Two more years' hard labour to fill pensions gap

The Government is to consider raising the retirement age as two influential reports call this week for it to be moved beyond 65 to help solve Britain's growing pensions crisis.

The Institute for Public Policy Research, a think-tank close to Labour, will call tomorrow for the retirement age to be increased to 67 as a way of paying for a substantially higher basic state pension.

And the Pensions Commission, headed by Adair Turner, the former director-general of the Confederation of British Industry, will call on Tuesday for retirement ages to rise in line with life expectancy, in a report commissioned by the Department for Work and Pensions.

Both reports will also call for a radical overhaul of the state pension. They will say that the basic state pension should be increased and the Government should scrap the State Second Pension, a reform brought in under this administration.

The IPPR says the Government should raise the basic state pension to around £100 per week for a single person in today's money and increase it in line with earnings. Both pension credits and the State Second Pension would then be phased out.

To pay for this, the state pension age should be raised to 67 by 2030. This is in line with the United States, where the retirement age will go up to 67 in 2027. But it is less radical than proposals by the CBI and the National Association of Pension Funds, which want retirement ages increased to 70.

Peter Robinson, a senior economist at the IPPR, says its proposals have been carefully costed and are workable. "The Government has to simplify the system and radically reduce the instance of means testing."

Mr Turner's report is similar in tone, calling for a higher basic pension and an end to means-tested benefits. He wants the UK to look at the Swedish system, under which retirement ages are linked to estimates of life expectancy.

He will come out in favour of incentives both for companies to run attractive pension schemes and for employees to save for their retirement. Currently, only about half of workers save into a personal pension. This percentage drops dramatically for lower-paid workers.

Although any reform of pensions would be postponed until after the next election, Tony Blair has signalled he is ready to accept radical reform in comments made in his Labour Party conference speech.

The newly appointed Secretary of State for Pensions, Alan Johnson, is believed to support radical reform. While he said last month that he was against "crude" calls for an increase in the retirement age, he is believed to be more amenable to the subtle suggestions of the likes of the IPPR and Adair Turner.