Pensions Policy

Introduction

1. There are two key elements of pension policy:
a. The alleviation of poverty in old age when people are no longer able to work; and
b. The spreading of earnings over a life-time, so that even when in retirement, pensioners’ living standards are not hugely different from when they were working.

2. It is of importance to society to ensure that no-one falls into poverty at any age, whether it is during their working life or in retirement.

3. It is also in the interests of society to encourage the prudent saving of resources by citizens during their working life to try to ensure that they have adequate resources in retirement, and do not fall into poverty.

4. These two vitally important, but different policy objectives have become confused, and in the past policy has been made on a reactive basis, rather than ensuring that these two goals are met. Plaid Cymru therefore welcomes the thorough review provided by the first Turner Report as an opportunity to fundamentally reform the pension system in the United Kingdom, and to take advantage of pension reforms that have taken place, or are being discussed in countries such as Sweden, the United States and Chile among others.

Even with the inclusion of the maximum second state pension the UK has one of the least generous pension systems in the developed world, ranking not only well below continental Europe, but also Australia and the United States. Part of the problem has been that the government has looked to the private sector to provide pensions, and indeed would like the private sector to provide more pension provision than the state in the future.

It is utterly absurd that the government has a pension system in place, which is notionally contributory, but which results in a pension which the government itself calculates is below the minimum income. It then adds insult to injury by penalising those who have saved and rewards not only those who have been too poor to save, but also those who have been profligate. Such a system not only has bred justified cynicism, but is a direct discouragement to savings, particularly by those on lower earnings who will be most affected by withdrawal of tax and other benefits at the margin.

Summary

The pensions’ dilemma in the United Kingdom is therefore in some respects an artificial one. As noted above by international standards we spend an exceptionally low proportion of our GDP on pensions, and although we also face real demographic challenges, these are not as severe as in other countries. The problem lies essentially in accepting that some individuals will have to save more for their retirement, some may receive less in retirement, that there should be an increase in state retirement age in line with increasing longevity and there needs to be better targeting of pension savings support to those who really need it. There is no reason why a company should not make generous provision for the pensions of its employees, but there is also no reason why the government should subsidise such provision for the better off, nor that the subsidy should attach to occupational pension schemes rather than be paid to a country wide scheme with lower costs. Too much money is being spent on supporting high living standards of high earners in retirement, and not enough on those who need it.

Plaid Cymru’s pension policy will meet the two critical requirements of poverty alleviation in old age and assistance with long term savings which is both fair to all, targeted to those most in need and affordable.