Changes to the state pension system have caught many unawares, not to say complicated things for the bread-and-butter retirement advisers among you.
But changes are needed, whether it is the increase in women’s state pension age from 60 to 65 or the removal of the entitlement to a pension based on a spouse or civil partner’s National Insurance (NI) history.
Why? Because, quite simply, the state system cannot afford to pay out the amount it currently does.
The NI fund is running dry, thanks to years of ineptitude among those who were responsible for making sure NI payments were calculated to take account of wage growth and the cost of living.
The fact is, to have an annuity that paid out even the most basic state pension income would require an investor to have a lump sum of £172,500. How many of our current pensioners have paid even close to this amount?
I have a relative who worked for eight years (back in the 1960s) then gave up her job to get married and have children. She is now in her early 90s and gets a basic state pension. But for younger generations, the luxury of having one partner able to give up work is precisely that – a luxury.
In fact, most Generation X and Y employees are seeing their NI contributions used to fund the lifestyles of their wealthier and older counterparts.
Many of these (I’ll admit there are some poor pensioners among this cohort) will be people who were able to give up work at 55 and on a final salary scheme to boot. Younger people are also paying for these final salary schemes through inflated prices – it is a double whammy.
By all means keep the basic state pension for those pensioners who need it, particularly those who have to give up paid work to care for infirm or elderly relatives.
But why should wealthy pensioners benefit from the efforts of today’s workers, who are already struggling to make ends meet.