Improving the state pension

• The basic state pension should be increased for all existing pensioners (regardless of contributions) to the official poverty level (60% of median population income, which is estimated to be £165 per week in 2009).
• The basic state pension should be indexed annually to average earnings or prices whichever is the greater so that its value is maintained for the future and pensioners share in the rising prosperity of the nation.
• The State Second Pension (S2P) should be retained as a good earnings-related pension for all workers, maintaining the higher replacement rate for the low paid as an alternative to the new proposed system of personal accounts.

This could be financed in a number of ways, including:

• Using the existing excess surplus balance of around £43.5bn in the National Insurance Fund, which has been paid in by today’s employees and employers, as part of the pay-as-you-go system.
• Abolishing the Upper Earnings Limit of £43,888 on National Insurance contributions, ending the injustice in which the higher paid contribute a smaller proportion of earnings than the lower paid. This would raise an estimated £10bn every year.
• Increasing employers’ contributions to National Insurance from 12.8% to at least 15% of payroll, as is the case in many other EU countries.
• Reforming tax relief on private pensions. This currently costs the Treasury around £37bn a year – with the top1% of taxpayers receiving around 25% of the rebate, whilst the average employee receives just £330 a year. This is neither the most effective nor equitable way of using public money, giving a massive incentive to save to those who least need it.
• Up to £100bn a year is currently uncollected in taxation, mainly from large corporations and businesses. Serious efforts through an increase in staffing and technology could reinstate a sense of fairness and justice to the tax system and raise a considerable amount of money in the process.