Frank Field: Where is the Government's courage on pensions?

The Pension Commission has mowed down the long grass and exposed a ticking time bomb

A little over a year ago, faced with growing and widespread discontent over its failure to lay down a sustainable long-term reform of our pensions system, the Government resorted to the antics which have served it so well in the past. This Government has established more committees of inquiry into pensions than have been established in the whole of the post-war period.

A little over a year ago, faced with growing and widespread discontent over its failure to lay down a sustainable long-term reform of our pensions system, the Government resorted to the antics which have served it so well in the past. This Government has established more committees of inquiry into pensions than have been established in the whole of the post-war period.

The strategy was to establish another such inquiry, in the hope that it would kick pension reform into the long grass once again.

There is no hiding place for the Government now that the three-person Pension Commission, headed by Adair Turner, has mowed down the long grass and exposed the pensions issue as a ticking time bomb.

On present trends the relative income of pensions will nearly halve over the next 50 years. The Government has recommended that the Commission should issue its final report after the next election.

With the publication yesterday of Adair Turner's interim report, the Government must now predict how the Pension Commission's findings will go down with the electorate before the next general election. Will voters be content to allow yet another year to elapse before this Government gets down to serious pension reform, or will their patience snap?

My sense is that the electorate is growing impatient with the Government painting broad brush pictures of where it would like the country to be in some distant future, while failing to set out a route map of how best to achieve this. The Government has to make a call on this over the next few weeks. If it sticks to its original timetable of a report after the next general election it cannot change track if voters cut up rough. Likewise Labour cannot make any outline proposals in its election manifesto without looking ridiculous.

The next election will quite possibly be the first to be determined by the grey vote. Most of these voters, and many younger ones, already have a vague impression of the scale of the pension crisis. The Pension Commission's report brings those impressions into focus.

A close reading of the report suggests the direction in which the Commission's mind is moving. It believes that an increase in the retirement age has a part to play and has ignored the Government's direction to exclude the state pension scheme from its deliberations. Indeed the Commission does not believe that a long-term basis for sustainable pension provision can be provided without a major overhaul of the state system. It has also listed a private market option. But try as it does, the Commission fails to generate any enthusiasm for this alternative, and there is likely to be even less in the country at large. Not least because the Commission publishes the devastating finding that any private savings will be reduced by 20 to 30 per cent by commission charges.

That leaves the Commission with two alternatives on which it will now receive evidence. We can keep the structure of the state pension unreformed, paying it at a more adequate level. Or the pay-as-you-go state scheme can be combined with a funded scheme, again offering a minimum pension pay-out to take people above means-tested assistance.

Here I declare an interest. Before I resigned as minister of Welfare Reform I proposed the latter and over the past few years the Pension Reform Group has worked this proposal up in detail. The Commission is right to emphasise how any pension scheme depends on future workers transferring part of their wealth to the retired. Governments have to make a clear political decision. If they go down a much more generous pay-as-you-go pension scheme they will be requesting current workers to pay a great deal more in national insurance with the hope that future workers, some of whom have not yet been born, will similarly honour that contract when today's workers come to retire. Given the Pension Commission notes, and the lack of public trust in politicians maintaining a constant course on pensions, it is difficult to see how a much enhanced state pay-as-you-go scheme can deliver what voters want.

Hence the alternative of combining the state scheme with a funded scheme, guaranteeing a pay-out for members which takes them above means tests. Everybody then knows that all their savings will be kept in addition to a universal protected pension. The private sector then has the key role to play in attracting voluntary savings that relate a saver's retirement income to their living standards while in work. It is not the role of the private sector to make good an inadequate universal basic pension.

Mr Turner and his colleagues have done the country proud. Not only is their report beautifully written, but it is outstanding in concentrating on the main issues which the electorate will have to decide. The key question now is whether the Government has the courage to help the electorate make that decision. Or will it turn on its heels and run for cover, muttering that these are too important decisions to be made before the electorate casts its vote?