Don't be distracted by an exaggerated 'intergenerational divide' ...

There has been some quite silly spinning in recent days about an 'intergenerational divide'. It reached its apogee on twitter (where else?) with this tweet:

For once the UK's economic differences are not so much between rich and poor...they are between old and young http://t.co/uKjcuVQprd
— Shiv Malik (@shivmalik1) June 14, 2013

The tweet links to an article by Paul Johnson - the director of the Institute of Fiscal Studies. What he says is somewhat different to what Malik tweeted. Johnson says of distrubutional changes in income since the recession, "the differences are not so much between rich and poor" - and points out that "pensioner incomes have continued to rise on average, albeit very modestly".

But when Johnson uses terms like 'rich' and 'poor' he is talking about quintiles (20%) or deciles (10%) at best. The real rich are the top 1% or even less - whose grotesque incomes and wealth continue to grow unhindered (for example FTSE director pay grew by 34% in 2010 and by 49% in 2011). The Sunday Times Rich List also shows that in the last year, the richest 1,000 Britons saw their wealth expand by £35 billion - that's more than all the welfare cuts announced, in total!

In the last five years, since the start of the recession, unemployment has increased by a staggering 49% for 18-24 year olds, but the same is also true for 35-49 year olds. More staggering is that the number of 50 to 64 year olds unemployed has risen by 82% in that same period. So actually the hardest hit by the recession (remember youth unemployment was high and rising before the recession) are older workers.


And pensioners are not having it easy - as DWP poverty figures released yesterday showed. The pensioner poverty rate is 18%, compared with 17% for working age adults (see Guardian article). The UK still lags behind the rest of Europe on what it spends (public and private) on pensions: with our spending just 5.4% of GDP, compared to 6.0% in the US, 8.8% in Japan, 10.7% in Germany and 12.5% in France.

The reality is that we need intergenerational solidarity to defeat the cuts that are hitting both young and old. Whether one section of society is being hit slightly harder is only of secondary importance to us all uniting to stop the bastards that are hitting us!

Public Sector Pensions – The Facts

With 750,000 public sector workers about to take strike action on 30 June, public sector pensions are a hot topic. The government is trying to persuade us that they are unaffordable and unfair to those in the private sector. The reality is that low and middle income earners in the public and private sectors are being treated unfairly:

1. The cost of public sector pensions is falling. As noted in the Hutton Report, public sector pensions cost 1.9% of GDP today, but will fall to 1.4% by 2060.
2. Public sector pensions are affordable and sustainable. Reports by National Audit Office (December 2010) and by the Public Accounts Committee (May 2011) find this to be true.
3. Public sector pensions are not ‘gold-plated’. The average public sector pension is around £5,000 per year. For a woman in local government the average is £2,600.
4. Private sector pensions cost the taxpayer too. Private sector pension schemes received £37.6bn in tax reliefs in 2007/08 – that same year they paid out pensions worth only £35bn, research by Richard Murphy shows.
   
5. Cutting pensions means increased eligibility for means-tested benefits. LEAP estimates the cost of providing council tax benefit, housing benefit and Pension Credit to pensioners will be £13.5bn this year.
6. Private sector pensions are often poor or non-existent. But the blame for that is on private sector executives (many of whom have very good pensions) and shareholders.
7. But some private sector pensions are very generous. In 2009, TUC research showed the average value of a FTSE 100 director's total pension rose to £3.4m
8. There are 2 million pensions living in poverty in the UK. A European Commission report in July 2009 showed that only in Cyprus, Latvia and Estonia was there higher pensioner poverty than in the UK.
9. Life expectancy is rising faster for the wealthy. An average 65 year old man in Kensington and Chelsea can expect to live a further 23 years, while in Glasgow it is only 14 years. Raising the pension age has a disproportionate impact on low and middle income earners.
10. We’re all this together – public and private. Changing pension indexation from RPI to CPI would save the private sector £100 billion over the lifetime of existing schemes, according to Pension Capital Strategies. According to TUC research, an 80 year old pensioner with an average public sector pension would be more than £650 a year worse off.

Update: The latest YouGov/Sunday Times poll (pdf) has revealed the unions edging in front in the battle for public opinion – with an almost equal split on Danny Alexander’s reforms and a small majority against Lord Hutton’s proposals. On Hutton, who proposed public sector workers should contribute more to their pension, retire later and receive a lower pension, 43% oppose his plans against 38% in support. Those in the private sector support him 46%-33%, with public sector workers strongly against, by a margin of 66%-21%.

Update 2: An ITV/ComRes poll shows public believe 'Public-sector workers are right to strike over maintaining their pensions': Agree 48%, Disagree 36%.

Update 3: A new ComRes poll finds 49% of people agreed that public sector workers have a legitimate reason to strike, only 35% didn't. By 46% to 35%, people believe that the Government would be wrong to change public sector pensions if most workers affected oppose them.

Iain Duncan Smith, smoke and mirrors, and pensioners

A long campaign of the UK pensioner movement has been to restore the link with earnings.

One of the first acts of the coalition government was to do that with a new 'triple lock' - meaning pensions would rise by the greater of earnings, inflation or 2.5%. However, inflation was redefined as CPI rather than RPI. In a parliamentary debate last month, LEAP chair John McDonnell asked the Minister 'Did the Minister ever consider a quadruple lock so that, earnings or inflation, CPI or RPI, whichever was the higher, would be used?

The fact is that because of stagnating wages and rising inflation (on the more comprehensive RPI measure) the 'triple lock' may in the short term provide pensioners with a real terms cut, as even the Pensions Minister was eventually forced to admit.

Pensioners and pension campaigners were inevitably cautious when Iain Duncan Smith, author of what the LRC describes as the "pernicious and dogmatic" Welfare Reform Bill, allowed it to be leaked to the press that he might uprate the basic state pension to £140 per week, and scrap means-testing.

With the basic state pension currently languishing at £97 plus change per week (increasing to £102 in April) that might seem some considerable largesse. However, Pension Credit - Labour's means-tested minimum guarantee - will be worth £137.35 per week from April.

If IDS introduced his rumoured £140 per week basic state pension from April 2012, then that would be a real terms cut for those in receipt of Pension Credit (137.35 plus inflation of say 4.5% would mean £143.53 per week from April 2012. However, mitigating circumstances in IDS's favour would be the fact that means-tested Pension Credit only reaches about 66% of those entitled to it - so one-third of the poorest pensioners are missing out.

As an aside £16 billion in benefits goes unclaimed every year. Far more than the £1.5 billion lost in fraud or the £3.5 billion lost due to errors (by officials and claimants combined)

But the real issue is being missed. Why is that £140 is the rate under discussion, when the pensioner poverty line is £170 per week?

The problem is that the UK pays an appallingly low level of pensions, which leaves over 2 million pensioners in poverty and 3.5 million in fuel poverty. Pension expenditure accounts for just 6% of our GDP, compared with 12% in France and 10% in Germany.

Until this is addressed, Iain Duncan Smith cannot expect, and certainly won't receive many cheers from pensioners (present and future), especially when his government is cutting local services on which pensioners rely: libraries, day centres, social care, etc.

Today's Morning Star also demolishes IDS's bluster under the title 'Duncan Smith fails to convince on pensions'