Still procrastinating over pensions

The scheduled publication of the second and final report from the UK Pensions Commission this week seems to have become the latest pretext for the airing of tensions within Downing Street.

Following the leaking of correspondence between chancellor Gordon Brown and the commission’s chairman Adair (now Lord) Turner, there was a great deal of media debate, not so much about pensions, but about Brown being an ‘anti-reformer’ and a block on change. The underlying presumption was that Brown – widely seen as heir-apparent to the prime ministerial position when Tony Blair steps down – was setting forth a counter-position to Blair’s supposed reputation as a consistent ‘pro-reformer’.

One implication is that such inner-government squabbling will delay further any policy actions flowing from the commission’s proposals. Yet in some ways, the degeneration of the discussion about a three-year review into the pension system into puerile positioning and posturing within the upper echelons of government is fitting. Indeed, it takes the commission back to its origins – as an exercise in political evasion and procrastination.

In recent years it has become common for our increasingly technocratic government, when confronted by what might be a sensitive political issue, to fall back on consultation exercises or to outsource the debate to ‘independent’ bodies. This can be handy, in that it lets our leaders avoid – or at least put off – the need to take clear and bold decisions about how to address problematic issues.

It was in this spirit that the Pensions Commission was appointed in December 2002 with the remit of keeping under review the adequacy of private pension saving in Britain and advising on appropriate policy changes. This focus was predicated on the growing, though misleading, belief that personal pension savings are hugely inadequate and are a big contributor to the ‘pensions crisis’. A year earlier, research commissioned by the Association of British Insurers had identified a £27billion annual savings gap – a figure that was soon popularised and even today remains widely quoted as proof of the scale of the problem facing people in retirement.

This view of the ‘pensions crisis’ is deeply problematic. As I have argued on spiked before: ‘The biggest problem getting in the way of progressive pensions policies – and this also applies to the USA and much of continental Europe – is the paralysing conflation of two separate issues. First, there is the failure of the current pension system, the product of a quarter-century of successive government policies designed to limit state responsibility for social provision for the elderly. Second there is the widespread presumption that, over the longer term, ageing makes decent pensions unaffordable, as the ageing time bomb ticks away ever more loudly.’ (See Pensions policy: same old story, by Phil Mullan.)

In this context, it is also wrong to focus on individuals’ deficient personal pensions savings as a cause of the ‘pensions crisis’. The most important factor determining future prosperity is not demography or individuals’ savings habits, but the level of productivity growth we can achieve. Real productive investment is the precondition for robust productivity – and it is a fallacy that higher personal pension savings will automatically generate this stronger productive investment and the higher output from which future pensions can be paid.

The Pensions Commission served its immediate pragmatic function well in allowing the government to keep pensions off the agenda in the run-up to the General Election earlier this year. The official Labour position was that a pre-election debate on pensions was unnecessary and inappropriate, since we should all wait and see what the commission would propose in its final report. Some Labour commentators argued at the time that even the next General Election might be too early for making any definitive policy proposals given the need for more consultation and discussion, which should instead wait until a possible fourth Labour term.

So it’s perhaps not surprising that a pensions review that has served as a pretext for government procrastination should now get embroiled in narrow political posturing. In reality, the position of Brown and Blair on pensions is much closer than some seem to think. Assuming the leaks about the second report are correct (official publication is this Wednesday), the commission is proposing to increase (possibly gradually) the Basic State Pension to Pensions Credit level and re-introduce annual indexation with national earnings – instead of the current indexing to prices introduced by Margaret Thatcher’s Conservative government at the start of the 1980s.

Brown’s apparent opposition to this suggestion is given as proof of his anti-reform stance. But his position is hardly novel. In fact, reversing Thatcher’s move was Labour policy during most of the party’s opposition years until Blair, with Brown’s backing, forced it to be dropped. The arguments against a dwindling state pension topped up by means testing are so well known in policy circles that there is something of the disingenuous in Blair’s welcoming of Turner’s contribution to the pensions debate, as if this elementary change were an interesting new perspective that he’d never considered before. The reality is that both Blair and Brown have been consistent over their past eight years in government in rejecting this quite basic and modest restoration of the basic pension to the level and structure it had before 1981.

Moreover, Blair and Brown are also united in stressing that any wider reform to the pensions systems must be ‘affordable’ – and it is the conventionally accepted ‘unaffordability’ of an ageing population that remains the strongest argument against introducing a decent state pension settlement for retired people. Yet rising productivity and the increased wealth that flows from it means that we can afford to grow old as a society – in the same way that industrialised societies have been able to afford it in the past, simultaneously growing older and more prosperous over the past century of ageing.

The key test for the second Pensions Commission report will therefore be to what extent it endorses or challenges this presumption of the unaffordability of ageing. Judging by the first report last autumn, and the leaks of the second report so far, it appears that Turner will not be challenging this conventional but mistaken perspective. If so, and almost regardless of the specific suggestions made, the commission’s report would be unlikely to move the pensions debate forward in a substantially progressive direction.

Phil Mullan is the author of The Imaginary Time Bomb: Why an Ageing Population Is Not a Social Problem, IB Tauris, 2000 (buy this book from Amazon (UK) or Amazon (USA)).