not already taking place……

    1. Mike from Enfield says:

      Hi Forbin,

      I recall a highly entertaining speech by the Beast of Bolsover back in the early eighties, lampooning the Thatcher government for rigging the unemployment figures. To my mind, unemployment led the way in this regard, followed by inflation, GDP, crime etc. so that now you cannot rely on any of them.

      I wonder whether, if the same fiddles in place nowadays were applied to our post war decades of ‘full employment’, what would the number be (negative?)!

      1. Drf says:

        Hi Mike,

        I must concur most vigorously with your opinions expressed here. These fiddles were outragous in the first place, but have become intrenched, accelerated and totally without scruples now. I have made this point myself previously, because what it really means is that you can thus no longer use offical government published statistics in any valid analysis.

      2. Anonymous says:

        Hi Mike

        I recall looking up the Yes Minster episode where Jim Hacker not only declares that the unemployment numbers are rigged but implies that they have been rigged for some time. That was in the early 1980s, so it appears that it was ever thus.

    2. Anonymous says:

      Hi Forbin

      When the Office for National Statistics reviewed zero hours contracts recently it revised up the numbers to 250,000 as I discussed on Monday last week. We don’t really get much of an update from today’s numbers except for a hint from these numbers.

      “Total hours worked per week were 953.1 million for April to June 2013, up 2.8 million from January to March 2013 and up 18.4 million on a year earlier.”

      So at least we know that someone was working more hours…

  4. Drf says:

    Hi Shaun,

    An excellent analysis today. “One of the dangers of taking a centrally planned approach to economic management is that you are prone to looking leaden footed as events develop and change.” It is good to see that you have also now evidently come around to realising that the UK economy is now centrally controlled, just like the old Soviet economy; and we all saw what disaster that ended up causing! There is litle real free market in most areas in the UK upper echlons any longer, so the UK is in reality no longer a Captialist economy.

    The response of Keynes to a question derected at his u-turning incompetence which you cite here (“When the facts change, I change my mind. What do you do, sir?”) for me says it all; this response is in itself an attribute of the Peter Principle crystalised for all to see. The mark of a real economic leader who has the necessary academic understanding to comprehend above the norm and thus lead an economy effectively is that they can make proper decisions based on the evidence and then lead. It is the same in all areas of competent management and cybernetics. The predominant attribute of a leader already above their level of understanding and competence is that they have to learn as they go along, leading everybody else around in circles as they bumble and turn. I have never been too impressed by Keynes from the evidence of his supposed competence and his writings. I believe many of his opinions and supposed conclusions came from his inherent Socialist leaning, and distorted real economic values.

    National leaders who lead everyone else around in circles as they learn from their own mistakes as they bumble along waste enormous quantities of national resources. Everyone else then suffers, as now. The Peter Principle is an excellent analysis of this disasterous phenomenon, but most have not yet grasped its real significance. Until we learn that only those with much above average understanding and comprehension are fit to lead national economies in the modern world, we will continue to struggle and oscilate in fortune. (That rules out Carnage, Ca-moron and Osborne.)

    1. Anonymous says:

      I’m not sure the Peter Principle is ideal here. Osborne has no real work experience. He hasn’t been appointed to one level beyond his competence, he’s been parachuted in by privilege. The Peter Principle implies a meritocracy. The UK is anything but.

      In general I’m not sure politics obeys the Peter Principle. For example by all accounts Brown bullied his way to the top. I’m sure he achieved his Peter Principle high-watermark early in his Labour career, but then went on through a few more levels on a mix of arrogance, willpower and a lack of empathy.

      1. Drf says:

        Hi Progrock,

        I did not suggest that politics obeys the Peter Principle; indeed the point of my observation was that there is little if any meritocracy in Politics or high-level economics in the UK. The Peter Principle shows that in general people (mostly through nepotism) may rise to their level of incompetence; the Peter Prescription goes on to show that by the same nepotism and collective continued nonchalance, and the specific incompetence of those selecting them, such people may then rise even above their level of gross incompetence, and thus can then do even much more macro-damage. Therein lies I would suggest the root of our present economic problems.

