How to defuse the pensions timebomb

Frank Field argues that a radical reform of Britain’s pensions policy could enrich both pensioners and the exchequer

Ten years of austerity must deliver the country a radicalism that ten years of abundance has failed to achieve.

The Prime Minister’s economic war council must decree that the necessary budgetary strategy also forges a radical agenda. Every secretary of state should be instructed to bring forward one major reform which, while cutting the size of a departmental budget, also begins to transform the political landscape. Combining these individual initiatives would lay the basis for a five-year reform programme, comparable to the models of 1906 and 1945.

The most obvious and necessary welfare reform is the one that seems the most expensive: the transformation of pension provision. No government has yet set itself the objective of abolishing pensioner poverty. That should, however, be the cornerstone of the next government. But how can this be achieved, and in a way that cuts the Work and Pensions budget?

We need, first, to understand why pension schemes that were the envy of Europe are now fast disappearing. State pensions were never paid at a generous enough level to break the link between poverty and old age. Politicians hit on the idea of encouraging employers to provide supplementary pensions at ever more generous levels. This strategy worked until Nigel Lawson and Gordon Brown came along and taxed pension surpluses and abolished Advanced Corporation Tax.

Politicians covered up their wicked meddling by making it ever easier for pensioners to claim means-tested help. The bills for pension credit, housing benefit and council tax benefit for those of pensionable age soared from £4.3 billion in 1991 to a truly staggering £15 billion in 2009, and they continue to rise.