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The state pension: better with age?

The government says the basic state pension is worth four times more today than in 1909 when it was introduced. But a little bit of research might suggest otherwise.  

 

Right at the very start of this year the Department for Work and Pensions put out a press release to celebrate the fact that the very first state pensions in the UK were paid out one hundred years ago on 1st January 1909. 

It said in that press release that the basic state pension is apparently worth about four times more today than it was back in 1909 when it was introduced.  That fact hit me when I first read it because I didn’t realise the state pension had gone up in value by so much (or even at all). 

I am aware that any number of statistics and figures can be used to prove or disprove points, but it just bothered me that the view that the basic pension is worth four times as much as it was in 1909 is just so out of line with what I’ve always believed.  So I decided to do what any dedicated pension historian ought to do in such a case and go back to see why I thought what I thought and also to see if I could check any historical sources while I’m at it; really just to put my mind at rest.

The first thing I did was to check out my ‘pension bible’.  I have on my desk a well-worn copy of G D Gilling-Smith’s definitive tome entitled ‘The Complete Guide to Pensions and Superannuation’.  It was published in 1967 and is out of print these days (although I did manage to get a spare (and pristine) copy from an e-Bay bookstore last year). 

On page 14 of that book Gilling-Smith confirms that the first state pensions paid out in 1909 following the provisions of the 1908 Act were indeed at the maximum rate of five shillings a week.  So far, so good.  He then goes on to say that “the average weekly wage was at that time about thirty shillings a week”.

If that’s right then the five shilling pension would have been worth a sixth of that, 16.67% of average earnings.  So for the current basic state pension to be ‘worth’ four times that it seems to me it would have to be worth something like four-sixths (or 66.67%) of average earnings.  I don’t think it is.

I checked out the latest stats on the National Statistics site and saw from there that median male earnings in the UK for full-time employees as of April 2008 are apparently £521 a week.  That’s equivalent to £27,092 on an annual basis and feels about right with some other stuff I’ve read in the last year or so (I’ve had it in my head for a while that average earnings were around the £26,000pa mark).

Today’s state basic pension for a single person is £90.70 which is 17.4% of £521.  If my figures there are right then it would mean today’s basic pension is worth about the same as it was to an average worker back in 1909, not four times as much.

But maybe average earnings were higher than thirty shillings a week in 1909?  That could be where I’m going wrong with the numbers.  There are probably loads of ways to find out for sure, but I just wanted to get a ‘feel’ for the figure so I started to trawl through some historical data. 

I live out in Essex and so, for no other reason than that, I checked out the Suffolk and Essex Free Press newspaper archive for the year of 1909.  One thing that hit me straight off was a report from the 6th of January 1909 that “Old Age Pensioners who were paid at Clare Post Office on Friday evening made many expressions of gratitude, one old man exclaimed, God bless the King, the Prime Minister and all who had to do with the procuring of pensions”.  How about that?  It’s contemporary evidence that at least one pensioner was happy with the outcome of the 1908 Act that’s for sure.  But it doesn’t say much about average earnings levels (although I suppose it’s hard to imagine anyone getting so excited about a pension of only 4% of average earnings I suppose).

But then I read an article from October the 20th 1909 about a fatal accident at Brundon pit at Sudbury.  A chap called Harry Hume (of Ballingdon) died in an accident at the pit and a claim was made under the then new Workmen’s Compensation Act.  The report on the court proceedings stated “for three years before his death his average earnings were 15s a week”.  So, if Gilling-Smith’s figures are right then Harry Hume would have been on about half of average earnings.

He wasn’t the only one either.  I found another report from February 1909 about a labourer from Glemsford called Charles Boreham who was charged with neglecting his children.  The newspaper report said “he earnt good wages (from 15s -16s 6d) a week by piece work during the last 6 months which is considerably above farm workers wages”.

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11 comments so far. Why not have your say?

michael Bartlett

Jan 11, 2009 at 12:59

Thinks ....

Did the Pensioners in 1909 have to face increasing Taxation on their pensions ?

Like via massive Council Tax

VAT

Car tax

Fuel Tax

And other recent introduce taxes ...

To obtain a fair relationship - maybe, Steve Bee could look at the subjest again as the true value relationship should be after these new taxes are taken into account ?????

The £ left in the pocket rule etc....?

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Howard Snell

Jan 11, 2009 at 13:16

What matters is what they obscure, not what they reveal.

And by the by, check out what the little old Isle of Man pays its own pensioners. When I lived there not so long ago it was about half as much again as in the UK.

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Gerald Cadogan

Jan 11, 2009 at 14:33

Its lies, damned lies and statistics and when it comes to Government figures there's a special fourth category. This government's track record on spin and the misuse of figures and data is such that no one should believe a single word they put out - just accept that its there for one reason - to show them in a good light - and then consign the information to the dustbin where it belongs. You can guarantee it will be wrong - you may not be able to spot where at first, but it will be inaccurate and designed to mislead.

Companies are fined if they put out misleading information, you and I would be fined if we gave misleading information to Civil Servants, Police etc but the Government can get away with it because it makes the laws.

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Phil Casells

Jan 11, 2009 at 15:23

I agree with Gerald Cadogan. His comments are accurate, true AND in good English.

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Chris Gutch

Jan 11, 2009 at 16:35

I too agree with Gerald Cadogan's comments. Not only are we fed a diet of lies and half truths, but the underlying attitude is that we are all idiots and any amount of subterfuge and coercion is therefore justified.

However, though I don't think it makes much difference to the author's findings, he does seem to move effortlessly between Gilling-Smith's 'average weekly wage' in 1909 and today's 'average earnings'. Are these the same?

