The British public has been given a loud wake-up call and a list of 'unavoidable choices' from the Pensions Commission, writes Frank Millar
Britons have been given "a wake-up call" from their "fools' paradise" with the warning they may have to save more, work longer and pay higher taxes to avert the UK's growing pensions crisis.
These "unavoidable choices" were spelt out yesterday in the interim report of the Pensions Commission, charged with investigating the state of the United Kingdom's retirement provision.
The shock report concludes that unless drastic action is taken, spending on state pensions would have to rise by £57 billion (€83 billion) a year just to maintain pensioners on current income levels, and warned that more than 12 million working people over the age of 25 are not saving enough for their retirement.
According to the report, Britain's pensioners stand to suffer a massive 30 per cent cut in their retirement incomes if taxes, savings or the official retirement age are not increased. With the idea of compulsion - effectively forcing people to save for their future - now firmly on the commission's agenda, yesterday's report also raised the possibility that the official retirement age might have to rise to 70.
The Prime Minister, Mr Tony Blair, welcomed the commission's report, saying it showed the need for long-term solutions rather than a "knee-jerk" reaction. However, while Age Concern led calls on the government to take the lead and radically overhaul the entire system, the former Labour social security minister Mr Frank Field went so far as to suggest the pensions crisis could determine the outcome of the next general election.
"No one can now doubt how serious the crisis is," said Mr Field. "The government has to decide quickly an issue which could determine the outcome of the election. Does it stick to the timetable it has imposed on the commission to report in a year's time, while hoping the electorate will trust it to act decisively in the next parliament? Or will the voters punish a government that has failed over the past seven years to come up with coherent long-term reforms?"
Conservative shadow work and pensions secretary Mr David Willetts said the report was "a powerful wake-up call" and a challenge to "tackle the most pervasive form of discrimination in Britain today - age discrimination". He added: "The government are already saying they can't come up with policy proposals now. But at least after this report they should publicly recognise the time has come for a fresh approach."
For the Liberal Democrats, meanwhile, Mr Steve Webb said successive Conservative and Labour governments had let down Middle Britain, and that any solution to the crisis must start with a decent basic state pension, payable free of means-testing, on which hard-working people could build their savings.
However, the commission chairman, Mr Adair Turner, declined to blame previous governments of either colour, saying many in the 1980s and 1990s were "fooled by an irrational exuberance in equity markets" and that problems dated back to the 1970s. The former leader of the Confederation of British Industry also said the UK's state pension system was one of the least generous in the developed world. "We used to say that was OK because of extensive private provision," he said. "That rosy picture always hid multiple inadequacies for specific groups of people even while the system worked well for many others. But the state system is now planning to become less generous in order to constrain public spending in face of a rising number of pensioners, and the private system is in significant underlying decline.
"The long-term shift away from defined benefit to defined contribution schemes has become a flood as the fools' paradise of overvalued equity markets has come to an end."
The commission also reported that official figures showing the level of pension savings in the UK had been "seriously overestimated".
Mr Turner said: "A major shift of risk is occurring - from the state, employers and financial services industry - to individuals who are often ill-equipped to deal with it."
The four "unavoidable choices" put forward in the report were: pensioners becoming poorer relative to the rest of society; a rise in taxes and national insurance contributions dedicated to pensions; a rise in savings; and an increase in average retirement ages.
The report concludes that because the option of poorer pensioners is undesirable, some combination of the other three is required.