Starmer needs to copy Argentina's Milei and take on the pensioner lobby

Telegraph

4 days ago

State pensions are rarely out of the news – and for good reason. Most are unaffordable pay-as-you-go schemes that are moving their countries towards bankruptcy, and when reforms are attempted, resistance is vocal and influential.
In July this year, the majority opposition to President Javier Milei in Argentina's Congress voted for a 7.2pc increase in pension payments.
Milei, however, elected on a promise to control hyperinflation by cutting public spending, vetoed these bills in early August, arguing they lacked any funding source and would undermine the fiscal stability that his policies had achieved.
As a result, pensioner and activist groups held weekly protests in Buenos Aires. The demonstrators demanded pension increases and coverage for essential medical services to match Argentina's inflation (reduced by Milei to a monthly rise of only 1.5pc in May, the lowest in five years).
The protests were met with a strong police response – including the use of tear gas, water cannons, rubber bullets and many arrests.
It is hard to conceive of such a scenario in Britain – pensioners protesting about being denied an unfunded pension increase and being met with a forceful response.
Pensioners are more likely to vote than any other part of the British electorate, so politicians are very wary of upsetting them and shy away from necessary reform.
Argentina's public pensions absorb a greater proportion of GDP than the UK's, but both systems are unaffordable and require higher general taxation or borrowing to be maintained.
Britain's state pension is a pay-as-you-go system where the contributions made by the working population are insufficient to cover the pensions being paid out to current pensioners. Therefore, the difference has to be funded out of current tax revenues plus unaffordable borrowing.
The UK finances have not been in surplus since 2003, and we now have a national debt of over £3tn.
Politicians in Britain have been increasing the payouts to today's pensioners in order to try and buy their votes, the largest bribe being the 'triple lock' introduced by the Conservative and Liberal Democrat coalition in 2011. The OBR recently forecast that it would be three times as expensive by the end of the decade than originally estimated.
Here in Britain, we have the advantage of strong and growing private expenditure on pensions, with employers and employees actually mandated to pay into pension pots that belong to the employees.
Unfortunately for Argentina, in 2008, its socialist politicians destroyed its private pension system in a foolish act of ideological vandalism, abolishing the schemes and taking control of the funds.
However, a critical difference in Argentina's favour is that Milei has succeeded in reducing state spending on pensions, despite the strength of the pensioner lobby.
British politicians, on the other hand, are deeply frightened of offending pensioners, so display no appetite for pension reform such as replacing the triple lock with a single benchmark. Instead, they resort to raising the pensionable age with increasing regularity.
Ironically, with the personal tax allowance frozen, the increase in the state pension is expected to take it above that threshold by 2027 – meaning all pensioners will need to pay some money back.
To tackle real demographic changes that drive the cost of state pension provision up (a growing pensionable population set to reach 13.7 million by 2032, and who live longer), there needs to be a bigger focus on increasing private pension contributions and reducing unfunded state benefits.
As the state gradually slides towards bankruptcy, our state pension system will have to change.
It will probably be easier to tackle the problem of excessive welfare spending across the board – the out-of-control working age benefits costs, as well as pensions and the NHS – than tackle one at a time. A total welfare state reset.
Politicians need to realise they can't go on spending money that's not there. It's not 'compassionate' for the whole country to sink into poverty and misery because of incontinent public spending.
Nor is it a just settlement that new generations of taxpayers are expected to pay generously for the provision of pensions today, but face the prospect of receiving a very low state pension when their own, ever later, pensionable age is reached.
We should start the transition of National Insurance from an unfunded Ponzi scheme that forever needs additional tax revenues from new workers (hence the intentional huge growth in immigration), towards a funded pension system that actually invests in real assets.
If National Insurance contributions had been invested in UK equities since 2010, savers would have received a much better return than they would get from the state pension.
A key problem is how to finance the transition, because money brought in via National Insurance is now immediately paid out to retirees. This suggests starting gradually, with only a minority of young people's contributions being directed instead into their own personal pension accounts.
Of course, one way of helping finance the transition from our broken state pension system is to tackle the absurdly generous and costly public sector pensions. This could realise significant savings that would make state pension reform easier to phase in.
Another measure could be to provide extra incentives for the self-employed to save into pensions as, understandably, they are not covered by automatic enrolment. A reduction in National Insurance contributions in return for increased pension saving, up to a maximum contribution of say £6,000 a year, would be a start.
Realistically, after it failed to deliver modest savings from benefit cuts, we cannot expect this Labour government to reform pensions.
However, the challenge must be faced eventually. Politicians should be honest with the public and present a phased plan of reform. That would be doing the country a great service which future generations should appreciate.