Of course, our chancellor didn’t actually say that the answer to the pension crisis lies in making things more complex, but that is the implication. He is after all notorious for using tinkering as a means of making tax ‘fair.’ But the current tax regime is horrendously complex, and has given rise to an army of bureaucrats calculating tax credits. After awarding benefits they are re-calculated, hitting millions of families with bills and condemning them to hardship, because the state paid them too much in the first place.
It’s perhaps the single biggest criticism aimed at the government: red tape it is argued is stifling enterprise. No wonder flat taxation is proving so popular in some quarters.
Now the debate over means testing versus one flat rate for all has hit the pensions industry.
Next week Lord Turner is due to announce the results of his three year study into the looming pensions crisis. It’s understood that the essence of his plan will entail a carrot and stick. The carrot: higher pension payments. In real terms state pensions have been steadily falling. In 1985 they equated to 22% of average earnings, today they’re worth just 15%. It is thought the Turner report will recommend rewinding this steady erosion, so that we are once more at the higher level of state pensions to average earning. How can this be funded? This is where the stick sets in: the sate pension won’t be paid out until we are 67.
But, the report is not even out yet and press reports today seem to suggest that Gordon Brown is already rubbishing it. He is talking about abolishing the link between state pensions and wages altogether, and means testing taking over from 2008.
Of course, Gordon is not the only one who dislikes the idea of extending the retirement age. The TUC believes that it is wrong that manual workers, for example, have to wait so long to enjoy their well deserved retirement.
Meanwhile the divide between Unions and management appeared to deepen yesterday, as the TUC published a report showing that company directors retire earlier than the people they employ.
The study looked at FTSE 100 companies and found that 80% of pension schemes allowed directors to retire at 60, without a reduction in their pension.
TUC general secretary Brendan Barber said “Britain’s boardrooms are secure in a pensions ivory tower. Top bosses can expect to live long retirements on luxury pensions that are far more generous than their employees can expect. They should stop lecturing the rest of us on how we should get smaller pensions from a higher retirement age.”
Speaking from the other end of the divide, CBI director general Sir Digby Jones has been having a go at the government again. Sir Digby, who always seems to have his name prefixed with words like angry and lambasted, has been telling the press in a round of interviews that the government has caved into union pressure, and that it should have extended the retirement age to 65 a long time ago.
It does seem that tears are unavoidable. We are living longer, we spend more time retired, our population will shrink, meaning lower growth and less people working to pay for those who are retired.
Carefully targeting the state pension at those who need it most must seem like a seductive alternative for Mr Brown. But the complexity he is introducing really is strangling Britain. The alternative: creating a more dynamic economy, moving away from the risk aversive nature that seems to be permeating society and especially the public sector these days. This would of course create more wealth, and leave more money in the coffers to throw at the pension crisis.
To steel a phrase from Tony Blair, there is a third way too. That method entails opening up the UK to wider immigration. But at a time when immigration is a dirty word, it seems unlikely any political party will recommend that as a solution to the problem of a falling size in the working population.
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