Simplification is the key - Centre for Policy Studies

INTRODUCTION
There has been a flood of reviews of different aspects of the governance, operation and
structure of the pension savings system, including reports from such eminent figures as
Cadbury, Higgs, Myners, Penrose, Pickering, Sandler and Turner. This is indicative of
successive governments wrestling with a simple, crucial question: who pays?
To date, the answer has largely been the working population. But this inter-generational
wealth transfer is unsustainable (and unfair). Our aging population is often cited as the
main concern, but the deterioration of the pensioner support ratio 14 has largely been
arrested by sending the State Pension Age (SPA) into retreat (to 68 by 2046). However,
this is unlikely to fix the problem, and may well prove to be simply a re-labelling exercise.
The real issue may be that most people in their 60s could be living in an income desert,
dependent upon benefits because they are unable or unwilling to find work. 15 Whether or
not they are categorised as pensioners is largely academic. Ineligible for the State
Pension, they will need some other income source.
Once the SPA is reached, the low real value of the basic State Pension 16 means that
those without savings will be increasingly dependent on means-tested benefits to make
up their income. Indeed, the less savings they have, the greater the incentive not to save
because of the loss of means-tested benefits. In addition, the deterioration in the quality
of (private sector) occupational schemes will diminish what has historically been a
crucial source of retirement income for many people. There is also the ongoing problem
for many women, in particular, who, because of their intermittent work patterns, have not
accumulated a meaningful pension in their own right and find themselves inadequately
provided for when they become widows or divorcees.
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The pensioners support ratio is defined as the number of people of working age, per pensioner.
Today, across Europe, only 50% of people are still employed at the age of 60. The European Commission,
The 2009 Ageing Report, 2009.
Notwithstanding the Coalition commitment to return to earnings-indexation from April 2011. It would be
prudent to question the viability of this proposal.
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