Leader: A new way of raising pensions

Leader: A new way of raising pensions

This week's prediction that the national pension commission, due to report on November 30, will propose raising the age of retirement from 65 to 67 for everyone should come as no surprise. In its interim report last year, the commission set out the stark facts. Up to 40% of the workforce - about 12 million people - are not saving enough for old age. Add to that the remorseless retreat by both employers and successive governments from funding what was once a tripartite pension system, and the future looks even more dire. Unless a combination of three options - working longer, higher pension contributions and more tax - is applied, the next generation of pensioners is likely to suffer a worse plight than those currently retired. The commission estimated pensioners' income was set to fall by an average of 30% over the next 30 years.

Advertisement starts

---

---

Advertisement ends

For some white-collar workers an increase in retirement age - the proposal is that it should begin to be raised in 2020, when women's retirement age is finally aligned to men's at 65 - will not be received with horror. Already 8% of men and 9% of women are working beyond current retirement ages. Indeed, the latest employment figures show that the fastest growing group of people in work continues to be those over pension age. This represents about 1 million people. This trend is being driven by ever-increasing life expectancy. When Britain's first pension - paid out at 70 - was introduced in 1908, life expectancy was only around 45. Today, a 65-year-old man can expect to live for a further 19 years. The forecast for 2051 is for 22 further years for men and 25 years for women. The trend already has had a dramatic impact on old-age dependency ratios. In 1961 there were five people of working age for every pensioner; today it is 3.3 to 1 and in 2050 is projected to be 2.3 to 1.

The commission's purpose in proposing two more years of work is to raise the value of the basic pension. In today's terms it would mean lifting the £82 which single pensioners receive to £109 a week, the means-tested minimum income guarantee. One problem with this guarantee is that although pension credit has helped lift 2.6 million households out of pensioner poverty, more than 1 million have failed to claim. The commission's solution - as leaked - solves one problem only to create another. While it would be fair to require white-collar workers to extend their working lives by two years, it would be unfair to blue-collar workers who are often in poorer health and have a life expectancy that can be as much as eight years shorter. This dilemma could be solved by sticking to a national insurance-financed pension scheme based on a fixed number of years of contributions. This would allow blue-collar workers who start work at 16 to retire five years earlier than their university-educated contemporaries. But this too - like a Chinese puzzle - creates contradictions. It would not resolve the scandal of women's pensions.

They lose out because of lower years of contributions arising from caring for children or elderly parents. For every £1 received by a man in a pensioner couple, a woman receives just 34p. This can be resolved with credits for caring, but it will add to the complexity. One of the purposes of the commission was to simplify one of the most complex system of pensions in the world.

The full plan will be known in 11 days' time. There will not be an immediate government response. If pension age is postponed then it is even more important that the recent decision to let public servants retire at 60 is reopened. Ministers have made it known they will take a long, hard look at the report and produce their own plan by next spring. One group who must not be forgotten in this long-term planning are the numbers living in pensioner poverty. Top priority must be to find the 30% not claiming pension credit.

Guardian Unlimited © Guardian Newspapers Limited 2005