The Guardian newspaper reported this week that:
A thinktank linked to Reform UK has called for the abolition of the state pension and £75bn worth of sweeping tax cuts in a “radical” report likely to influence the party's platform for the next election.
According to the same Guardian report, the Centre for a Better Britain (CFABB) said that:
“The issue with the state pension is that it's essentially a Ponzi scheme.”
Their suggestion is that current workers are unfairly funding current retirees.
They suggest replacing the state pension with a “lifetime investment account.” This would begin with a starter contribution of £1,000 for children at birth, but with people later being required to contribute up to 15% of their earnings into their personal retirement pot.
This would be a contribution rate substantially in excess of current National Insurance contribution rates, with absolutely no guaranteed outcome with regard to a pension at the end of the process.
The scheme would, however, offer a windfall to the City of London for managing all the additional funds being directed at the stock market in the meantime, which would guarantee a share price increase until net selling began as money forcibly enrolled people reached retirement age, when a collapse would almost inevitably happen unless, for reasons unexplained, the UK's birth rate suddenly increased, contrary to all long-term trends.
The state pension would, apparently, only remain as a “means-tested safety net” for the worst-off.
Bizarrely, what this supposed think tank is offering is something that looks exactly like a Ponzi scheme, which they claim the current state pension to be, entirely inappropriately.
So, what do you think?
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But not if whether you ever receive a state pension depends on the whim of a politician
We need a written constitution for many things
I’ve come to the view that the issue with the current pension system is the private pensions, not the state pension. We all but enforce private savings, thereby taking real spending power away from people who could really do with it in a cost of living crisis, we give massive tax cuts to the most wealthy, we have huge amounts of money funneled into financial instruments that drive asset inflation, further pushing the dream of home ownership away for many.
Much better in my view to just guarantee the elderly a decent living income using a capped final salary linked pension.
The Centre for a Better Britain (CFABB) has it completely the wrong way round. It is the defined contributions pension schemes that are a dangerous Ponzi scheme. I predict that they will eventually collapse, in a few decades time, and have to be bailed out by the government.
Why do I think that? Demographic change. Over the past century the population in the developed (or developing) world has been increasing exponentially. This makes it easy for companies to grow and increase their profits, simply because they have a growing number of customers. In turn this increases their share price. Workers are encouraged to buy into shares because, over many decades, share prices have grown in real terms. And those who bought shares previously have done very well in the long term. This encourages workers to invest more creating a feedback loop.
But this will soon come to an end as the population starts to decline, perhaps as early as 2050 – it’s already happening in some countries. Population decline is due to rapidly declining fertility rates. At that point the situation will reverse. There will be fewer customers, declining profits, declining share prices, and more pensioners trying to withdraw their money. These are conditions that may precipitate a sudden and permanent collapse in share prices, thereby destroying share based pensions.
I have warned my own children about this (though I’m not sure they believe me). The best chance of a reliable pension is via the government. Only they can guarantee it.
Your conclusion is spot on
I really wouldn’t bet on fertility rates always declining. We’ve no real idea why it’s happening across the globe since it’s the first time it’s happened. It may have something to do with being at record population levels (that was Attenborough’s thesis).
Making linear predictions in a non-linear world is something only the OBR does ; )
I do not assume that the fertility rates will continue to decline in a linear manner, although that is broadly what has happened over the past few decades.
The UN assumes that countries that have transitioned to a lower fertility may plateau their fertility rate at about 1.8, still below the replacement rate (note: this has never happened in any country). The UK is in this category for their predictions. However, in reality, the UK shows no sign of returning to near replacement levels. In 2010 UK fertility was 1.9, now it is 1.4. It is still decreasing. The assumptions of the UN on fertility rates do not seem plausible.
But the fine details of the predictions are irrelevant, they only affect the time scale by a decade or two. Take South Korea as an example. Their fertility rate is, latest figures, 0.89, less than half the replacement level. So the next generation will be less than half the current generation. This means it is virtually impossible for the Korean population not to drastically shrink. The current population of child bearing age would have to increase fertility to well above the replacement rate, say to about 4 children per woman to prevent this. Given their current fertility level of less than one this seems extremely improbable.
So, population is almost certain to drastically reduce over the coming decades. A reasonable expectation is that it will peak about 2050 before the older members of the population die.
