Pensions. 65, not out

Gordon Brown will do pensioners a disservice if he prevents reform

TURNER is in trouble. The government-appointed Pensions Commission chaired by Lord Turner is due to propose on November 30th the most sweeping reform of ageing Britain's pension system since it was set up in 1946. It seemed that everyone, from the left to the right of the political spectrum, favoured his broad approach: increasing the basic state pension and raising the retirement age to help pay for it. The consensus, however, left out the single most important player: Gordon Brown, chancellor of the exchequer and prime minister-in-waiting.

The commission is expected to make three main recommendations to deal with a pension system that will not provide a decent old age for Britain's retiring millions. First, it will seek to raise the state-pension age (now 65 for men and 60 for women) to 67 for everyone after 2020, and beyond that in line with fast-rising life expectancy. It will also propose a new national retirement-savings plan, in which new employees will automatically be enrolled. This is intended to boost savings without actually forcing people to stash their money away. Third, it will try to prevent the system from discouraging saving. At present, the government's pension-credit scheme, which Mr Brown introduced in 2003, boosts the incomes of poorer pensioners but penalises the savers among them for their thrift.

All well and good, one might think--but the Treasury apparently doesn't agree. Mr Brown is worried that the whole thing will cost too much. Despite the rapid increase in pensioner numbers, the Treasury plans to keep pension spending under control by targeting resources on poorer retirees through the pension-credit scheme, and letting the basic state pension, which all retired people receive, gradually erode in value relative to wages. The key to this strategy is maintaining the link between the basic state pension and prices, and between pension credits for poorer folk and earnings. Earnings rise faster than prices.

Mr Brown is clearly right to worry about the cost of these proposals. The trouble is that the Treasury's approach is widely seen as lacking credibility. British pension arrangements have relied in the past on a partnership between private-sector employers and the state. As companies faced with ballooning deficits stop offering pensions, individuals have to save more themselves. But the badly designed pension credits discourage them from doing that.

There is also an element of amour propre here. The pension-credit scheme is Mr Brown's pet project. He has seemingly been stung by comments in the commission's interim report criticising the disincentive to saving that it creates. He also reckons that Lord Turner has exceeded his brief, which was to look at private pensions. And he is sceptical that raising the retirement age will save much money.

Brown the dissenter

Mr Brown's hostility could sink the commission's recommendations. Despite the broad welcome that Lord Turner can expect in most quarters, the Treasury has an effective veto over implementing its proposals. The likelihood that Mr Brown will be the next prime minister adds to the Treasury's clout. It will be a pity if his opposition scuppers the proposals. One reason why pensions are in such a mess in Britain, as elsewhere, is that they have too often been determined by the dictates of short-term politics. That's what happened last month, when the government, threatened with strikes, funked the decision to raise the retirement age for public-sector workers in line with the private sector. Lord Turner's report offers a rare chance to break with this lamentable tradition.

As John Hutton, the pensions minister, pointed out on November 24th, the goal is to come up with a solution that is simple, sustainable and affordable. The key to sustainability is that everyone, from all political walks of life, signs up to it--including Mr Brown. One of his favourite themes is the need to forge a "progressive consensus"; yet, on pensions, his is the loudest dissenting voice.

Ironically, there are signs that the Conservative Party under David Cameron, their likely new leader, may be ready to join the consensus on this issue. Mr Cameron has indicated that he will eschew political opportunism and support government policies which he believes to be sensible on their merits. Next week's publication of the Turner Commission's suggestions will provide both leaders-in-waiting with a chance to show that they mean what they say.