Increases in the pension age will save us billionsby David Willetts / March 26, 2015 / Leave a comment
Read Peter Kellner on “the truth about welfare”
Peter Kellner accurately shows that voters exaggerate how much is spent on benefits for people of working age and underestimate how much goes on benefits for pensioners. But behind this misconception there is more popular wisdom than he recognises. The point is obscured because Kellner uses the word “welfare” indiscriminately to describe all benefit payments. This is misleading. There is a big difference between means-tested benefits for people of working age and contributory social security benefits, mainly for pensioners.
There isn’t actually a national insurance fund, but that does not matter—it is a mutual insurance scheme into which we all contribute during our working lives and then draw on in old age, however long we live. It is a classic example of the state pooling risk for us. It is what the National Health Service does as well. This function is not to be confused with the very different role of redistribution from rich to poor which, however desirable, has never been as central to the role of the state as the left imagines.
William Beveridge, the architect of the modern welfare state, wanted social security benefits to be sufficiently generous to float people off means-tested assistance. It will be one of the historic achievements of the coalition government that our new higher value single pension finally delivers Beveridge’s goal. That improves incentives to save as you know that in your old age you will not lose benefits as a penalty for having saved.
Beveridge also extended contributory unemployment benefits. But benefits for people of working age who are not working are often non-contributory. Instead, such people depend on means-tested benefits because they have not been able to build up an entitlement by working beforehand. This is the tradition of national assistance, supplementary benefit and income support. It is welfare as distinct from social insurance. Means-tested assistance has always lacked the popular support commanded by contributory benefits.
The use of the term “welfare” to describe transfer payments originates in America. But when Americans talk about “welfare,” they mean non-contributory benefits, notably for lone parents. They emphatically do not mean social security,…