Reducing population is not necessarily a bad thing. However, we do need to take these large demographic changes into account when considering pensions and other policies.
Famine from Climate change, plus psychopaths with nuclear weapons mean the collapse could occur far sooner
You may be closer than you think. There is an excellent new book out about how the tech bro’s, the far right and the religious right are all linked. They are pushing for ‘the end time’, where the worthy (white, wealthy and ‘God fearin’) will inherit the mantle of humanities leaders purely by dint of survival.
Whether that end time is achieved by climate disaster, World war started by the growing power of the far right, or a big nuke out is irrelevant to their master plan. As long as one of them happens, all good.
The interesting thing is, most Right wing politicians know all about this from the circles they move in, but seem completely disinterested in doing anything about it.
Instead, they still keep banging on about cuts to this, that and the other, immigrant this, LGBT that, while other forces on their side of the fence have a far bigger goal in mind.
Distraction?
What book?
I assume the book to which Neil Booth refers is Naomi Klein’s latest, “End Times Fascism”? https://www.penguin.co.uk/books/480399/end-times-fascism-by-taylor-naomi-klein-astra/9780241816288
Not got it nor read it. (Of making of books there is no end…!)
Sounds like another right wing attack on the state pension. Its needed. Personally I would reform it so that its tiered with a good high basic level and then additional amounts depending on earnings. At the same time reducing or abolishing relief for private pensions.
As we know the pension is NOT funded by taxation so thats a complete red herring. Lots of areas re taxation, reliefs etc which are more important to look at!!!
Also state pension money is spent so keeps the economy going.
This suggestion comes from a lobby group – its not a ‘think tank’.
Thank you
I think this is the specific book referred to by Neil Booth – End Times Fascism: And the Fight for the Living World,” Naomi Klein and Astra Taylor
That’s all the vast majority of ‘think’ tanks are. The right wing ones simply trot out what right wing party’s want to promote, cuts to benefits, spending more on the military machine, cuts to the Public sector, slashing health and safety protection, and workers rights. Oh, and of course tax cuts.
As Richard has pointed out countless times, the alleged ‘research’ rarely if ever actually stacks up, and a quick pull at the string pulls the whole rotten edifice down.
It’s become very boring now, the same old tired lines, ‘force the unemployed to spend their money only on approved by boomers items’, ‘all the disabled claims are fake bar a tiny minority’, ‘the public sector needs hacking back’, and so on. We’ve heard all before, it’s been done before, and it’s never worked.
But, as General Mellchet said, doing the same thing as we’ve done 17 times before is bound to actually work this time…
It was certainly an error to remove the earnings-related additional pension when the state pension was changed in 2016. Although the overall aim was to reduce the long term cost of the state pension the changes were sold as a simplification. They did however remove an unfairness in that only people who paid NI as employees and not the self-employed could accrue entitlement to the earnings related part of the state pension.
A sensible fix for that unfairness would have been to allow the self-employed to accrue an earning-related state pension in return for paying NI at a rate equal to the sum of the employee and employer rates (as is the case in several other countries). We have now ended up in a situation where the self-employed pay far less in NI than an employer/employee but gain almost the same entitlements – the only significant difference now being that the self-employed cannot claim JSA if they stop working.
This is an example of the neoliberal “prophets” Henry Manne and James Buchanan and the Mont Pelerin Society’s strategy to, as Nancy MacLean writes in Democracy in Chains, “to remove government backed health and welfare, which impaired the normal workings of labour markets, remove employer provided pensions and insurance, all these need to be phased out, converted to individual savings account, in order to implement the Society’s version of liberty”.
And of course the “freed” financial services would run the savings account and make obscene profits, and who cares if the market doesn’t produce a decent pension. That’s neoliberal freedom for you.
All part of the utterly false ” we can’t afford it mantra”.
Agreed. Good reference to a great book.
Singapore operates a Central Provident Fund, where everyone is required to pay in a certain percentage of their salary into a personal pot to save for their own retirement. However, it is quite flexible and can also be used to cover housing and education costs, with a certain slice committed to healthcare costs. It is operated by a government agency, which is quite different from what is being proposed here.
This is yet another neo-liberal privatisation, grabbing public funds for private gain.
If the state pension was going to be replaced by anything then it should be replaced by a universal basic income for over 65s.
