At last, signs of radical rethinking of pensions and retirement Turner supports ‘Citizen’s Pension’ to end mass means testing and flexible retirement – Hurrah!
by Dr. Ros Altmann
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3 July 2009
At last, it seems, Lord Turner has recognised that the Pensions Commission report was not radical enough. It has been so frustrating these past few years, as I have consistently been calling for more radical change, to listen to the Government pretending that the post-Turner reforms were already radical – when they were not at all.
Turner’s analysis was brilliant, but the recommendations were a half-way house compromise. It was such a wasted opportunity. The Pensions Commission report wrongly concluded that there was no pensions crisis. In reality, there has been a crisis in our pension system for many years and it has worsened enormously since the Pensions Commission report.
We urgently need to radically rethink both pensions and retirement but politicians have not risen to this challenge. Indeed, what Turner proposed was really just tweaking the current system, which was designed for the 1950’s and it needs to be radically redesigned to fit with 21st century realities.
We have wasted 4 years now in re-arranging the deckchairs on the Titanic of a system that is not sustainable, rather than rebuilding the ship to make it seaworthy. The sooner we start properly, the better.
In fact, in his interview yesterday, Lord Turner did not just talk about raising pension age – he went much further and suggested he has come round to the idea of a ‘resident’s pension’ that I have been calling for. We have to pay a state pension at the pension credit level to avoid means testing, as well as encouraging far more flexibility around retirement and the age and process of withdrawal from work. These are absolutely crucial elements of a sustainable solution to our pensions problems and I have been trying to get these messages across this since the Pensions Commission’s disappointing recommendations came out – these were proposals I put to the Pensions Commission in my evidence at the time and had worked on at Number 10 too.
Perhaps, in his role as Chairman of the FSA, Adair has now recognised the enormous dangers of launching personal accounts into a system where there is mass means testing of pensioners. For the lower earners that personal accounts are supposedly aimed at, the pension credit makes pensions an unsuitable investment, since the pension they get from the personal accounts could end up being penalised by the means test, thus making their savings worth little or nothing in the end. They will merely have saved in a pension to replace means tested benefits they would otherwise have received anyway.
I do hope that this is the start of a new assessment of our pensions crisis – waking up to the scale of the challenges ahead. The first and essential element of a sustainable solution is to overhaul the state pension, simplify the system and make it a stable base on which private savings can safely be built. Then people can decide whether and how much longer they want to work, rather than being forced to choose between penury or working till they drop.
Dr. Ros Altmann