Page last updated at 23:22 GMT, Thursday, 31 July 2008 00:22 UK

The state pension turns 100

By Ian Pollock
Personal finance reporter, BBC News

A man collects his first pension from a Post Office in January 1909
The new state pension marked a revolution in welfare policy

Sir Mick Jagger, now 65, receives his first state pension payment this month.

This modest increase to his wealth coincides with the 100th anniversary of the start of the state pension system.

The Old Age Pensions Act was passed in August 1908 and the first payments were made on 1 January 1909.

That month, just over half a million old and very poor people queued up at their local post offices to collect the first state pension payments available in the UK.

Limited scope

The maximum payment of five shillings (25p) for a single man or woman was meagre - the equivalent of just under 20 a week now.

To get even this you had to be at least 70 years old, at a time when only about 5% of the population were older than that.

It was means-tested too.

STATE PENSIONS THEN - 1908
500,000 pensioners
Full pension 5 shillings per week, equivalent to 19.30p now
1 in 200 lived to age 100
10 workers for every pensioner
1.2 million aged over 70 (in 1901)
Source: Department for Work and Pensions

You were only eligible for the new payment if your income was less than 12 shillings a week, and the pension could be reduced if you had too much furniture.

You might be denied it at all if you had been sent to prison in the previous ten years, were habitually drunk, had never worked when able to do so, or were otherwise of bad character.

"The state was stepping in to replace the punitive poor law there had been before," says Pat Thane, professor of contemporary British history at the University of London.

"It did provide for more people, but it didn't provide enough to live on and it was a very stringent means test."

To check up on claimants and their entitlement, civil servants known as pensions officers would visit people in their homes, assess their circumstances and then make recommendations to a separate pensions committee.

Only then might you be authorised to receive a pension book to cash in each week.

'A new phenomenon'

Before the 1908 Old Age Pensions Act was passed there had been more than three decades of public debate, agitation and campaigning in favour of the creation some sort of public pension system.

Four women in a workhouse 1900-1905
The bad old days of the work house

The Friendly Societies, whose collective savings schemes were aimed at the more prosperous workers, and the workhouses of the Victorian poor laws, aimed at the totally destitute, were both buckling under the strain of people beginning to live longer.

"For the first time many people were living beyond the point when they were physically capable of working," says the Conservative MP David Willetts, in a historical pamphlet for the actuaries Punter Southall.

"The Victorians called this new phenomenon retirement," he adds.

Five government committees and a Royal Commission all examined various proposals over 30 years but nothing was done until the Liberals won a huge electoral victory in 1906.

Within two years the new system was on the law books.

"It was the very first universal cash benefit without the stigma of the Poor Law," says Mr Willetts.

"Despite the years of argument about National Insurance and the importance of contributions it had no contribution condition.

"That in turn meant that help could reach pensioners straight away," he says.

Big changes

The current state pension system has changed enormously since 1909, and will do so for many more years to come.

In 1928 it was revamped and targeted at all workers, with the pension age reduced to 65, but with the still small payments now dependent on workers paying in.

Then in 1948, along with the National Health Service, came what is still the modern state pension system, proposed during the war years by Sir William Beveridge.

STATE PENSIONS NOW - 2008
12 million pensioners
Full single pension 90.70 per week.
1 in 4 will live to age 100
4 workers for every pensioner
7.2 million aged over 70
Source: DWP

It was available to all with everyone, including employers, contributing through national insurance contributions.

It was also made much more generous than before and the pension age was reduced to 60 for women.

Since then earnings related top-ups have been introduced and now the government plans to introduce a further additional system - so called "personal accounts", a form of semi-compulsion to get people to save even more for their retirement.

The brief link between pension increases and the rise in average earnings is going to be restored after being removed in 1980.

Meanwhile the state retirement age is going to creep up, for both men and women, to 68 by the year 2048.

Another century?

The state pension and associated benefits like pension credit, are still hugely important to the financial well-being of the elderly.

British economist Sir William Beveridge (1879 - 1963) arrives at the House Of Commons to deliver his report on social security and state welfare
Sir William Beveridge, architect of the welfare state

According to the most recent analysis by the Office for National Statistics, in 2005/06 male pensioners had a total income from all sources of, on average, 257 a week while pensioner women received 229.

For men, state benefits of all kinds made up nearly 55% of that, while female pensioners received nearly 65% of their money from the state.

Will the state system pension system last another 100 years?

Professor Pat Thane says there is little alternative.

"It will have to last, because a large number of people will never be able to save enough to live on in their old age."

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Today's pensioners vote with their feet

The present government seems determined that it should do so for at least 50 more years, as that was the time horizon of the many recommendations made by Lord Adair Turner's Pensions Commission.

But 50 years is a long time, even in pensions.

What no one is able to predict is just how much longer, on average, we are going to live.

Longevity has shot up in the past 30 years or so and, so far, shows no sign of slowing down.

Anyone reaching their state pension age now is expected by the government to live another 24 years, compared to just nine more back in 1908.

And a quarter of all babies born now are expected to live to at least 100.

The only safe prediction to make is that state pensions will inexorably become more expensive for the government to provide, even with the retirement age rising.


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