It sounds like something designed to make Fartrage and his main comrades in Ref**k along with their donors richer and everybody else (including no doubt a decent number of potential Ref**k voters) much poorer.
Unless I’m missing something.
Craig
You aren’t
Every pensioner needs at least enough money to live each day with dignity. (A “denarius” if you will.) No matter how many years they have, or haven’t worked. No matter where they have come from. No matter what their opinions are and what they look like. Only the State can achieve that with certainty. Let’s start from there.
Agreed
Perhaps not surprisingly, Reform’s scheme has uneasy parallels with the pension scheme devised in Nazi Germany. There, a generous State pension was paid, but only to Aryans. The rules of Reform’s scheme indicate that only those born in the UK would get the £1,000.
What we forget to say is that the State Pension is only £3.30 / week more than the Pension Credits Minimum Income Guarantee which is £238.00 / week for a single person.
Therefore for all those who have contributed 35 years from work in National Insurance for this State Pension, they will only get ultimately £3.30 / week more than what is currently considered the poverty line of Pension Credits Guarantee Credit. This is the outrage. So let’s put MORE people on the poverty line in old age. The “Welfare State” today is Exploitation from Craddle to Grave. You graft, you need to save, you get poor wages, and if you forfeit living to try to secure some retirement… fear not, the Hedge Funds which have taken over the Social Care sector, will take it all from you if you get ill and need care in old age….
It is the financialisation of Pensions which IS the real problem. The financialisation of the Social Care Sector and everything.. It is Neo-liberalism / Capitalism which IS the problem.
In the old days they were called robber barons. Now they’re called tech bros!
I fully agree with most comments about this proposal.
But my interpretation is that this is a very dangerous extension of the Neo-liberal negation of the state’s actual sovereign ability to create money to fund its activities.
This is how democracy gets side-lined and it is one of the worst ideas I have heard yet. It will appeal to an increasingly angry and hard pressed younger population who think they are supporting older people who have had everything.
As appalling as this idea is, it also extremely clever and designed to cause maximum damage.
Much to agree with
The more I reflect on this deliberate divide and conquer by the extreme right, the more I’m convinced that it is operating as a late stage phalanx of Neo-liberalism and its assault on democracy, its objective being monopoly.
There needs to be a reasonable base level in retirement, so the proposal is ridiculous as well as being a completely unaffordable amount for many.
I would personally make some changes such as making the company workplace pensions 4% company 4% employee minimum instead of 3% company, which would return 1% income to many paying into a workplace pension, perhaps with an aim to staircase that to 5% company, 3% employee or higher over time. This would be objected to by companies but cost neutral to the government.
I would also look at having a limited ISA-style scheme which direct contributions can be made to which gets income tax relief but is discounted for purposes of Universal Credit eligibility. I was thinking it might be treated like income if there is a pre-pension drawdown for both Universal Credit taper rates and income tax purposes, so ideally it forms part of a pension but it also provides a safety net earlier with suitable tax implications.
I’m all for fresh thinking about how to ensure a better safety net in retirement and otherwise, but a 15% contribution just smacks of the kind of thinking that comes from those who a) can readily afford to lose 10%+ of their income compared to now, and b) whose income or wealth is high enough that a pot made from 15% of income would be clearly enough in retirement. They clearly aren’t representative of or representing the median w0rker.
I can’t help but suspect that in the short term the ultra aggressive free marketeers will get their way on this but that it might in the end be their undoing
I see Badenoch is revealing herself to be a really callous individual
https://www.theguardian.com/politics/2026/sep/23/tories-target-universal-credit-claimants-plan-condemned-fast-track-to-poverty
It’s truly appalling when they know very well how far they’ve pushed things and that there aren’t enough jobs.
But again, the broad left has – in particular the trade unions and NGOs – failed to communicate this effectively to the public.
Your pension contributions will have to come from a lack of spend in the economy in the Reform model.
So, if such a private
pension is funded like that, how can there be any growth or maintenance of value in the pension funds if the pension contribution is reducing the spend that supplies the supposed growth?
Badenoch’s approach to benefit cuts is the same problem, it is taking money out of the economy.
As Steve Keen has always noted, Neo-liberals have no idea where money comes from, yet claim themselves more suitable than anyone at managing it. Bizarre, but also so damaging.
