UK – The government should reverse its strategy on pensions by raising the basic state pension and restoring the earnings link, says a report just published by the Institute for Public Policy Research (IPPR). But its conclusions have been attacked by pensions minister Alisatair Darling.

The report, A New Contract for Retirement, suggest that the pension system in the UK has become too complicated for people to understand on an individual basis and as such many people miss out on benefits. It believes that the incremental changes to the state pension, through measures such as pension credits, will not be sufficient to ensure adequate retirement provision.

The IPPR in response to its findings gave evidence to the Work and Pensions Select Committee at the House of Commons yesterday, when it argued that the pension credit is an unsatisfactory half measure and that the state pension system is in need of radical reform.

To support its arguments it presented the government with the following key recommendations:

•increase the basic state pension to the level of the minimum income guarantee (MIG) and index it in line with earnings. The IPPR believes this will allow pensioners to avoid unpopular means-testing for benefits and lift many out of poverty.

•phase out the state second pension and its associated national insurance rebates. This would simplify the pensions systems and save it money. Under the IPPR’s proposal, the basic pension would be higher than the government’s planned level for the combined basic and second pensions.

•increase the official retirement age to 67 by 2030, since people are living longer and the policy would be affordable if the basic pensions recommendation were adopted.

According to IPPR, its proposals will cost no more than the government’s own reform package, both in the short-term and long-term up to 2050.

Says Richard Brooks at the IPPR and co-author of the report: “An enhanced basic state pension is the best way to tackle pensioner poverty and to provide an environment in which people can plan with confidence and be rewarded for saving,"

Gordon Lishman, director general of Age Concern says that the report is one that policy makers cannot ignore, whist Mervyn Kohler, head of public affairs at Help the Aged says that IPPR’s recommendations offer a clear, logical and workable way forward that is evidently affordable. John Hawksworth, head of macroeconomics at PricewaterhouseCoopers adds that raising the basic state pension to the level of the MIG would improve the pensions environment for both current and future pensioners.
However, Alistair Darling, secretary of state for work and pensions attacked the report saying the IPPR’s proposals are simplistic and misguided and would undermine rather than help company schemes.

He says that the contracted out basis on which private pensions are built would be threatened if the state second pension were dismantled. According to Darling, the state second pension is designed to help low earners, carers and the disabled and to get rid of it would only benefit the better-off.

Darling believes that the IPPR’s proposal to raise the retirement age is neither workable nor affordable. This is how it anticipates paying for its recommendations but Darling says that raising the retirement age won’t be possible for another 20 years.