Copyright 2004 Telegraph Group Limited

THE DAILY TELEGRAPH(LONDON)

September 08, 2004, Wednesday

SECTION: Features; Leading Article Pg. 22

  HEADLINE: Blair must overrule Brown and get serious about pension reform Frank Field says Andrew Smith’s replacement must be given the power to make changes before it is too late

BYLINE: By FRANK FIELD

 

For a minister who so regularly undersold himself, there was nothing like the going of Andrew Smith. All summer, agents in Number 10 and Number 11 had been briefing against him. Given more of the same, or the alternative of spending more time with his family and constituents, there is little doubt that he made the right decision. The question is whether the Prime Minister will now assert himself over his Chancellor and insist that Labour get serious on pension reform.

Treasury briefing against Andrew Smith started in the early summer. Annoyance was expressed that the Department of Work and Pensions was spinning out of all proportion the very modest proposals that the Treasury had agreed to help the 60,000 pensioners who had already lost all or part of their pensions.

Far from the Treasury launching a lifeboat operation for such pensioners, the Chancellor had agreed to a modest means-tested top-up proposal for those who had lost most of their company pension. The Treasury’s counter-spin was its disappointment with the department’s inability to come up with good ideas for reform.

Soon afterwards, Number 10 was up to its old tricks of expressing disappointment in Andrew Smith’s performance. But such spinning ignores the central reason why this Government has failed to tackle Britain’s growing pensions crisis. Gordon Brown has, for very understandable reasons, given more money to the poorest pensioners now. But the Chancellor is a means-test addict. His new pensions credit reforms, while helping the poorest pensioners, also send out a terrible message to those thinking about providing for their own retirement.

Almost half the working population cannot make themselves much better off by savings than they would be if they simply blew every penny they had and relied on the Chancellor’s means-tested top-up. Nobody should be surprised that pension savings have nose-dived.

Here is the crunch for Tony Blair. Unless he is prepared to overrule his Chancellor, and insist on serious pension reform, it matters little whom he appoints as Mr Smith’s replacement. On past form, any serious long-term pension reform will be instantly stalled by the Treasury.

Time is late to have a reform on the statute book by the next election, but it is not impossible. And Mr Blair must have been told that, at the next election, a majority of voters will be pensioners. If one adds in the numbers of voters coming up to retirement – who similarly are much more likely to vote than younger voters – then pensioners or would-be pensioners will be the dominant group turning up at the ballot box.

Mr Blair has every right to praise the Chancellor for ensuring that the poorest pensioners now have more money. But it cannot be an open-ended agreement that undermines the incentive to save. Hence the importance of long-term reform that will give a shelf-life to Mr Brown’s pension credit.

Without such a reform, the pension credit itself cannot survive. The Government estimates that, when it is fully rolled out, its cost will be an additional 11p on the standard rate of tax. At some stage, a government will rat on the pension credit – just as every other government has on practically all means-tested top-ups in the past when they have become too expensive.

Mr Blair knows there is a consensus covering all the main interests in the country on what that long-term reform should be. Everyone, except the Government, accepts that it is necessary to have a more generous flat-rate state pension. The debate is over how to pay for this increase.

During the days leading up to my resignation as minister for welfare reform, I submitted an outline of such a reform to Mr Blair. These proposals have since been worked up by the Pension Reform Group and envisage a rolling together of the state national insurance pension with funded provision.

The aim is to provide everybody with a minimum pension in retirement which lifts them free of means-tested assistance. Quite a lot of the cost of this reform will be covered by diverting what is called the national insurance rebate, currently going to private schemes, into the new scheme. Costings by the Government Actuary show that, with this funding alone, an objective of a pension of 25 per cent of average earnings could be paid to contributors at the age of 72.

To bring this age down requires extra funding, but my guess is that people would willingly pay more towards their pension if they thought that that objective would be delivered. Hence this Universal Protected Pension Scheme is to be run at arm’s length from the Government. Clearly a reform of this size is an issue on which the Government would have an interest. But it would stand independent of government. Such a reform could at least be on the statute book by the election. Alternatively, it could feature in the manifesto.

What I sense Mr Blair feels, however, is that muddling through with the present approach is not an alternative. A year ago, in an attempt to sidestep long-term reform, the Government hit on the wheeze of establishing a pensions commission, headed by Adair Turner. Like so many of these wheezes, it worked in the short term. But within a couple of weeks, Mr Turner is to present his report to the Government.

The commission spent last year gathering together as much information as there exists on who is saving what for their retirement. But the briefing has already begun against Mr Turner.

The line is that he may have gone beyond his brief in outlining alternative reforms. For the sake of today’s working population, voters will be hoping that he has done precisely that.

His report, together with a Secretary of State empowered by the Prime Minister to bring forward reforms, would begin to transform the pension scene. What the electorate now wants is to see the whites in Mr Blair’s eyes signalling, for the first time, his determination to begin pushing through a major pensions reform.

Frank Field was minister for welfare reform, 1997-98

LOAD-DATE: September 8, 2004