The speed with which this government is adopting Adam Smith Institute ideas amazes even me. This time it is the state pension. Back in 2004, we published a report (.pdf) by pensions expert Alan Pickering, Chair of the European Federation for Retirement Provision. Its radical proposal was to roughly double the state basic pension and roll the state second pension into it. Not a cheap proposal – but Pickering calculated that it would be easily affordable by raising the retirement age to 68. The advantage of that would be that everyone would retire on a decent income that guaranteed they didn't have to rely on other state benefits. And it would end the absurd situation with Pension Credit, where people in work would be better off spending their money rather than saving it, because means-testing would ensure that they would be no differently off when they retired.
The government isn't doubling the pension, and it is only raising the retirement age to 66, but today comes another announcement that things are heading in the direction we proposed in 2004. The state basic pension is being raised to £140 per week – roughly a 40% increase, so well on the way to what we proposed. It means that the curse of means-tested retirement benefits can be ended, and that people once again have a positive incentive to put something extra by for their retirement if they possibly can. And, as we proposed, women will be entitled to exactly the same pension as men – ending the situation where millions of women received only partial pensions because they had taken time off work to raise families, and so did not have a full record of contributions.
These proposals from the government are a good start that will get the nation saving again. I still believe that the pension age will have to be raised beyond 66 in order to pay for them, and that this would be the right thing to do. In 2004, our author Alan Pickering reckoned that the whole change could be done within four years, by 2008. The coalition have a bit of catching up to do.