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G. Hector

Jan 11, 2009 at 16:46

Working in Agriculture the industry you choose to compare average earning with. I think you will be surprised at the basic wages of Agricultural workers in 2009

Do try and do the sums again ,the current minimum wage for a middle grade agricultural worker as laid down by the Agricultural Wages Board for a 39 hour week is £7.39 per hour or £14987pa without overtime.

Even a Top Grade worker on his minimum hourly rate and say a gererous 10 hours overtime every week of the year is still below the suggested UK average at £23729pa.

Few people realise how low wages are in Agriculture. But even so I saw recently advertised on a local bus hourly rates for drivers which were equally low.

Not only do I think the suggestion of the old age pension being four times better than in 1909. rather far fetched, but what is the true average wage of manual, blue collar workers in 2009.

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John Mathers

Jan 11, 2009 at 18:05

..did the official report calculate the 4x factor.

It is possible to find out how they justify this statement?

I imagine that the Department has calculated the increase in monetary value of the pension. Wages have been growing faster than the increasing value of money as the working population gets more afluent. It could be that pensioners are more afluent than in 1909, but this increase is not as great as for the working cohort. Thus the statement may be true, but could be disingenuous (as cynics might expect).

However, I do think Steve Bee should have tried to find out how the numbers were arrived at, or perhaps he did and didn't bother comment.

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Mike Allan

Jan 11, 2009 at 18:36

It all depends on what you mean by worth. The standard of living of a person on average earnings is now much higher than 100 years ago. i.e the average wage is worth rather more than before. A comparison for purchasing power for the basic necessities of life - food, clothing and shelter - would have been more revealing and interesting. Most people in 1909, let alone pensioners, couldn't have afforded the level of luxury that is taken for granted today by all but the most impoverished of us.

It should also be remembered that a lot of people barely lived long enough to collect a pension, never mind 20+ years of pension. That why we need taxes to pay for it - a lot more people collect their pension for a lot longer. And don't forget the cost of health care that keeps these pensioners on the go. Another cost that pensioners (and the rest of us) to-day don't have to find for themselves.

And not to mention bus passes!

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Bernard

Jan 11, 2009 at 21:00

I don't where the information about the average earnings came from but my reding tells a different story. In any case such a comparison is meaningless. The true comparison is between the standard and cost of living at the time, as I pointed out in a letter to The Times last year. And of course married couples got 5s each, so they received roughly a third of average earnings.

A Glasgow widow revelled in her new found income that she spent as follows:

rent 2s.,pint of paraffin 1 1/2d; 2 oz of tea, 1d

1/2 lb of sugar 1 1/2 d; 2 lb of potatoes, 1 d, 2lb loin of mutton, 1s; half bag of flour. 1 d pint of porter (for Sunday dinner), 13/4d; pepper,salt and vinegar, 1 1/2d; one loaf, 2 1/2 p. Total 4s 51/2d. She intended to have first-class dinner on Sunday with perhaps 1d worth of cheese. Later in the week she would get a 'ha''porth' of beans, a 'pennorth' of onions'and 1d for a herring on Friday.

Income - Servants started at £8-10 a year; at the top butlers were paid perhaps a £!00.

A skilled driver of the new motorcars could hope to get £40 a year - perhaps 15 s a week.. An average household with more than one earner might reach 40s, .

If they were in work, for unemployment had reached nearly 8%, and there was no unemployment pay..

A strike in Dudley in 1913 by factory girls got a settlement of 23s a week.

And of course the elderly were io the worst position. For them 5s a week might keep them out of the dreaded workhouse.

It was such a transformation of everyday existence that there were parties, streets were hung with bunting to celebrate ' glorious pension day.' But not for the Lord Provost of Glasgow, who told a meeting that such pensions would only encourage the thriftless and dissipate the proud spirit of Scottish independence.

By the way - the pension was means tested

- you had to be over 70 with an income of less than £21 a year to get the full pension.

In the first year 650,000 qualified.

If anyone wants to learn the conditions in London when the pension was introduced, should read Jack London's People of the Abyss.

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KEN THE PEN.

Jan 12, 2009 at 16:41

In those far away days ordinary people had a very hard working life & thrift & value were paramount. Fast forward to 2009 & UK has hundreds of thousands of people & who actually knows how many thousands NOT FROM UK poncing off the SOCIAL SECURITY system which is widely abused wholesale. ........Madness. By all means have an old age pension but base it on peoples contributions into the system. Yes there will be disadvantaged people who cannot work who should be protected but theres too many shirkers............ENOUGH SAID........

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hooligan

Jan 17, 2009 at 12:45

rather misses an important point..what should we be paying our pensioners..and what living standard should we, as a civilised society be giving to those who (notwithstanding the better job they might be able to do) have worked for long enough and so contibuted enough to society. will have to forget about the complete fraud and ponzi scheme that qualifies for national insurance where you receive a tiny fraction back compared to what is put in!

i say. 30 years work by any individial qualifies for 1/2 of the living standard enjoyed by those on median income. this to be set as a goal of society where we can measure the quality of government by the reduction in the retirement age and the increase in the lifespan of its citizens

i say. this to be made up of free housing, power tv and cable plus freehealth and shopping in the high street.

i say. we reshape society to provide this benefit..instead of military spending.

i say ..ou civil and local govt servants be employed to spend half their time caring for the elderly..on top of the free health care..doing their shopping andmaintaining their properties.

many more ideas..but attitude shift away from failed wars, banks and politicians looking after themselves not their citizens is a must.

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