By Eamonn Butler (21 July 2008)
A piece in The Guardian predicts what many of us were already thinking: that 30-somethings are going to have a poor retirement. We're all living longer, so more of the government's budget will be eaten up by state pensions.
But then people are staying in school longer (indeed, the government is going to raise the leaving age to 17 shortly); and they are taking more gap years, and spending longer at university doing PhDs and MBAs and so on – all of which means that the proportion of working people in the population is falling. Working families already feel they are paying enough tax, without having to shell out more to pay other people's pensions.
Britain used to have the biggest private pension savings in Europe. Indeed, larger than the rest of Europe combined. The speed with which Gordon Brown managed to kill off this employment-based pension system was quite astonishing. Company pension schemes have been closing all over the place, and workers who would formerly have joined a company pension plan now just don't have the option.
Of course, the government has tried to compensate with its own folly with numerous tinkering schemes, like Stakeholder Pensions, the Personal Account (due in 2012, but likely to fail, according to the Telegraph's Paul Farrow) and the Savings Gateway for lower earners. Trouble is, if people on low incomes save for their retirement, they will just lose benefits. They might as well spend it now and have a good time.
The solution, as the Adam Smith Institute spelt out years ago in a report by pension expert Alan Pickering, is simple. We need to raise the pension age, and index it to life expectancy. The money saved should be used to raise the basic state pension substantially so that no pensioner has to rely on means-tested benefits. Which means that when people save for their retirement, they get the benefit of it instead of the state clawing it back from them.
The knowledge that everything you save for retirement is yours would undoubtedly encourage more people to do just that. Simple, isn't it? Simple, but a solution that requires vision and boldness from the government. Pity it's not going to happen then. See you in the old folks' bread line.
Published in Telegraph.co.uk here