THE Government needs to “wake up” to the state of public finances and make millions more people work longer before they can retire – and replace the state pension with compulsory private schemes, a report has recommended.
The right wing Institute of Economic Affairs also suggested cutting employment regulations aimed at protecting older employees, which it argued could be a barrier for elderly people who wished to keep working.
The free market think tank suggested the state pension age for men and women should rise to 68 by January 2023, around a decade earlier than plans set out by Chancellor George Osborne in last month’s Autumn Statement. After 2023 the state pension age would be linked directly to increases in life expectancy, but the report also suggests a move to Australian-style compulsory schemes to replace the state payouts.
“Individuals should be encouraged to save for their own retirement and thus bear the costs of earlier retirement themselves,” the report said.
“To achieve this aim, in the long term, a privatised pension system, such as that in Australia, would ensure stronger incentives to work.”
Under the Australian system employers put aside at least nine per cent of workers’ pre-tax earnings into a personal pension fund, with the contribution set to rise to 12 per cent in 2020.
“Meanwhile, old-age benefits are means-tested so that most people with a full working life do not qualify for them. This system provides strong incentives to work longer.”
The report warned that employment protection legislation “is likely to be especially damaging to older people and increase early retirement”.
It said older people should be exempted from employment protection legislation not mandated by the European Union and suggested allowing no-fault compensated dismissal for those recruited within five years of the state pension age, making it easier for firms to fire them.
It also warned that “if they are rigorously enforced” age discrimination laws could “raise the risks of employing older people” and suggested a pilot scheme exempting firms from them.
Professor Philip Booth, the IEA’s editorial and programme director, said: “The Government needs to wake up to the reality of the long-term state of the public finances.
“People retire earlier on average today than they did in the 1960s despite huge improvements in life expectancy. People should have both the opportunity and incentive to continue some form of paid work into older age.
“Policymakers must urgently implement a coherent package of reforms, including a more rapid increase in the retirement age and a substantial reduction in employment protection legislation which is especially damaging to older people.”
Meanwhile there was a warning yesterday that pension annuities could be the next big mis-selling scandal unless there is an urgent and radical overhaul.
Gloucester Tory MP Richard Graham claimed the state of the pension annuities sector was “worrying”, not least because consumers struggle to make sense of the products on offer and the charges they will incur.
He said: “Since this is potentially the second biggest financial purchase of our lives, I believe the state of things is worrying.”
Mr Graham told the Commons that, as the definition of good-value annuities was “elusive”, MPs owed it to their constituents to call for greater transparency so they know what they are being charged.
He revealed that, during a discussion with a pension annuities adviser, he was told ‘You will never be able to work out what the charges are.’
Mr Graham added: “It is therefore not surprising that the Financial Conduct Authority Consumer Panel has recommended urgent regulatory and government-led reform in order to protect and benefit millions of our constituents.”
Fellow Conservative Tory MP David Mowat went a step further, recommending state provision of annuities.