Review of the year: Pensions
Be ready to work at 70
Friday 30 December 2005
This was meant to be the year the Government finally solved Britain's pension crisis. Lord Turner of Ecchinswell's three-year inquiry into the demographic time-bomb delivered its interim report in 2004. But the former CBI director general reserved judgement on specific reforms until its final report in November.
The problem is a knotty one. People are living longer, swelling the number of pensioners in society. As the baby-boom generation retires over the next 20 years, the number of working people compared to pensioners will fall sharply, from 2.7 to 1 today to 1.1 to 1 by 2050. Fewer working people paying tax to support a growing number of pensioners will place an increasing strain on the public finances, as the state pension bill grows.
The Pensions Commission's brief - to propose affordable reforms to prevent workers facing poverty in retirement - was always tough. But Lord Turner had not banked on the additional political challenge of getting Gordon Brown on side.
Early leaks of Lord Turner's report suggested he was determined to suggest some politically uncomfortable ideas, including a gradual rise in the state pension age - a year each decade between 2020 and 2050, to 68 or 69. The Commission would also press for more generous state benefits. Finally, Lord Turner would suggest a new national pension scheme into which employees would automatically be enrolled and to which employers would have to contribute 3 per cent of workers' pay.
The Chancellor's views were made clear even before the report was officially published. A leaked letter from Brown to Lord Turner warned that the Treasury disagreed with the Commission's costings of its proposals - they would actually be much more expensive, the Chancellor warned.
Despite the frosty reception, Lord Turner stuck to his guns, confirming the Commission's findings at the end of November. Publicly, the Government welcomed the report, and Brown called for a "national debate" on pensions reform. Privately, the Treasury maintained that the proposals would be unaffordable.
Will 2006 be the year in which a consensus on pensions reform finally emerges? Don't bet on it.
John Hutton, Secretary of State at the Department for Work and Pensions, will deliver a White Paper on reform in the spring. But the Chancellor has his own agenda; Brown believes in the means-tested Pensions Credit, rather than a more generous basic state pension. And he is sceptical about spending more today on a problem so long-term that it may not become a real issue on his watch, whether he's at the Treasury or at Number 10.
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