The state pension is 100 years old this month – but new research shows it has plummeted in value over the past three decades. And the financial crisis is set to make this situation even worse.
A new book, 100 Years Of State Pension, published by the Institute of Actuaries, finds that the basic state pension is now worth only 16 percent of average earnings, as compared to 26 percent in 1980.
That was the year that Margaret Thatcher broke the link between the state pension and average earnings. This was intended to force people to put money into private pension plans.
But now the alternatives to the state pension are heading for the rocks. Some three quarters of “final salary” occupational pensions schemes are now closed to new entrants.
A recent survey by the National Association of Pension Funds found that a quarter of Britain’s major employers were planning to close their schemes to existing members too.
“The serious decline in the value of the basic state pension over the last 30 years and the more recent decline in final salary occupational schemes have created a huge gap,” said Colin Redman, one of the book’s authors.
“Money purchase pension plans with performance linked directly to the stock market cannot, on their own, plug this gap.”
The result is that inequalities in our working lives persist onwards into retirement. Low paid or part time workers and unpaid workers such as those caring for the sick and elderly are the least likely to have any pension apart from the state scheme.
Private pensions and occupational schemes both involve using contributions to buy stocks and bonds. But the prices of these investments have plummeted, creating huge shortfalls in many schemes.
Now the problem has been compounded by the sheer number of major employers going bust. The Pension Protection Fund, created four years ago to protect the pensions of workers whose employers went under, already has a £1 billion shortfall.