RIVAL PLANS FOR OLD
By J. Jackson
SOME time ago the Labour Party published its proposals for a II ational superannuation scheme in which both contributions and old age pensions would be related to a person's ordinary earnings. instead of the present system whereby everyone pays the same contribution and receives the same pension.
The Conservative Government has now announced its own plans and although these include some link between contributions and pensions and ordinary earnings there are significant differences from the Labour scheme.
These differences should be studied carefully, for at the present time old age is the main eause of poverty. Rowntree's survey of York in 1950 showed that as many as seven out of every ten eases of poverty involved old people.
With the proportion of old people in the population increasing as a result of the imrovements in medical services and as a result of the downward trend in the birthrate, this problem of poverty in old age is one of the most serious of those facing us at the present time.
Pensions and contributions
THE most striking difference between
the two scheme is that the Labour plan relates pensions and contributions to total ineome.
A man would pasa contribie lion equal to 3 per cent of his income and the emploser a further 5 per cent. This would apply to all earnings up to something like £40 .1 week. • The scheme has been publicised as offering half-pay on retirement. but this is distinctly misleading. There would be a flat-rate element of £3 a week to which would be added a differential element of roughly one-third of a man's average earnings over his working life.
The man who contributes throughout his working life and %%hose earnings average £12 a week %voids! get a pension of £7 on retirement. (The pension as a proportion of income is ereater the loner the average earnings.)
Under the Government scheme just announced the present pension irrangements are to Conti title. Everyone on retirement will retzeive a pension of £2 Ills. a week and a married man will receive an additional it 10s. for his wife. making a total of £4 for a married couple.
On earnings of °set £.9 a week :old tinder £15 a week. however, there are to be additional graded contributions of 8-e per cent of income, to be shared equally between employer and employees. and each £15 of such contributions Will entitle a man to an edditional shilling a week pension at 65.
In practice. a man contributing Throughout his working life would receive £4 14s. a week if single and £6 4s. a week if married, assuming that his earnings averaged £12 a week.
Pensions and redistribution
AT first sight. the Labour scheme appears to offer more generous pensions. This is particularly so in the case of the lower paid workers. The man with £9 a week average earnings gets a pension of .1:6 a week or two thirds of his average earnings, whilst the man with ilS a week gets just half pay for his pension.
The fact of the matter is that those with the higher earnings would get very mueh less out of the scheme than they paid in. Their contributions are required to subsidise heavily these generous pensions for the .lower paid workers. and this is the reason why the Labour plan applies to all incomes up to £40 a week.
Under the Government plan. all would receive the present fiat-rate pension in return for a fiat-rate contribution. In return for their graded contributions on earnings between .0 and 15 a week, workers would receive a pension increase in exact proportion to their contribution.
On the Whole, it seems that this iienie would offer a man with average earnings of £15 a week a pension of £8 Ss. a week if married. This is more than adequate for the needs of a couple in retiremen t.
Mans, who have been aCCUSkmned to a higher standard of living might prefer a bigger pension. but there is suree no justification for compelling the £40 a week man, for example. to provide himself with a pension of elf, a week tinder the Labour plan.
The State should confine itself to ensuring that people make adequate provision to meet the basic necessities of life in retirement and no more. Nor is it realt . honest to use a so-called pension scheme as the medium for a very consider. able redistribution of income.
THE (.0,,:rnmait plan keeps the present flat rate pension unchanged. It is generally admitted that the £4 a week pension for a married couple is not in itself sufficient to provide them with the requirements-of a decent life. The scheme has been criticised for not changing this state of affairs.
However, it must be noted that the present Government has already given old age pensioners most of what the Labour plan offered to those already retired.
he Labour titan proposed a flatrate element or £3 a week in their scheme. and this eould have applied to those already retired.
They would have continued the existme 25s. allowances for the wife of a pensioner during the transitional period. The .E3 represented an increase of El a week over the existing pension of £2 for a single person. Since then. however the single pension has been raised to 50s. and the marriage allowance to 30s.. thuagiving pensioners 15s. compared with the El increased offered in the Labour plan.
'` Flat rate' and the future,
PER HAPS a more seriOtis criticism is that the Government scheme perpetuates the present inadequate flatrate pensions.
The Government is proposing to reduce the National Insurance eon; tributions for those whose earnings ere £9 a week or less. This recites' tion amounts to 2s. 10d. a week or £312 over a working life of fifty years.
This would. under the . graded scheme. entitle a man to an additional 20s. a week. There seems no reason why the present flat rate contributions should not have been maintained and the pension increased.
Even a man who was 55 wheel the scheme started could earn an [ additional 4s. a 1\ cek pension in 1 this way.
Pensions and inflation
AN important feature of the Labour plan \I as the protection of . the real “thie of pensions against inflation. As prices rose. the flat-rate element in the pension would rise TOO, Moreover. in calculating the differential clement in the pension. past earnings would be taken at their real vatue, not their money %Ale in calculating the average.
The Government. however, has !ejected this idea. It believes that Parliament should keep pensions ender review and that adjustments ot this kind ehould not be mea t : matte. It has also pointed to the S 1 possibility of falling prices and a downward adjustment being necest sary that might lead to difficulties. There is a stronger objection to inflation-proof pensions that ha: been largely overlooked. Inflation t involves injustice and at present nineh real hardship. Mans forms .F saving are virtually destroyed In the steady rise of prices.
e At present, many pensioners are
relying on their small savings to provide a source of income to supplement their old age pensions. What might have been adequate supplementation at one time mas have become inadequate with the rise of prices over a period of years.
Adequate pensions for all. protected against loss of value with rising prices, would eliminate much of the hardship that ot present occurs. It would not eliminate the injustice that inflation involves for many small savers, hut it might well reduce the incentise for the Government to ,keep inflation in check
ROTH schemes permit
" contracting out. providing the worker is covered by a private pension scheme offering comparable benefits to the State scheme.
The conditions relating to contracting out differ greatly however.
In the Labour scheme, the right to contract out of the national scheme would lie with the individual. He could. if he wished, join a private pension scheme that offered at least as good a benefit and which gave him pension rights he could transfer if he took another job.
The comparability of benefits would almost certainly require making pensions inflation-proof. This can be done easily enough if pensions can be paid out of the contributions of those at present working.
The right of the individual to choose which he will join, a private or state scheme. means that an employer cannot know that any future date he will have workers contributing. so he can hardly offer inflation proof benefits, The Labour terms, in fact, seem to Force people into the State scheme.
Withoutt inflation-proof benefits, the Government scheme could have allowed the individual this option. Instead, however, it has offered employers the right to continue their own schemes providing they offer transferable pension rights. comparable in value to those of the state scheme.
if employers continue their schemes, workers in their employ e ill not have the right to join the state scheme—though they will be no worse off for this. The criticism of the Government plan on this score appears to he doctrinaire.
The need for action
THE rival pension plans are undoubtedly going to form an important issue in the next election. Catholic voters at least should look at them to a eider context than merely ehat they are going to get out of them, or have to pay into them. The poorer paid worker will have to ask himself ehether he has any right to expect his pension to be subsidised by those earning more than he does: the better paid might consider how far he should be willing to help those less fortunate than himself; both must take account of the wider implications for the economic life of the community.
Perhaps es-en more important. those who belong to one or other Of the main political parties should use their influence to modify the schemes in the light of Christian principles before one or other is placed before the public in its final form.