Leading article: In state pensions there should be no compulsion

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The Independent Culture
THE CONSULTATION document on pensions launched yesterday by Alistair Darling, the Secretary of State for Social Security, marks a step back from the "hard choices" we were promised when Labour were in Opposition. Indeed, they are a very long way from the options considered during the ill-starred social security "partnership" of Frank Field and Harriet Harman after they took power.

Compulsion - legislation to compel citizens to save for their retirement in individual accounts - is no longer to be an option. This is much to the distaste of Mr Field, who wished to see a compulsorily-funded universal scheme to provide pensions, while escaping the stigma and disincentives to work involved in means-testing. Much of the Conservative press has pressed for full privatisation. Mr Darling's opponents will accuse him of a politically-motivated fudge, of splicing together incompatible policies to bodge one incoherent "third way" initiative.

Such critics are wrong, however aesthetically appealing their theoretical castles in the air. Legislating for individual savings cannot escape the fact that it will always ultimately be society as a whole that raises money to care for people in their old age.

If money to stave off such an outcome did not involve means-tested top- up payments to the poorest pensioners, it would have to be paid out under another guise. No one is prepared to see the elderly reduced to penury, and the simple fact is that there are millions who cannot save for their pension, since they just do not earn enough. Even if the low-paid saved all their lives, other taxpayers' money would have to be used to relieve poverty.

Even a semi-private scheme would find it difficult to "top-up" its poorer members. If the economy were to nosedive, or the stock market perform badly over a long period, the responsibility of doing so could prove too much. No government could afford to see such schemes go bankrupt, robbing millions of their savings: if that were threatened, the scheme would be nationalised, and we would be back to square one.

Nor is it clear that the pensions "crisis", predicted by alarmists, will materialise. Britain is not sitting on the timebomb facing governments on the continent. Her population seems already to have endured much of the increase in average age: Britain's demographic profile, so often cited as the spur to reform, does not show that a rapidly-ageing population will necessitate more and more social spending on the old. In fact, the personal pensions better-off Britons have taken to with aplomb will mean much of the slack will be taken up by the private sector.

Cost has also reined in radical ambitions. Forcing the members of the state's own incomes-related pensions scheme, Serps, to leave en masse would blow a gaping hole in the Government's finances. Far better to reform Serps as a new "state second pension", a flat-rate rather than earnings- related scheme which encourages those earning below pounds 9,000 a year to save. The Conservatives focused on encouraging those on middling incomes to opt out altogether in the late 1980s; this inevitably did not do as much as Mr Darling to secure the futures of those further down the earnings ladder.

The poor will thus have a guaranteed retirement income. Those further up the income ladder will be encouraged to save just as will those below them in the earnings stakes, and have their National Insurance contributions lowered accordingly. Speeding access to "stakeholder pensions" is also vital, since part of the problem in encouraging people to take on extra pensions is that they are shrouded in the most incomprehensible jargon.

Spreading the burden between public and private sectors will be a slow process. But Government has no alternative, since "radical" solutions are such an illusion.

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