26 March 2023

Weekly Briefing: Pension potty


Pensions are all the rage this week. Quite literally so in France, where protestors have engaged in running battles with the police and even torched the odd public building. King Charles has had his state visit cancelled, lest he be confronted by a regicidal mob – a stark reminder that while we Brits love a good grumble, when it comes to taking on the state we aren’t a patch on our Gallic cousins.

Some will doubtless put the French penchant for a ruck down to history: from the guillotines to the Paris Commune and the soixante-huitards, insurrection is integral to the story of the republic.

That kind of glibly deterministic analysis doesn’t tell the whole story though. As Paris-based journalist Gavin Mortimer notes, these protests are as much about the particular animus felt by swaths of the French public at Macron’s haughty, ‘Jupiterian’ style – exemplified by his decision to force the pensions reform through parliament without a vote.

The unrest also reflects the French approach to pensions, which is far more reliant on the state (and far more expensive to it) than the more varied provision here in Britain. The mere suggestion of change is therefore almost bound to incite disgruntlement and unease. Still, it’s hard to sympathise too keenly with protestors who are railing against raising the state pension age to 64 by 2030, given that it is already 66 here in the UK.

In a neat coincidence, the same week France erupted, there were reports that our own government would shelve plans to raise the state pension age to 68 by the late 2030s. That’s an expensive choice. The Institute for Fiscal Studies estimates that for each year that we don’t raise the retirement age, the Exchequer loses about £9bn of revenue, so a seven-year delay comes out with a price tag around £60bn.

And none of us, however cheesed off, can run away from the brutal trifecta of Western demographics. Our societies are getting older, pensions and healthcare costs commensurately more expensive and the number of working age people smaller.

That suggests there will be a lot more fights over pensions to come, not just between younger generations who feel shafted by paying ever more tax to look after their elders, but between groups of workers whom the state treats quite differently.

Is it fair, for instance, that half of people in a public sector scheme get an employer contribution of 20% or more of their salary, compared to just 3% of private sector workers? Given the intense current debate on public sector pay, there’s surely an argument for state employees at least having the option to trade higher pensions payments for a better salary.

But while there is surely going to be need for further reform down the track, we shouldn’t be excessively gloomy. One of the most positive policy developments of the last decade or so has been the rolling out of auto-enrolment in workplace pensions. In 2011, 2.1 million Brits were paying into a defined contribution occupational scheme, and by 2019 that number had risen to 21 million. If any Tory strategists are looking for an economic policy to trumpet in 2024, they could do a lot worse than that.

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John Ashmore is Editor of CapX.