They know very well but it doesn’t affect *their* constituencies.
They just rely on just enough people voting for them who don’t care and who prioritise themselves and their own subjective sense of who’s best for them. I’m hard on Tory voters because I have a number in my family so I know exactly how they think.
With any think tank it’s important to understand who they are and how they are funded? The the name, Centre of a Better Britain prompts an obvious question, better for whom?
Gabriel Pogrund of The Times has investigated.
https://web.archive.org/web/20250622030206/https://www.thetimes.com/uk/politics/article/the-nigel-farage-backers-courting-maga-donors-to-put-him-in-no-10-sc256bzcq
The CFABB proposals might be attractive to those in the The City of London watching its slow decline and desperate to generate a new current of funds it can skim for fees.
Rather than state pensions it would be more interesting if this report has turned it’s attention to all the capital locked up in property. Figures vary but the over 60s own over 50% of property valued somewhere between £3 trillion and £4 trillion.
Part of the solution could help address housing targets. Currently older people end up being ‘house blockers’ rattling around in family houses while their children struggle to buy anything even then my be relying on a parental loan secured on the family house. Addressing will require some financial reform e.g. stamp duty but we also need to building lots of appropriate smaller properties of older people where they want to live (that more often going to be near to where they currently live, close to family, friends and the amenities they are familiar with). Outside the most affluent urban areas much new build seems to be car dependant 3-5 bedroom detached ‘little boxes’ on edge green field sites. It’s a multi-level failure.
Everyone loves a tax incentives and property is one area where a strategic time limited tax incentive can kick start the market and change behaviour virtually overnight. As a secondary benefit increasing property churn would stimulate growth in GDP.
Why has The Guardian not stated the name of the thinktank?
Might the think tank be “The Centre for a Better Britain (C F A B B)?
If so, might it be relevant that, unlike traditional charities, “it is registered as a private limited company to bypass strict constraints on political partiality”?
It did
And it is
Much to agree with so far – sorry Richard pinched your line.
OK look at Australia where they did abolish the state pension, now I am afraid that I am not an expert on what happened there but closer to home Timex in Dundee were one of the pioneers of Defined Contribution pension schemes, and guess what depending on which option you chose and when you retired that had a big impact on what you retired on.
What a suprise!
Now dusting off my PhD in the Bleeding Obvious.
I have two pensions, a funded defined benefit one – Local Government and an unfunded one – the State Pension.
So my funded one depends on returns from investment ie dividends, rents, interest, capital gains etc from wherever the Investment Managers can get them and damm the consequences such as hollowing out the High Street.
By contrast with my state pension and yes I know its not exactly what MMT says but it makes the explanation simpler, the Government can decide where best to levy taxes in order to fund my pension payments (OK cancel out the money it has just paid me and decide how much it proposes to cancel) and take into the account the economic impact of this.
Which option would you prefer for the Good of the Country?
Asking Grok it apparently says the current arrangement of employee and employer contributions works out ok
You do realise that you asked something that cannot think and that, of course, it has a bias to say what works – because it knows nothing much else?
We know that any pension run by a private company will skim as much money from the account as they can get away with, and know that if they fail, the government will step in.
The government does not make a “profit” from public pensions, they are 100% secure, and cost the public nothing.
I am not wholly sure I agree with that. Trustees do have a role and many take the duties very seriously.
I’m sure they’re well aware of all that property value and plan to get their hands on it by breaking the Triple Lock and war-induced high inflation.
Whilst I agree with what you’re all saying, I’ve lost 7 years state pension since I started working and those in their 40s are looking to a retirement age of 68+. My trust in the contract that I work so many years and then get my pension is significantly reduced. Sadly it won’t be hard to sell such policies to those who don’t believe there will be a state pension when they are eventually able to retire.
Seems to me there is a fundamental problem with all these private pension schemes, auto enrollment etc. They miss the point that to save for your old age you need to have money left over at the end of the week/month after having met your needs. With precarity, cost of living, wage suppression etc who has that! I suggest not that many – at least not sufficient to make a meaningful pension pot to service their needs in old age. I believe the typical pension pot is £30K so a few hundred quid a year as an annuity.
The state pension should remain and be sufficient to meet needs.
Agreed
I’ve been born so this possible policy won’t affect me.
