Everything you know about pensions is wrong. There is no pensions crisis. The spread of means- testing is not a problem. Today's pensioners are not badly or unfairly treated compared to their predecessors. Today's public servants are perfectly entitled to retire at 60. Tomorrow's pensions are totally affordable. Tony Blair and Gordon Brown are in complete agreement.
All right, I made the last one up. I have no idea to what extent there are policy differences between the Prime Minister and the Chancellor on this issue. Blair is by instinct sceptical of Brown's complicated tax credits, but they have a common interest in getting this right. If, as I am told, there were cross words exchanged last week, they were more likely to concern presentation than policy.
But the starting point of the national debate ought to be: Crisis? What crisis? Britain spends a remarkably low proportion of its national income on state support for pensioners - about 6 per cent including housing and disability benefits. By the middle of this century, when there will be three pensioners for every two now, the cost will have risen to only about 7 per cent, if policies are unchanged. Germany and France, for example, spend more than 10 per cent, with costs expected to escalate to 15 per cent by 2050, according to the Institute for Fiscal Studies (IFS).
So why the panic? We are not saving enough, say the pundits of doom. We have lost faith in the sharks in the City or the state to provide, and our employers are closing anything copper-bottomed to new entrants. So we have given up and the taxpayer will have to pick up the bill when we hit our dotage and Gordon puts us on his patent means-tested poor-law scheme that only he understands. And, besides, because it is means-tested, we have even less incentive to save, because if we do the Government will just deduct it from our benefits.
Well, there is a problem with confidence, generated partly by the mis-selling scandal of the 1980s. But the means-testing issue has been misrepresented, not least by the Conservatives who were responsible for creating much of the pensioner poverty that Brown's targeted regime was designed to ameliorate. And the idea that means-testing acts as a disincentive to saving is unproven. Much has been made of the fact that, at the present rate, two-thirds of pensioners may find themselves on means-tested benefits. But that is precisely because the pension credit has been designed not to discourage saving - it is withdrawn gradually up the income scale, so that pensioners will still gain some benefit from their thrift.
The next myth is that we face a crisis because of Brown's £5bn-a-year raid on pension funds. It is unfair to single out one Tory among the dozens yesterday making uninformed comments about the Chancellor's change to the tax treatment of pension funds in 1997, so let us single out Ed Vaizey, the new MP for Wantage. It had "massively depressed the stock market", he said. Not so. "It is unlikely that this tax change had any significant impact on the UK stock market," says the IFS.
True, it has taken a net £4bn a year out of pension funds and accelerated the closing down of generous company schemes based on the final salaries of employees. But that ended an unfair tax subsidy that benefited the relatively well-off and the relatively male (who tend to stay in the same job a long time).
Yes, but what about the mollycoddling of civil servants, who, in what the CBI and the Tory party present as an unprecedented surrender by the Government, are to be allowed to keep their feather-bedded public-sector pensions from the age of 60? Again, the reality is slightly different. How fair would it be to public-sector workers to change their implied contracts of employment? New entrants will retire at 65, but existing public servants keep the terms on which they thought they were working all along.
John Hutton, the Secretary of State for Work and Pensions, showed admirable restraint in the service of cross-party consensus yesterday. He resisted the temptation to score party points on television, only quoting what the Tories had said during the election about honouring promises made to public servants in the safe obscurity of the Commons, from which, as everyone knows, it takes a long time for word to reach the outside world. If the Tories want to argue that public-sector workers are too well paid, taking pension rights into account, they should, but most people might welcome the fact that teachers and nurses are at last being paid what they deserve.
But why, ask the doom-mongers, should the rest of us work until we are 67 or 68? Because it is not "the rest of us" is why: public-sector workers are entitled to the basic state pension too, and many of "us" in the private sector have pensions that pay out at 60. In any case, the later retirement age is a trade-off for a higher state pension.
So: no crisis. What the Turner report actually says is that we should take some big decisions now, because doing nothing - which is just as much a decision - will put us in an unsatisfactory condition by mid-century. Mainly because most of us are not saving as much as we might wish, in retrospect, that we had.
The fundamental question to be decided, then, is the role of the state in prompting us to save more. That is why the question of whether or not to re-link the basic state pension to earnings rather than prices is secondary. On this, as on nuclear power, it seems to me that no one knows what they are talking about. I am disinclined to believe the Chancellor if he says it is unaffordable. We could, as a nation, easily afford it. But do we want to? Is it desirable to shift our pension provision even slightly towards a taxpayer-funded pay-as-you-go system rather than trying to help people provide for themselves, with tax-funded help targeted on those who cannot? Brown's opposition to restoring the earnings link seems to be right, although it is John Hutton, the Blairite who is allegedly at odds with him, who seems to be better at setting out the rationale of promoting personal responsibility.
The real question, then, is the balance between the deficiencies of the private savings market - pensions mis-selling, Equitable Life and companies defaulting on their obligations - and the role of the state, not in paying for but in organising our retirement. Alistair Darling tried to get that balance right with the stakeholder pension, a simplified personal plan launched four years ago. It didn't work. Now it is Lord Turner's turn. At first glance, his idea of a giant quango investing our savings in a National Pensions Savings Scheme seems unpromising. But maybe it will take this statist hybrid to restore our confidence. In making the big decisions about the future, let us at least get this clear: global warming is a crisis; pensions under-provision is a mild market failure.Reuse content