Should the basic state pension continue to be earned
by National Insurance contributions, or should it be paid as a right of citizenship? There is a rapidly growing body of opinion in favour of a ďCitizenís PensionĒ, ranging from the National Association of Pension Funds and the Pensions Policy Institute to the Liberal Democrat Party (the Lib Dems would at first pay the Citizenís Pension only to the over-75s). Surprisingly, they all agree that it should be at least £105.45 a week - enough to ensure that nobody has to claim the means-tested Pension Credit - and should rise yearly in line with average earnings, not just prices.
The Citizenís Pension would be paid to anyone over pension age who has lived in this country for long enough - perhaps 20 years. The idea has obvious attractions, especially for women who didnít pay enough contributions during their working lives to qualify for a full pension, either because of years spent as unpaid mothers and carers or because, when in paid work, they opted for the smaller married womanís contributions which didn't count towards their pension.
Barbara Castleís 1978 pension reforms greatly improved womenís pension rights, phasing out the married womenís contribution option and introducing Home Responsibilities Protection (HRP) which enables women (or men) to undertake caring tasks without sacrificing their right to the basic pension - but these changes applied only from 1978 on, too late to help many of todayís pensioners.
Time spent in part-time employment may also not count towards the pension, because NI contributions are not payable on very low earnings. Again it is women who are mainly affected.
So why not sweep away all these complexities and pay everyone a full Citizenís Pension?
Before jumping on this very inviting bandwagon, we need to be clear about what is being offered. As far as married couples are concerned, there are two very different proposals. The first, backed by the Pensions Policy Institute, is that each individual pensioner should get the same Citizenís Pension (at least £105.45 a week), whether married or single - so a couple, with two Citizenís Pensions, would get a total of £210.90.
The Liberal Democrats, on the other hand, would pay both single and married pensioners just the amount needed to get them off the Pension Credit - £105.45 single and £160.95 for a couple. A couple, therefore, would get about £50 a week less than two single pensioners. The chances of the Liberal Democrats putting their proposals into practice may seem remote, but itís worth noting that New Zealand, which already has a Citizenís Pension, also pays much less to a married couple than to two single people.
Even on this basis, wives who at present get only a reduced pension based on their husbandsí contributions would be much better off. But, thanks mainly to Barbara Castle, more and more wives are now getting pensions based on their own contributions. If, instead of introducing a Citizenís Pension, the existing Basic Pension were raised to £105.45 (the demand made in the Pensionersí Manifesto), a couple, even with quite a few years missing from their contribution records, could easily get more than £160.95 a week.
If we are going to have a Citizenís Pension, therefore, it should be a real Citizenís Pension, payable in full to each individual, married or single.
State Second Pension to go?
One thing that most of the organisations calling for a Citizenís Pension agree about is that it would replace not only the £79.60 basic state pension but also the State Second Pension (S2P for short). The S2P is what used to be called SERPS - the state earnings-related pension scheme - revamped to provide an additional flat-rate pension for very low-paid workers. Hardly anyone understands the S2P, so the threat to abolish it is unlikely to arouse violent opposition, but for people of working age it is now a vitally important part of state pension provision. Without it, anyone hoping to retire on something more than the basic pension would be forced to pay into a private pension scheme. With employers closing down their final salary schemes, private schemes are now mainly of the type known as ďmoney purchaseĒ, where your money is invested on the stock exchange and there is no way of knowing, even approximately, what it will be worth when you reach pension age.
The need for a high-quality state scheme through which people can build up a decent pension - not just enough to raise them above the means-test level - has never been greater. If we are to be told that the only way we can afford a Citizenís Pension for todayís pensioners is to ditch the S2P for tomorrowís, we need to consider very carefully whether that is a price worth paying.
We also need to consider other changes which could be introduced quickly to address the scandal of womenís poverty pensions, bearing in mind that a Citizenís Pension would, at best, take several years to come into effect (it is most unlikely to feature in either the Labour or Conservative election manifestos). It would, for example, be possible to extend Home Responsibility Protection to at least part of the child-rearing years before 1978, or to allow a proportion of the years for which reduced contributions were paid to count towards a wifeís pension - changes which are certainly affordable and could be brought in next year.
Such changes will not solve the problem of womenís inadequate pensions - or menís for that matter - unless they are accompanied by an increase in the basic pension rate to at least the level of the means-tested minimum of £105 a week. Converting it, at the same time, into a Citizen's Pension may be a good idea - but we do need to read the small print before deciding.
Two letters published in SPAG's Newsletter for December 2004
Yes, we do!
Josephine Negro writes:
Yes, we do need a citizen's pension. Nor should we innocently accept the conflating of this with the provision of a second state pension. There is no real reason (apart from an ideological infatuation with the 'free market') why a government could not make the political decision that, in addition to the citizen's pension, those who prefer to pay into a state scheme, rather than a private scheme, for extra income in retirement should continue to be allowed to do so. Nor can I see any reason why both partners living together should not have their own independent incomes. This would probably happen anyway if the partners have not formally married.
The advantages of a citizen's pension are so manifest that we should all press for it most strongly. For working people, many of whom nowadays are so poorly paid that they have to be given tax credits to achieve a living income, the security this would provide is obviously a great benefit. Those working in more highly paid jobs will often have large debts incurred during their higher education - another group that would find it difficult to pay money into a private scheme that might, or might not, repay their investment.
The state itself would also gain from the simplicity of a "pension as a right" scheme and the end of the need for complex, and expensive to administer, means testing. Did I see somewhere the figure of an administrative cost of £4 per payment?
All in all the case for a Citizen's Pension seems to me overwhelming.
No, we don't!
Mabel Cross writes:
Citizen's Pension? No thank you!
Like many other married women, I decided to go on paying full contributions to earn my own pension. By the time I retired, I had paid full contributions for 26 years during my marriage, when I could have chosen to pay the reduced stamp. In the whole of that time, I never claimed a penny in benefits, but now I'm getting the pension I paid in for - and I'm getting it in my own right, not as a "dependant".
While I sympathise with women who opted for the reduced stamp and are now getting reduced pensions as a result, it would be totally unfair to people like me if the government were to say "You can all have a full Citizen's Pension, whether you paid in or not, even if you're a millionaire's wife who never did a day's work."
Married couples are not usually among the poorest pensioners but, if they are, they can claim Pension Credit and get at least £161 a week. Admittedly they have to go through a means test, but women who deliberately chose to pay reduced contributions can hardly complain about that.