Labour has failed on pensions, commission will report

Click to follow
The Independent Online

A report on pensions commissioned by the Government will be highly critical of Labour's record on the issue, saying that people are saving far less for retirement than official figures show and suggesting that the retirement age be increased.

The report, by Adair Turner, to be published tomorrow, is expected to deal a severe blow to the Treasury and Department of Work and Pensions, implicitly laying much of the blame for the pensions crisis on the Government's failure to take a more proactive and decisive approach to finding a remedy.

It will also question the means-tested pensions credit system put in place by Gordon Brown. This is likely to be seized upon by allies of Tony Blair, who wants to scrap means testing.

In the first of two Pensions Commission reports - the second of which will be published next year - Mr Turner will show that the Government's own statistics have grossly overestimated the amount paid into pensions every year, even after recent recalculations. It will provide the first conclusive evidence that people are saving less for their retirement than they were when the Labour government came to power.

Painting a bleak picture of the pensions landscape, Mr Turner is expected to warn that both the Government and employers are seriously underestimating the effects of increased longevity. As a result, he will moot the suggestion that the retirement age should be increased.

Ros Altmann, a pensions adviser to the Prime Minister, said: "The report will paint a very devastating picture of the trend we're facing, and the fact that the Government has consistently underestimated the future extent of the cost of pensions. While the Government Actuary Department has consistently underestimated the effects of increased longevity, the ONS [Office for National Statistics] has consistently overestimated the level of contributions."

Earlier this month, the ONS finally admitted that it had been double-counting some £3bn of contributions each year. However, Mr Turner will show that the Government's insistence that contributions have still grown by about 16 per cent over the past five years - even after its recalculation - is also wrong.

In his conclusions to an entire chapter devoted to pension statistics, Mr Turner will show that the vast majority of recent contribution increases have in fact been accounted for by employers, forced to increase payments to their final salary schemes because of the large deficits they have built up.

Mr Turner, a former director-general of the Confederation of British Industry, will show that individual contributions to pension schemes have in fact fallen sharply over the past few years, at a time when people should have been saving more.

Tom McPhail, the head of pensions research for Hargreaves Lansdown, the financial advisers, said: "We're living even longer than we thought, and it's not unreasonable to think that whatever assumptions we're making about longevity now may still be under-ambitious going forward.

"The gap's getting bigger at both ends - not only are we not putting enough in to account for the fact we're living long, but costs are also rising as a result of increased longevity."

Another major theme Mr Turner is expected to address is the importance of incentivisation. Mr Turner will suggest that better incentives are needed if people are to begin saving more, and that current disincentives - such as those provided by the Government's means-tested pensions credit system - need to be eliminated.

Tomorrow's preliminary report, however, will stop short of making any firm recommendations. The commission's final report, which will include a list of potential remedies, is to be published in a year's time.

However, Tony Blair may be forced to pre-empt the final conclusions when he draws up pension plans for the Labour Party's manifesto before next year's expected election.

Comments