Labour set to abandon pledge on pensions

Click to follow
The Independent Online

Public Policy Editor

Labour is poised to abandon its past pension commitments and opt for a new minimum pension guarantee and a funded second pension to replace its own flagship creation - the State Earnings Related Pension Scheme, or Serps.

A paper for the domestic policy committee of Labour's national executive, leaked to the Independent, warns that raising the basic state pension to the level needed to take pensioners out of means-testing would be "extremely costly".

Even to put its value back to where it would have been, had the Conservatives not cut its link with earnings, would be "expensive". To restore the value of Serps "would mean a heavy increase in the cost to future generations" of around pounds 30bn.

Instead, the paper canvasses the proposals of the Borrie Commission on Social Justice, which argues for a minimum pension guarantee and a new funded second pension.

Under the latter, contributions would be compulsory to a private personal pension, an occupational pension, or a new state-run funded scheme, where the cash would be invested and paid out at retirement.

That is in contrast to the present pay-as-you-go basis where today's contributions pay for today's pensions. Serps would be "wound up", the paper says. That might be a "better alternative" than increasing the basic pension and refurbishing Serps, policies at the forefront of Labour's 1992 election manifesto.

The package is bound to cause a row in Labour's ranks. Peter Townsend, vice-president of the Fabian Society, warned yesterday it would be "a disaster". Under the minimum pension guarantee, those whose income fell below it would receive a top-up, using information held by the Inland Revenue and the Department of Social Security. But Professor Townsend claimed that would be "a nightmare" to administer and would involve "a means-test by another name".

Jack Thain, general secretary of the National Pensioners Convention, said its two million members "would feel betrayed" by such a package.

Donald Dewar, Labour's social security spokesman, said the paper was not a policy document. But Labour was "determined to build a modern welfare state" and that meant "facing up to tough problems".

Blair hits back, page 8

Bryan Gould, page 17