Why pension reform may be overburdening the young

by Bob Bullivant on 24 June 2011  |  9 comments
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Guest blogger Bob Bullivant explains why he's uncomfortable with the pensions burden placed on the next generation.

Back in the 1970s, pensions were a political football. Governments changed every few years and with the change came yet another solution to solve the pension problem. 40 years on, and many of the same issues are still there.

You probably need a very good (and long) memory to recall that eventually the politicians agreed on the State Earnings Related Pensions Scheme as an additional pension to the Old Age Pension. It was actually quite good as it promised a pension of 25% of the average of the best 20 years earnings between NI limits.

However, that promise was not sustainable in a scheme that had no fund – where the pension payments were (are) paid from current NI contributions. The result is that the original promise was whittled away to 20% of the average of lifetime earnings. This is a big difference – not only in percentage terms, but also as it takes into account the twopence halfpenny earned in the first job. There were other changes to widow’s pensions and inflation protection along the way as well.

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Many people will feel conned by this change as it will almost certainly have passed them by. The reality though is that we were promised something that could never be delivered without putting a massive strain on those at work.  It is now clear that an ageing population means a massive burden for those still at work.

As one who is closer to collecting their pension than many, I very often joke with younger staff by thanking them for my pension. What started as a joke has actually started to make me think more deeply, particularly about how I might feel as a twenty-something, funding the pension of the babyboomers.

The answer does not fit very comfortably with me – I am not sure I would like it. I can console myself with the thought that I have earned it and that I have paid for those who went before. But that doesn't mean I'm too comfortable about the next generation of youngsters. I instinctively feel that the burden is so great that something will give. Could it be that the youngsters start to object to paying to keep pensioners in the manner to which they have become accustomed. Remember they have student debt and large mortgages, something my generation never had to deal with.

Could it be that those born in the fifties have actually lived through a golden age not to be repeated? Could it be that a politician may have to be honest, just for once, and say we cannot afford State pensions? Could that be forced upon them by a really hard-pressed younger population?

It's all a scary thought, but one we may need to confront sooner rather than later.

Bob Bullivant is chief executive of Annuity Direct

What do you think? Is Bob right to be concerned about the burden placed on young people? Is a State pension a sustainable idea? Let us know your views via the comment box below.