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100 years of state pension – what now?

This is a guest post by Mira

One hundred years ago this month the first state pensioners queued at their local Post Offices to claim the small but often critical amount of money allocated to them under the 1908 Old Age Pensions Act. This act was a watershed in British social policy. With it ended the sole reliance of many of the UK’s oldest people – 490,000 in 1909, mostly women – on the tender mercies of the Poor Law Amendment Act

In 1908, a grim commentary on the social system, older people constituted the largest single group of paupers. When age or age discrimination deprived them of a means of earning, the fortunes of many workers plummeted and the workhouses were populated, alongside the lifelong poor, with people who, while they or their husbands were earning, had lived in relative comfort.

The 1908 act was the culmination of a long campaign. Commissions and committees had ruled out an old age pension in view of the financial and economic difficulties involved and because of a sense that, for many, pauperdom was avoidable or voluntary. However, trade unions and social reformers including Booth, Barnett and Rowntree persisted and in May 1908 the Old Age Pensions Bill was guided through Parliament by Chancellor Lloyd George. Consisting of twelve straightforward clauses it was very simple compared to pension law of today. The Poor Law was retained to both deter and benefit those who were considered feckless or otherwise undeserving, and the pension allowance was set below subsistence level to encourage thrift and discipline (an ongoing balancing act in pension policy). To the dismay of future welfare state architect William Beveridge, the early state pension wasn’t contributory – that came later in 1925 – but funded entirely by the Exchequer. However, unlike Poor Relief recipients, pensioners didn’t forfeit their right to vote and could collect their allowance in relative dignity from the Post Office.

So it happened that from January 2nd 1909, if you passed a (purely hypothetical) thrift test, you could claim a pension on a sliding scale of between 1 and 5 shillings if you were over 70 and a British subject with a weekly income not exceeding 12s (the average at that time was 30s). It’s highly unlikely you’d have been claiming a pension though – life expectancy at birth in 1841 was about 40 years. 40% of the 1.2 million people who, through some quirk of longevity, did live to see 70 were poor enough to qualify and because the older poor were so badly off, the majority of pensioners in 1908 were eligible for the full 5s. This would have been equivalent to about £20 today. That the allowance was a meagre 20% of average income did not inhibit bouts of overwhelming gratitude. In their social and economic history 100 Years of State Pension – Learning From the Past (the subject of a seminar I went to at the IHR, and as jargon-free and engaging a narrative of the state pension as you could hope to read), Salter and colleagues recount the memories of a Post Office clerk:

“in the village there were one or two poorer couples just holding onto their homes, but in daily fear of the workhouse. When the old age pensions began, life was transformed for such aged cottagers. They were relieved of anxiety when they went to the Post Office to draw it, tears of gratitude would run down the cheeks of some, and they would say ‘God bless you, miss’ and there were flowers from their gardens and apples from their trees for the girl who merely handed them the money”.

However, small as the pensions were and poor as the pensioners were, only 25% of them had been eligible for Poor Relief. The workhouses stayed full and for many the last years of life were a time of acute stigma, insecurity and discomfort.

After 1908, the state pension rose from around 20% of average earnings to a high of 26% in 1979, declining to 15% last year. A universal pension was introduced in 1948 and since then contributory schemes, occupational schemes, earnings-related schemes and contracting out have been adopted and adapted in the perennial attempt to balance the demands of welfare, citizenship value and trade unions with the supply preoccupations of social discipline, the needs of the labour market and national income. Supply concerns have won out in recent decades, marked by a shift from state to private, collective to individual, and pay-as-you-go to advance provision. With these trends has come the neglect of areas, and ultimately people, not recognised as economically productive. Linking benefits to career average earnings was a particular blow, and one which fell most heavily on women.

Today most pensioners are eligible for supplementary benefits and the National Pension Campaign statistics show an unacceptable increase in pensioner poverty. In 1891 40% of older people were subject to poor rates; depressingly in 2008 it was estimated that 40% were eligible for means tested Pension Credits. At the current time with the prospects for occupational and private pensions looking terrible, Salter and colleagues propose a rethink of the old questions towards a more equitable deal for pensioners. The fundamental questions are what they’ve always been: what is the state pension for and what level of benefits should the state provide? They go a bit deeper:

  • How can a decent standard of living be ensured for those who can no longer work?
  • How should the costs of paying for older people to have an adequate standard of living in retirement be split between the individuals themselves, their employers and the state?
  • What responsibility should each working generation accept to provide pension benefits, out of general taxation, for the generation in retirement?
  • In what ways should today’s pensioners benefit from current productivity and economic growth?
  • Should provision differ depending on how prudent or reckless people have been with their money?
  • Should a state pension sufficient to live on be paid on a universal basis, or should there be reliance on self provision and restriction of state spending with targeting of those in need on a means tested basis?
  • At what age should the payment of a state pension commence and what flexibility and choice should be allowed?
  • How should entitlement to a universal state pension be earned – on the basis of a National Insurance contribution record or as a citizen’s right?
  • What should be the entitlement of those who rear children, take care of older relatives or become unemployed?
  • How can we fund state benefits and, at the same time, encourage thrift and savings?
  • Most fundamentally, how do we determine what is an adequate income in retirement and what level of cost is affordable to provide such benefits?

The threats to the state pension are significant. In 1908 there were ten workers for every pensioner; this has shrunk to four. In 1908 only 5% lived to see 70 in the UK; a century on, a quarter of us will achieve 100. There are, as there have always been, reservations about affordability of the state pension, and the Friendly Societies were worrying about the ageing population long before 1909. But it’s worth remembering that the first subsistence-level pension was introduced in 1948 when this country was reeling from World War 2 and indebted to the eyeballs. At the seminar I mentioned earlier Colin Redman, another of the authors, quoted Obama (as one does these days): “the true character of our nation is revealed not during times of comfort and ease, but by the right we do when the moment is hard.”