Minister drops hint on higher pensions

Alan Johnson, secretary of state for the Department of Work and Pensions, dropped a strong hint this week that the government is rapidly moving towards a more generous state pension, free of the widely disliked means testing.

Alan Johnson, secretary of state for the Department of Work and Pensions, dropped a strong hint this week that the government is rapidly moving towards a more generous state pension, free of the widely disliked means testing.

His surprise announcement follows the report from the Pensions Commission, chaired by Adair Turner, warning Britain was living in a fool's paradise and pensions would fall in value by a third unless changes were made to both state and private pension schemes. Tony Blair came under strong pressure at Prime Minister's Question Time in the House of Commons to indicate what the government intends to do about pensions. Downing Street has ruled out a "knee-jerk reaction" and is, in any case, loath to pre-empt the Pensions Commission's recommendations, due to be published in a year's time.

However, the head of steam created by the publication of the Turner report has increased the demand for answers.

Mr Johnson had said at a fringe meeting of the Labour party conference last month that he recognised the need for reform. And when he was asked in the House of Commons by Steve Webb, the Liberal Democrats' pensions spokesman, about plans for a "citizens' pension," Mr Johnson replied: "I have an absolutely open mind, veering towards being very positive about it. If you are asking me about the universal pension idea, I think it is really interesting and deserves much closer examination."

The citizens' pension would be for all UK residents, whereas the present state pension is tied to National Insurance Contributions. Anyone who fails to maintain an average of 49 weekly contributions throughout their working life receives a reduced basic pension.

But the citizens' pension would drop this requirement, which severely penalises women and others who drop out of the jobs market for long spells. While Turner stops short of specific recommendations, it emphasises that the looming pensions shortfall can be made up only by a combination of higher tax, more saving and working later - possibly beyond the age of 70.

IFA Promotion, the trade body, published a survey this week showing that UK adults would rather spend extra income on holidays, home improvements or clothes than put it towards a pension.