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You're Being Robbed of Your Pension – Here's What To Do About It

The government is screwing you. Your employer is screwing you. So how can you make sure your old age isn't scrimping for an Iceland ready meal?
September 20, 2016, 1:30pm

Illustration by Marta Parszeniew

If you're under the age of 35, you're being robbed of your pension. Even if you're in a job that has a pension scheme you pay into every month, you'll never get as much money back from the government and your employer as your parents, and you'll never retire as early as they will either. So it's become another thing, like buying a house and getting the Tories out of the government, that it feels like you might as well give up on.

But you should care. Because the government is skimming thousands off your wages – the money you are working for right now – to meet the election promises made to win over older voters who are about to retire. A recent study by the Intergenerational Foundation estimated that each of us is paying £2,846 off our wages every year to cover the cost of state pensions. Your national insurance contributions aren't being saved up for your retirement, they're going directly towards paying for the pensions of today. Even Tory MPs have called it "inter-generational theft".

Like buying a house, or getting the Tories out of government, pensions feel like yet another thing you might as well give up on

Your employer may be no better, plugging money into private pension schemes that might otherwise have gone towards pay rises for younger employees. The pension deficit, or the amount that is needed to meet all the money promised, has reached almost £1 trillion. Employers don't have the cash to cut that deficit, so they're having to divert profits away from investing in younger staff.

"Because companies are not putting in capital, younger workers will have lower wage growth than they otherwise would," says David Blake, director of the Pensions Institute at the Cass Business School. "In that sense they are paying for the deficit. They don't realise they are, but that is what's happening."

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How did we get in this mess? People are living longer, giving them more voting power over the government. "Younger people might think this is not fair, but older voters will make sure that government taxes younger people to pay for their welfare," David says.

That's why the coalition government came up with the "triple lock" on pensions to appeal to older voters as part of the 2010 election campaign. Cameron and Clegg promised that pensions would grow every year at the higher of inflation, the increase in average earnings or 2.5 per cent. But as you'll have seen from your own pay packet, wages have hardly risen since 2010, and inflation (the rate at which the price of goods and services rises) has been low.

But retirees have still been rewarded with a generous 2.5 per cent increase in pension payouts every year. By April 2014, the basic state pension was £440 a year higher than it would have been if it had increased at the same rate as your wages.

Employers don't care because they're not promising any benefits.

That's just the state pension. In the private sector, companies struggling to close the pensions gap are switching from "defined benefit" pensions (where the employer commits to pay a defined amount to the worker in retirement) to "defined contribution" schemes (where your retirement pay depends on the contributions you and your employer have paid in). "You have a smaller base to grow the fund and much lower returns, so the pension pot built up will be much, much less," says David Blake. "But the employer won't care because they're not promising any benefits, you don't have any guaranteed benefits."

So the government doesn't care and your employer doesn't either. "Governments don't really care about the future," Blake says. "Even the pensions ministers that I talk to, they're not interested. At a policy level, the government's trying to save the health service and stave off rail strikes. In 40 years, when young people will find themselves facing poverty in old age, they'll turn around and say, 'That's not our problem.'"

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Even the chief economist of the Bank of England, Andy Haldane, says he doesn't get the pension system and that "property is a better bet" than pensions. Baroness Altmann, the former pensions minister, has publicly derided the comment. "This is hugely irresponsible in my view," she tells VICE. "Confusing pensions with ISAs or housing is dangerous."

So what can you do? Save. There's no way around the deeply unsettling fact that the only way your retirement will not be spent scrimping together pennies to keep the heating on in winter is by putting cash away now. Baroness Altmann says a proper pension scheme is a far better investment than ISAs, housing, or other kinds of savings: "Pensions are normally the very best way to save for retirement, with extra money from employers and other taxpayers to increase your own savings significantly." If you have a lot of debt, prioritise. Pay off short-term debt from overdrafts and credit cards first, then manage longer-term debt like student loans alongside pension savings. It'll be worth it in the long run. "The miracle of compound returns means that any money you put away in your 20s and 30s will be worth far more than anything you can save in your 40s," says Leanna Orr, a pensions reporter in New York.

Then keep an eye on your employer to see whether you're losing out to plug a pensions deficit. "Young people not getting the pay rise they want should look at whether their company is diverting large amounts of profit to people who have already retired," says Laura Gardiner, senior analyst at the Resolution Foundation. She recommends getting one person under the age of 30 on every private pension board to look out for younger workers' interests.

The last thing you can do is simple: vote. "Our generation needs to take political action and not just take it for granted that the baby boomers have signed themselves a blank cheque that we are going to pay for," says Leanna.

As Angus Hanton, co-founder of the Intergenerational Foundation, says: "Unless there is cross-party consensus on much needed pension reform, we risk making millennials pay, at a time when many of them cannot afford to even start to save for their own retirement."

More from VICE: You're £19,000 Poorer Today Because You Can't Be Bothered to Read About Pension Reform

Oh My God, Grandma, What the Fuck Have You Done? How to Save Money When You're Young, Dumb, and Broke