Guardian Commentisfree – This Pension Plan is too Conservative
by Dr. Ros Altmann
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The Tories have set out proposals to accelerate the increase in the state pension age, aiming to save billions of pounds of public money, and demonstrate their commitment to fiscal austerity. Certainly, the idea of extending working lives will be an inevitable part of the solution to our demographic crisis, but just raising the state pension age will not make sufficient difference either to the public finances or the long-term problems of pension funding.
The reality is that our national insurance pension system is not fit for purpose and just delaying pension age in exchange for linking the Basic State Pension to earnings, will still leave us with the lowest, most complex state pension in the developed world.
Our whole pension system needs to be radically redesigned, not tweaked a bit here or there. The Tories will review the rise in state pension age, as recommended by the Pensions Commission, including examination of the issue of women’s pension age, which poses particular policy challenges. Even if the pension age for men is raised to 66 in 2016, women’s pension age at that time will only be 63, so the prospect of pension age equalization, which was due to happen in 2020, will be delayed.
This means that pension credit will still be available from age 63 and, therefore, the cost savings from a higher pension age for men may not materialize until later. If men age 65 in 2016 are unable to find work, they may end up on pension credit, which is actually more generous than the state pension. A single person receives £130 a week in pension credit but only £95.30 with a full basic state pension, so there may be little cost savings, if any.
Certainly, people need to be encouraged and enabled to work longer. But just raising the state pension age does not achieve that. The policy must be accompanied by better employment opportunities for older workers. We need flexibility and more part-time work for people in their 60’s and even in their 70’s, who require similar legal protection to those already available to working mothers. At the moment, age discrimination legislation does not protect anyone over age 65 and the means-testing of pension credit penalises poorer people who try to work to improve their incomes. As long as policy discourages part-time work and until employers are required to facilitate later life working, an increase in pension age is unlikely to work well.
However, there are cost savings to be made in other areas of pensions. For example, ending contracting out would save around £6billion a year immediately – we would not need to wait until 2016 for the savings to come through. Changing the age allowance and tax reliefs would release funds to pay a much better state pensions from, say, age 75. Then at last we could ensure older pensioners are better looked after which would be a more positive message than just raising state pension age to 66.
Then the complex qualification criteria for an inadequate state pension can then be abandoned in favour of a simpler, sustainable system for all.