        The good book observes in the book of Proverbs “If the blind shall lead the blind then both shall fall into the pit” (or ditch, depending upon the translation.) That is essentially why we are now in the economic pit (or the mire)! We are being led by the blind, functioning way above their own level of incompetence, because they cannot see what is happening, nor the effect of what they are doing on the cybernetic system they are attempting to supposedly control. [Although as you rightly observe Osborne has no previous work experience of any significance, he is still an example of the Peter Principle in application, because he has been appointed already immediately at above his level of incompetence. (His experience seems to have been limited to folding towels and data entry only since reading for an inferior History degree.) The Peter Principle does not define any requirement to function at a level of competence before rising to a level of incompetence. Indeed often today we increasingly see candidates being precipitated as immediate Peter Principle appointees beyond their level of competence. This is mainly because those making such selections are incompetent themselves, or corrupt.]

        1. Rods says:

          Lady Ashton, Gordon Brown and John Prescott all come to mind as politicians working well beyond their levels of competence.

        2. Noo 2 Economics says:

          “The Peter Principle does not define any requirement to function at a
          level of competence before rising to a level of incompetence.” – I thought it did?

          1. Anonymous says:

            This is turning into a strange loop. Is there a law on the misapplication of the Peter Principle on internet forums? If not, I hereby claim “Peter’s law”.

          2. Drf says:

            Hi Progrock,

            I think your claim is valid, and you should have it (Peter’s law, that is)!

  5. realfinney says:

    Hi Shaun,
    Something I saw today, again, which always infuriates me was an article (The Telegraph being today’s offender) which stayed that the inflation rate reducing to 2.8% would provide relief to consumers. How on earth can on going decline, albeit at a slower pace, be portrayed as improvement. You see it everywhere: negative growth figures less negative? Real income decline rate reduces? Pace of employment losses drops? Defecit nudges lower? It’s as if at the first whiff of good news hacks pull out their pens and draw onto the chart an extrapolating curve straight to cloud 9.

    A month of less decline is still decline, there is no good news there until real incomes increase, employment is up, the economy actually grows, government runs a budgey surplus.

    Rant over!

    1. Mike from Enfield says:

      It’s the only bit of calculus that most politicians and journalists know. The rule seems to be: keep differentiating until things go positive. So we get ‘the change in the increase in the rate of reduction of the fall in X is improving!’.

    2. max says:

      Hi @realfinney:disqus . The MSM is useless. The editors and hacks seem either totally stupid or merely following the party line. Not only is a reduction in inflation rate not a reduction in the cost of living but, since all the things that really matter have been taken out of inflation, the rate of inflation is itself a massive con.
      London house prices are up massively over the last 15 years, yet we have apparently been in a period of benign inflation. It’s all a con to confuse the voters but the net result is that politicians are economically destroying our nation for votes.

    3. Anonymous says:

      Hi realfinney

      Those sort of things are annoying aren’t they? However if they were so keen on the positive they could have pointed out that the price level fell in July (125.9 to 125.8) as measured by the CPI. But we both know that they probably did not get that far down the report….

  6. Rods says:

    Hi Shaun,

    Another interesting blog.

    Is the fall in gilts due to a recovering economy where investors are moving from the safe haven of gilts into other areas in the expectation of getting a better return?

    The forward guidance maybe having an effect on interest rates, where a first time buyer I know where he has just left the army has got a 3 year fixed rate of 2% and another friend phoned up his mortgage company and got a 3 year fixed rate of 3.59% which is 1% lower than he is currently on with no arrangement fees. So it looks like there is more money around for lending at cheaper rates.

    I see forward guidance as a way of talking the economy up by trying to instill confidence in people to borrow money, especially for buying houses as the Government has a 2015 election looming and they see this as a re-election ticket. But and it is a big but, his get out caveats may mean interest rates rising sooner than people expect from the forward guidance and this will be a sting in the tail for those that over borrow.

    1. Anonymous says:

      Hi Rods

      I think that the fall in Gilt prices began by us simply following what was happening in the US. Then some more was added on by the apparent improvement in the UK economy.

      The end hiatus in QE? Less so as in the US they are still going and yet their yields have risen..

      Inflation? Not really as index linkers have fallen too.

      It is also true that the environment has changed and an element of psychology is at play…

      In the short-term Gilts must be due a bit of a bounce soon so let’s see what happens next.

  7. Noo 2 Economics says:

    Hi Shaun,

    “One of the dangers of taking a centrally planned approach to economic
    management is that you are prone to looking leaden footed as events
    develop and change”. Yes, he should have already increased interest rates given survey expectations in interest rates, or does the MPC have to share these expectations? If so then there are only 2 “knockouts” as the MPC’s forecast is also it’s expectation. Why hasn’t anyone spotted this?

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