David Prosser: How to solve Gordon's pension poser

Despite the petty row between Messrs Brown and Blair, the consensus sought by Lord Turner when he unveiled his Pension Commission report last November is coming together.

After the commission's final report on Tuesday, it seems certain that the state retirement age will gradually rise from 2020 on, and that we will get the National Pension Savings Scheme, with automatic enrolment for everyone in work.

However, one major sticking point remains. Lord Turner wants fewer means-tested benefits in the pensions system. To do that, universal benefits, such as the basic state pension, must be more generous.

The Chancellor, though, is nervous about the extra cash this would require. He wants to limit pension spending and target the means-tested pension credit at those on low incomes.

The argument looks intractable. But there is a solution; why not reallocate part of the staggering £19bn a year spent on tax breaks for private pension savers?

The big gainers from these reliefs are higher-rate taxpayers, who least need financial help with saving. Supporters of tax breaks for pension savers argue that people must be encouraged to put money by. But the evidence is that tax breaks just persuade people to put money they would have saved anyway into a particular product.

Since individual savings account tax breaks, for example, were reduced in 2004, investment fund saving has trebled. Savers have just chosen not to use ISAs.

By limiting pension tax breaks to the basic rate, we could free up billions of pounds for better universal benefits. Brown could then reduce means-testing without spending more - he might even be able to cut the pensions budget.

Now there's a thought for a would-be prime minister. Total pension spending down, with extra cash for everyone. Sounds like a vote-winner to me.

n n n Well done to the Office of Fair Trading, which has slammed the huge late payment fees charged by credit-card lenders. But, while it's in assertive mode, I have two more requests.

First, it would be great if the OFT could proceed very speedily with its plans to stop lenders charging penalty fees of more than £12, rather than having its usual endless consultation and discussion periods.

Second, the regulator must now be just as strict with the banking sector, where overdraft penalties are even higher.

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