Disrupting retirement plans is too great a price to ask

MOST people work so they can enjoy life, especially in retirement years; they do not live merely for work. But the UK government's plans to stretch the number of working years before it becomes possible to fully enjoy the pensionable fruits of work are an unwelcome jolt.

It now seems clear that men under the age of 59 and women under the age of 55 cannot assume that they will be able to retire once they reach 65. The government is now talking about implementing plans announced by the Conservatives while in opposition to raise the age at which the state pension can be claimed to 66, perhaps as early as 2016. For younger people, there is even more troubling talk of the retirement age being raised every decade until it reaches 70.

The issue of pensions is not a new one caused by the economic crisis and the consequent ballooning public sector spending deficit. Whether the taxpaying working age population can produce enough tax revenues to pay a pensions bill which now annually costs about 65 billion, and will only grow, has been a spending timebomb which has ticked away for some time.

Hide Ad
Hide Ad

Private companies, faced with pension plans which made paying their retired employees an inflation-proofed percentage of their final salaries unsustainable, have been recognising this for some time. Many switched to schemes from which employees can only draw pensions based on the amount of money they have paid into the scheme.

The previous government recognised there was a problem and, after commissioning an authoritative study under Lord Turner, proposed to raise the retirement age to 66, but only in 2026. It intended to increase it further at a leisurely pace to 67 a decade later and to 68 by 2046.

The fiscal problems are now argued to be such that the government has to act with much more urgency. Indeed, governments all over Europe are acting similarly. Strikes are flaring in France against government proposals to raise the retirement age from a generous 60 to 62.

But to argue that this is a necessary response to deal with the public spending deficit is misleading. Raising the retirement age to 70, PricewaterhouseCoopers estimated, is likely to save about 9bn a year.

The savings from the government's plan will be, therefore, much smaller and come well after it expects to achieve its goal of eliminating the public spending deficit. But the disruption this would cause to so many people who will have laid their retirement plans already is too great a price to be asked of the taxpayer already shouldering extra tax burdens.

The retirement age should be raised and a start could be made by abolishing the rights of employers to retire staff compulsorily at 65. Those who want to work on, should be allowed to do so. But compelling everyone to work a year longer from 2016 will strain the nation's tolerance too far.