What Pension Should the State Provide?

Abstract

Social security spending accounts for almost 30 per cent of public expenditure and is projected to reach £74.7 billion in 1992–93. Almost half of this spending goes to the elderly. The cost of social security to the elderly has grown steadily in the post-war period, and will continue to grow given current policy, as the number of elderly people increases. The implied tax burden on those of working age will grow even more quickly than spending, unless the basic state pension is allowed to continue dropping relative to wages, as the number of those of working age, relative to the number of pensioners, declines in the next century. Despite this large and growing cost, the centre-piece of state provision, the flat-rate retirement pension, has fallen relative to average earnings, and this fall seems set to continue. Indeed, the flat-rate pension is now significantly lower than the means-tested income support, so that a pensioner with no private income is automatically entitled to income support, as well as the flat-rate retirement pension. This is certainly not what Beveridge had in mind when he designed his system in 1942.