A universal headache

A universal pension could create more problems than it solves says Teresa Hunter

The universal pension always puts me in mind of Donovan’s peace anthem, the Universal Soldier, sent into action whenever there could be trouble ahead.

First, it was wheeled out – the pension that is – ahead of the launch of auto-enrolment. Next, on the eve of the Hutton report, background briefings were given to selected journalists, ahead of a speech by work and pensions secretary Iain Duncan Smith, to Age UK, which resulted in detailed reports about who would get what, and when under the new universal pension.

Imagine my disappointment when reading the speech in full, to discover no mention of any universal pension at all, let alone details of how it
would work.

Now George Osborne has mentioned it in his Budget, so we can at least be sure there will be a consultation. But anyone who thinks it is coming in any time soon is dreaming. Now where’s my harmonica……..

“It’s the universal pension/And it really is a game/To sweeten every other/Pensions pill,/And it knows it shouldn’t thrill/And they knows it always
will/Been a promise for a thousand years.”

No, the real war would seem to be between the Treasury and the Department of Work and Pensions about how it could be afforded and when.

Introducing a universal pension of £140 weekly, which is where the Chinese whispers have positioned it, for all retirees, would cost the Treasury
£10 billion annually. Can you see that happening any time soon? Me neither.

Initially, the expectation was that 2044, when the state pension age rises 68 might be a good starting point. Now my desk is awash with press
releases, many from advisers, predicting a start date of 2014.

Personally, I can’t see it, but it wouldn’t be the first time I was wrong. But with pensioners marking the days off their calendar before
their weekly income goes up to £140, and IFAs advising clients on a dubious and optimistic basis, this lack of clarity is at best unhelpful and at worst callous.

More likely, the Government brings forward the later pension ages, like it has pensions at 66, which now kick in at 2020, a mere nine years away. Move 67 to 2025 and 68 to 2030, and we are not so far from what might look like a practical time table. But factor in a new system of State retirement age set by actuaries and you have even worse confusion.

After affordability, the biggest obstruction is how to deal with accrued rights. Most of the workforce over 30, will have built up a state second pension under the old Serps.

The latest rumours have it, that it will all be rolled up, although some suggest the state pension could be part universal and part contributory, so
everyone gets £100 but those who have contributed get £40 on top. Everyone except those who have already retired when the new pension kicks in. Hmmm, I can see how that will go down.

Yet Serps and the basic pension together can currently be worth up to £250 per week. It requires nerve to take £250 from someone and hand them back £140. Still that’s the easy bit.

It all comes unstuck when you try to unravel final salary company schemes, including millions of public sector workers. But at leaast the nonsense of contracting in and contracting out of NI is ending. Reform will entail higher contributions equivalent to a 1.56 per cent pay cut for staff, almost certainly the straw that will break the camel’s back for public sector unions.

It might also prove a mortal blow for employers trying to manage deficits on company schemes, as their NI bill would leap 3.7 per cent.

Rather than solving all our problems, the universal pension, like the universal soldier, looks set to become a source of further conflict.

Teresa Hunter is personal finance editor of Scotland on Sunday