Three clever strands of pension policy…

Nice summary in the Economist of the new pensions initiative, which it lauds as a devilishly clever piece of government (subs needed). It picks out three primary strands:

First, the state-pension age will start rising from 65—the age for men now and for women by 2020—to 66 between April 2024 and April 2026, earlier than the date of 2030 suggested by the commission. It will rise by a further two years to 68 in 2046 rather than in 2050. This marks a reversal in policy. In December 2002, when the commission was established, the government explicitly ruled out a further increase in the state-pension age.

Second, the basic state pension, which has generally risen with prices since 1980, will be linked to earnings, which rise faster, in 2012—just a bit later than the commission’s preferred date of 2010. This reform has been the most politically contentious part of the package: Mr Brown initially opposed it on grounds of cost. Although the commitment is subject to affordability, Mr Blair’s camp believes that the chancellor will be unable to renege on it, not least because the policy enjoys strong support among Labour MPs.

Third, in an ingenious policy innovation, retirement saving will be boosted by enrolling employees into a national scheme of personal retirement accounts. The scheme falls short of compulsion for workers since they can opt out. But if they stay in, as many are expected to, their employers must contribute as well.

In summary, it praises the Turner Commission for clearly flagging up difficulties and allowing the government to take apparently tough decisions (raising the pension age first set in 1925), and allow other useful benefits to flow into the wider system (re-establishing the link with earnings, and encouraging independent saving).

Finally it notes: “galling though it may be for hyperactive politicians, they can often achieve more by doing less”.