PRINCIPLES IN RETIREMENT
R. BOYD-CARPENTER cannot complain that the Opposition have attacked him for water- ing down their precious pensions proposals; when in Tuesday's debate he claimed the virtues of moderation for the Government's plan, he can surely only have been referring to its moderate socialism. For it is difficult to see how the Govern- ment's scheme for graduated pensions, with its fresh dose of compulsion, can be reconciled with the rousing stuff in Onward in Freedom about encouraging 'the increasing desire of men and women to provide security for themselves in re- tirement . . . whilst concentrating State spending on social objectives which really necessitate and demand community provision.' The fact is that this scheme is not based on any principle at all.
This is a serious objection. Whatever may be said against the Labour plan of increasing retire- ment benefits to keep pace with inflation and with the rising real incomes of those remaining at work, the entire rigmarole was founded on a principle: that the lot of pensioners should be directly related to the prevailing level of wages and salaries. There are two reasons why non-Socialists should in prac- tice reject this. The apparatus of State should not be used to do something which might be done better by private enterprise; and already nine million people (including half the male labour force) belong to occupational schemes. Hpwever bravely politicians set out to produce a sound `insurance' proposition, too, they (or their succes- sors) soon start gerrymandering its finances : no actuarial calculations are proof against election- eering campaigns. The 1948 national insurance system was heading for insolvency from the day it was launched, yet within ten years benefits have been increased four times—twice on the eve of general elections.
This past intemperance gives the real clue to what both Mr. Crossman and Mr. Boyd-Carpenter have been plotting recently; they want to bury the bankrupt scheme beneath a still bigger one. The plain purpose of Mr. Boyd-Carpenter's compli- cated arithmetic is not to provide larger pensions in forty years' time but to rope in more contrib tions soon and so plug the growing leak in the present pension fund. Lord Montgomery may think he has `earned' his Post Office pension, but as the White Paper (Cmd. 538) emphasises, the man now drawing 80s. a week for himself and his wife cannot have earned more than 6s. even if he paid in since contributory pensions started in 1926.
That is why, despite the annual £125 million Exchequer subsidy, national insurance is sliding into deficits which will approach £150 million a year by 1961 and exceed £400 million twenty years later. The measure of Mr. Boyd-Carpenter's finan- cial astuteness is his hope that graduated contribu- tions will henceforth limit the burden falling on the Exchequer to £170 million each year. To achieve this happy result the new scheme will not build up a fund (as Labour, for various reasons, proposed to do); instead graduated contributions will be used to pay the bill for basic pensions. Furthermore, graduated pensions will be earned strictly according to the length of time each indiVidual has paid the extra contributions. For example, the man earning £15 or more a week and paying the maximum contribution of 25s. 6c1, would after fifteen years get only an extra I3s. on top of the basic pension of 80s., after thirty-five years of higher payments he would get an extra 30s., and after forty-seven years (from the age of 18 to 65) he would qualify for the maximum addi- tion of 41s. to his pension.
The trouble about this belated display of finatr cial prudence is that men earning £13, £14 or £15 a week get a poor return for their extra contribir tions, part of which subsidises the people lower down the scale (the £10-a-week man actually gets a bigger pension for smaller future contributions). True the Labour scheme involved still greater re' distribution, but at least it was logical in levying the 10 per cent. contribution on top income earners, whereas, as Mr. Crossman has been quick to-point out, the Government is taking the bigger contributions from the slice of income between £12 and £15 a week.
This limited redistribution is even less defensible in that the higher graduated contributions will also be used to meet the emerging deficit on haste pensions. Thus the better-off who contract out will get their 80s. without paying an extra penny towards its real cost. The Socialists' passion for redistribution may be out-of-date, but they are right to attack Mr. Boyd-Carpenter for trying lo redistribute in the wrong direction.
The Government scheme fails on all four pos- sible criteria. By any standard of equity it is unfair to the middling wage earners because they are made to shoulder more than their share of the deficit. Electorally the graduated benefits lie to° far in the future, and a maximum joint pension of £6' Is. would be derisory in forty-seven years' time, when (on the Government Actuary's assumption of incomes rising by 2 percent. every year) the average wage will be around £30 a week. This emphasises the third count on which I" scheme should be rejected. It is not likely to solver the one problem it was aimed at, namely, the financial mess of the 1948 scheme. These long- term actuarial tables will not survive two elections, let alone two generations. Already Mr. Boyd- Carpenter is giving clumsy hints that increased basic pensions are under consideration, and every upward 'adjustment' will simply widen the gap to be filled from graduated contributions. (It is this that raises doubts whether such a scheme could afford to let too many higher-paid people contract out; the Actuary's tables assume that only two and a half million opt out.) Finally, judged as a Con- servative measure, it fails to confine State patern- alism to the dwindling number who still stand in need of assistance. Honesty, prudence and expedi- ency suggest that the best way to reduce the growing deficit would be for the Chancellor to encourage more employers to offer unions de- ferred pensions in place of inflationary wage increases. The Life Offices have already asked that the 1956 Finance Act be extended to help small firms to bring in occupational schemes. Pension brokers would like to see an end to the present administrative bottleneck resulting from case-by- case approval, of schemes by the Inland Revenue, and if simple extended schemes were laid down the Government could reserve automatic approval to those which provide such conditions as transfer rights on change of employment. Finally, indi- vidual policies could be granted treatment as favourable as the 'top hat' variety (i.e., complete tax exemption on Premiums) subject to their being earmarked for pensions. Then the Minister could encourage the amply covered millions to contract out of the basic pension by remitting part of the employee's NI contribution. In this way the Con- servatives would be teaching—as well as preaching '—the private and public virtue of individuals making provision for their own old age.
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