What is the solution to the pensions crisis?

Not enough carrot

While speculation is rife over the contents of Lord Turner’s Pension
Commission Report, one thing is certain – he will set the government some stiff
challenges to respond to before it publishes its Green Paper next spring.

Labour came to power in 1997 with the stated aim of altering the ratio of
public to private pension provision from 60:40 to 40:60. With no pensions
crisis, these aims seemed worthy in the long term – but now they have gained a
sudden urgency.

Increasing life expectancy coupled with growing regulation and additional
financial burdens, which now include the Pension Protection Fund levy, have
driven many UK businesses to rethink their pension arrangements.

Short-term legislative reactions to the crisis have meant that the goalposts
have moved forever and the paternalistic wishes that companies started out with
now look like a very expensive option. For some, they hang like a millstone
around their necks, threatening the future viability of these organisations.

The government must now grasp the nettle. The pensions industry needs some
long-term solutions and there must be a further price to pay.

If UK plc has nothing left to give, government must look elsewhere, however
unpopular that may be. A phased increase in the state retirement age is almost a
certainty. The fact we are living longer means the burden on the unfunded state
scheme has to be addressed for the sake of future generations of taxpayers.

The sweetener will be a recommendation to increase the basic state pension,
which has gradually eroded over the last 20 years (in 1985 it equated to 22% of
average earnings, today it stands at 15% with predictions that this will reduce
to 11% by 2025), to take people away from the unpopular and complex means
testing regime.

Now is the time for a long-term solution that will undoubtedly risk public
opinion. At the end of this month, Lord Turner will provide the ammunition and
some potential solutions. The government must step up to the challenge.

Ian Bell is national head of pensions at Baker Tilly

Too much stick

The TUC has set ‘tests for Turner’ to judge how closely the pensions
commission meets our objectives and principles for pensions reform. It appears
that the commission could score poorly on our first test by recommending an
increase in the state pension age, a move the TUC believes would hit the poorest
hardest.But in the healthy arguments between lobby groups aroundthe detail of
the commission’s final report, none of us should lose sight of the bigger test.
Politicians need to show the political will and leadership to take the necessary
measures,and everyone involved in this debate must ensure any progress is not
bogged down.The TUC believes that it will be a mistake for the commission to
propose that the poor, and those doing heavy, stressful jobs, must make an
unfair contribution to a new pensions settlement by increasing the state pension
age. Increases in life expectancy have not been evenly shared across society and
low earners look forward to a shorter and less healthy retirement than the well
off.If the state pension is to be reformed, changes should be fair and avoid
redistributing quality of life away from the poor, who need the support of the
state in retirement, to the better off, who tend to have additional retirement
anyway.The state pension remains below the poverty line, growing below the rate
of earnings, and tax breaks continue to favour the well off.But the TUC will
also score the commission poorly if the second-class treatment of women by the
pensions system is not tackled.The commission will be judged a progressive,
positive force for working people if it recognises that the only effective way
to extend saving is to extend compulsion within the pensions system so that all
employers face obligations to contribute to employee savings.No lobby group can
expect to get its whole submission accepted by the commission – but we must
agree to do our utmost to keep pensions reform at top of the political
agenda.Brendan Barber is general secretary of the TUC