State pension age should be 70, say bosses

The state pension age should rise to 70 as soon as "reasonably practical", company directors argued today.

The Institute of Directors called for a "radical reform" of both the state and private retirement benefit systems.

As well as raising the state pension age to 70 in the face of "greatly increased" longevity, the IoD also called for the abolition of most means-tested state retirement benefits.

The savings made should be diverted to the provision of a universal basic state pension "probably" above the current level, said the report.

Graeme Leach, the IoD's chief economist, said: "Radical simplification is needed. Startling increases in longevity in recent decades also mean that it is unrealistic to expect to be able to fund a potential 25 to 30-year retirement from an effective 30 to 35-year working life.

"New approaches are needed to recognise this reality. The whole area of retirement needs to be looked at holistically, including how we fund the care needs which will come with increasing longevity.

"We need a state and private retirement system fit for the 21st century. This is a policy journey which needs to begin now."

In a report called Roadmap For Retirement Reform, the IoD said it was time to usher in change to deliver better outcomes for consumers, better understanding and better engagement in long-term saving.

Women's retirement age is already being gradually increased from 60 to 65 to bring them in line with men, and the Government wants to delay pensions until 66 by 2026, while the Conservatives have proposed making people work until 66 by 2016.

The report's author Malcolm Small, senior adviser on pensions policy at the IoD, said: "Both state and private pension systems have now become so complex that people are becoming disengaged from pension saving and are looking for alternatives.

"If people don't like the structure, they are less likely to stay in it, even if they are auto-enrolled into saving, as they will be from 2012."

Mr Leach told BBC Radio 4's Today programme: "In 1950, somebody who retired at 65 was projected to live another 12 years. Now it is 19 years and by the middle of this century it is going to be between 20 and 22 years.

"We just can't afford to fund a pension for 25 or 30 years out of a working life which is probably 35 to 40 years. It just doesn't add up."

Adding a few years to your working life can substantially boost the value of your pension when you retire, because of the effects of compound interest, said Mr Leach.

"One of the suggestions which we would like to see consideration for is that, at present, you get a 25 per cent lump sum tax-free on retirement - why not increase that by 5 per cent a year?" he said.

"That extra three, four or five years would really significantly increase pension funds."

Mr Leach said the current system of benefits for pensioners was "arcanely complex".

"Let's go for a straightforward system where we have a higher state pension but we will clear out all these pension benefits etc which are means-tested," he said.

"It's a radical change focused on simplification, because people don't understand the current system."

Brendan Barber, general secretary of the TUC, said: "The better off you are, the longer you live and the more years you get to claim a state pension.

"A big rise in the state pension age would mean the less well off lose a much bigger proportion of their pension than affluent pensioners, who are much less dependent on the state pension in any case."

A spokesman for the Department for Work and Pensions said: "Our pension reforms will radically and fundamentally change the pensions landscape in the future.

"As recommended by Adair Turner's Pension Commission, from 2012 automatic enrolment into occupational pension schemes alongside the creation of personal accounts will give millions of workers the chance to save in a pension with a contribution from their employer for the first time.

"Our bold changes to the state pension system respond to the demographic changes in society. They will ensure the state pension system is sustainable and affordable for the future.

"We have also taken steps to reform public sector pensions to ensure they are affordable into the future. These include ensuring new entrants to the civil service enjoying a pension based on a career average and a retirement age of 65."