I hope that was meant to be facetiously humorous. If not, …..
Either way, so Reform
What they are proposing is basically how it works in Australia. When I lived there, one of the bigger superannuation schemes ran ads of older people complaining about having to go back to work because they didn’t buy an annuity before the market tanked.
I don’t think it would be as catastrophic as causing a crash when people begin to sell out of their investments because that hasn’t happened in Australia, but it does mean that no element of our future pensions would be certain, which is not ideal.
The CFABB suggestion sounds remarkably like the Australian system. Privately funded, tax sheltered investments and a means-tested state pension.
The conventional wisdom is that it is working well, but a few are beginning to question its benefits, ( see a young, provocative economist called Cameron Murray https://www.fresheconomicthinking.com/p/mega-post-on-why-superannuation-is)
Australian system has created two major industries, the overall benefits of which are doubtful. Firstly the investment/ superannuation management industry, although a significant portion of this is not-for-profit. Secondly a Financial Planning industry whose main purpose is to structure investments so as to receive maximum means-tested state pension, whilst holding on to the maximum amount of tax-sheltered private superannuation. Financial planners in Oz tend to drive flashy cars.
Contrast with New Zealand, which has a universal age pension and a much less tax-effective private superannuation system. Financial planners are few and far between and tend not to drive flashy cars.
Thank you
Dear Richard,
Yesterday you posted two pieces which are thematically linked: this one and the one on why workers are losing.
In “Why are workers losing?” you show labour’s share of GDP has fallen from 71% to 59% since 1975, driven by weakened unions, deregulation and financialisation — income shifting from wages to profits, rents and asset holders. In the pension piece, you rightly call out CFABB’s “lifetime investment account” as Ponzi-like, dependent on continuous asset-price inflation that collapses once net withdrawals begin.
But there’s a tighter link than that. A mandatory 15%-of-earnings savings scheme is financialisation by decree — it’s the very mechanism you name as cause of the falling wage share, applied directly to pensions. It converts wage income into City-managed asset flows, exactly the transfer from labour to capital your other piece diagnoses as the source of the anger driving right-wing populism.
There’s also a compounding fragility you don’t mention: a savings-based pension’s adequacy depends on wage income keeping pace with retirement costs. If labour’s share of GDP keeps shrinking, the base people are forced to save 15% of shrinks relative to profits and rents. A PAYG state pension draws on national income as a whole, including capital’s share via general taxation. An individual investment pot draws only on the individual’s own wage income — the stream you’ve just shown has been losing ground for fifty years.
So replacing the state pension with mandatory savings doesn’t just carry the Ponzi risk you describe. It locks retirement adequacy to the declining side of the redistribution your other piece is about.
Thank you
Hi, Richard,
I’ve read through all the comments, some of which are understandably quite technical, and nobody has asked a question that occurred to me, purely out of interest, as I am 81, so am an OAP, and have in addition a drawdown income from a SIPP.
My question is this, Tim Webb of MSF (now UNITE The Union) published a study that established that employee NIC contributions are in fact deferred pay, and so are legally the property of the employee, and cannot be touched by the employer without the employee’s consent – given, of course, via the employment contract.
However, that money has surely only been lent to the employer, who then transmitted it to the government. Surely, then, if the government wishes to change the system, it should first of all recompense the pensioner all of his or her historical NIC’s lent to the government? Or am I in cloudcuckooland here?
In principle, I think you are right.
There is even an established national insurance fund with published annual accounts to supposedly reflect this fact.
But in reality, it long ago ceased to havign anuy meaning, as paymemts exceeded income since it was also meant to cover the NHS
As such precedent would say, it can be ignored, I think.
Hi, Richard, and thanks for this, and you’re probably right about the precedent – I’m well aware of how fictitious the National insurance Fund actually was/is, and that pensions are actually run on a PAYG basis, which is the point about how the demographics will cause trouble in the future, when there are insufficient younger people to support a larger number of older people, via the intergenerational contract you have often referred to.
My point, however, was that if it were to be established that the government would have to repay each pensioner’s NIC’s, it would make this scheme ruinously more expensive than leaving the pension arrangements largely as they are, subject to any changes made necessary by the demographic timebomb referred to elsewhere in this post.
An interesting idea. Who would fund the litigation?