Why I can't celebrate the state pension's 2018 anniversaries

There are two big pension anniversaries this year, but Moira O'Neill finds it hard to celebrate either. Here's why.

2018 marks two significant anniversaries for the state pension. It's 70 years since the system launched, and it's also the year in which the state pension age equalised for men and women.

Until 5 July 1948, contributory 'old age pensions' were paid under the Widow's, Orphan's and Contributory Old Age Pensions Act of 1925. However, recipients were mainly manual workers.

The new system, built on national insurance contributions provide a universal foundation for retirement.

For more than 60 years until 2010 - women received their pensions at the age of 60, while men received them at age 65. But a move to equalise male and female pension ages began 25 years ago, under John Major's government, and has been gradually phased in since 2010. The women who turned 65 on 6 November were the first to wait for as long as men to receive their state pension.

I find it hard to celebrate either anniversaries because I feel obliged to highlight the importance of not relying on the UK state pension.

In December 2017, we heard from the Organisation for Economic Co-operation and Development (OECD) that the UK’s state pension is the least generous amongst advanced economies.

Earlier this year, it was revealed that the balance of a fund that pays the state pension is expected to "fall rapidly to zero around 2032", according to the Government Actuary's Department (GAD).

This could mean workers under age 50 face paying more out of their income to maintain the state pension. 

I also have sympathy for the Women Against State Pension Age Inequality (WASPI) campaign to win compensation for those who were unaware that their state pension age was going to rise. The state pension age rises for women born in the 1950s were not well communicated by government.

From now on, men and women will see their state pension ages go up in tandem - increasing to 66 by October 2020, and 67 by 2028.

The government has also accepted the findings of the Cridland review, which recommended that the pension age should rise further - to 68 - by 2039.

Future generations can expect some serious watering down of the state pension. It may not be paid until you are 70 or even 75. Or it might be much less than it is now.

Some people talk about the 'fund' that they've already built up in state pension.

Well, I'm sorry to break it to you, but there is no actual 'personal' fund that you're owed. The money that you pay in goes out to pay for people's pensions today. So, millennials are paying for their grandparents' pensions.

Your NICs simply build up entitlements to whatever is on offer when you come to retire. And that might be a lot less than the meagre offering of today. Many people are surprised to learn that the average state pension today is only just over £7,000 per year.

So please pursue other avenues to retirement comfort. These include workplace pensions, making the most of the employer contribution on offer. 

If you are self-employed, don't work, or want to supplement your workplace scheme, a self-invested personal pension is a sensible way to save for retirement.

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