Magazine article Public Finance

Turner's Pension Medicine Adds Up to £20Bn

Magazine article Public Finance

Turner's Pension Medicine Adds Up to £20Bn

Article excerpt

Lord Turner's suggested remedies for Britain's retirement crisis could cost taxpayers an additional £20bn - putting ministers under renewed pressure to withdraw the recent deal to protect public sector pensions.

The independent Institute for Fiscal Studies assessed the Pension Commission's suggested overhaul of retirement planning - including proposals to raise the basic state pension age to 68 by 2050.

It calculated that future governments would need to increase the level of gross domestic product spent on pensions from 6.2% at the moment to around 7.8% - equivalent to £290 per person per year.

Carl Emmerson, deputy director at the IFS, told Public Finance that this was the equivalent of tax increases in excess of the total tax rises imposed by the Labour government since it came to power in 1997. However, Turner's suggested increases would be spread out over a longer period - around 45 years.

Emmerson said: 'Our estimate is that it would cost an additional £20bn if we assume that the commissions "model" state pension age of 68 is introduced in future. It's a matter of political judgement whether this kind of additional spending is considered affordable.'

Despite assurances from Work and Pensions Secretary John Hutton that Turners proposals were 'the right basis for the debate to come', leaked Treasury memos have indicated that Chancellor Gordon Brown is reluctant to oversee a dramatic rise in pensions expenditure when the government responds in the spring.

Unveiling his long-awaited proposals on November 30, however, Turner threw down the gauntlet to potential political opponents.

'The long-term range we suggest for debate is 7.5% to 8% of GDP spend. Different people will make different judgements on the trade-off [between funding such pensions and other public expenditure],' he said.

'But unless people are willing to discuss it, they are not serious participants in this debate. They are indulging in fairytale economics - in which a fairy godmother makes all difficult choices disappear.'

In light of the rising potential costs to taxpayers, actuaries, business lobby groups and opposition parties have called on the government to rethink the recent agreement, brokered by Trade and Industry Secretary Alan Johnson, that current public sector workers can continue to draw pensions at 60. …

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