Leading article: Preparing the ground for unpalatable measures

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The Independent Online

The long anticipated report of Lord Turner of Ecchinswell's Pensions Commission contained no great surprises. But we welcome its publication since it provides our political leaders with the basic analysis they need to respond to the looming pensions crisis. Lord Turner's recommendations would make the state pension system fairer and, in many cases, more generous. The commission proposes that the basic state pension should be increased and should henceforth rise in line with earnings rather than prices. It also recommends that pension rights should be linked to UK residency rather than lifetime National Insurance contributions - something that would considerably benefit many female pensioners. The proposed National Pension Savings Scheme would also make it harder for employers to avoid contributing to their employees' pensions. The quid pro quo of all this, of course, is that the age at which the state pension becomes payable should rise.

Raising the pension age was never going to be a popular proposal. But it is clearly necessary to secure the affordability of the new scheme. Moreover, action to even up the balance between the declining workforce and the retired population cannot be postponed forever. And, if handled correctly, this could actually be a boon to our society. A growing number of people resent being forced to retire at 60 or 65. Tapping the economic potential of our older population will be one of the great political challenges in coming decades. But the Government will clearly have to prepare the ground now to make this palatable to the electorate.

First, it must be made easier for older people to find work. This means tackling age discrimination in the workplace. The Turner Commission's proposal of eliminating employer National Insurance contributions for the over 65s would help matters. Second, if people are to accept this proposal, the retirement age for public-sector workers must also be brought into line with the private sector. Fairness dictates that the recent deal which allows state employees to continue to collect their workplace pension at age 60 cannot be allowed to stand.

Yet the great danger is that the energies of politicians will expended in other ways. Gordon Brown is reported to have described the Commission's recommendation to link link the state pension with average earnings once more as "unaffordable". But the Chancellor should reconsider. While a rigid link would almost certainly be too much, pensioners do have a right to some share of increases in national wealth. Some mechanism for loosely linking pensions with earnings, rather than inflation, would be a fair compromise.

Mr Brown should also be mindful of his own responsibility for the present unfortunate state of the pensions industry in Britain. It was him, after all, who eliminated tax relief on dividends from private pension funds when Labour came to power - something that damaged our savings culture. And his system of means testing - intended to channel money to the poorest pensioners - has also acted as a powerful disincentive to saving. No one would deny that raising the state pension is likely to mean more money being diverted to some rich pensioners who do not need it. But this must be balanced against the drawbacks of means testing. Overall, Lord Turner's approach seems more suited than that of the Chancellor to resolving the pensions crisis.

The Government has spent much of the past two years deflecting questions about pensions policy by citing the ongoing work of Lord Turner's commission. Now that the commission has finally reported, the Government - including the Chancellor - has a duty to take its recommendations seriously.

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