One of the key choices in pension policy - whether policy should aim to ensure that people achieve pensions they will consider adequate - is rarely debated explicitly. But a public debate on this issue is required as an input to the Pensions Commission's deliberations, Adair Turner, chairman of the Commission, said in a public lecture at the London School of Economics and Political Science (LSE) on Tuesday 8 March.
Mr Turner described the wide array of different approaches which other developed countries have taken to this issue, with most aiming to achieve target levels of pension which rise in line with someone's lifetime earnings. New Zealand is the only one which follows a different philosophy: government concentrating solely on delivering an adequate level.
Britain, on unchanged policy, will over time have a steadily reducing level of earnings-related provision, becoming in some ways more like New Zealand, though with much greater complexity. This development is however occurring largely as a by product of other aspects of pension policy (specifically the linking of the Lower Earnings Limit and the Upper Earnings Limit to prices) rather than as a clearly stated and agreed policy objective.
Adair Turner said: 'Any recommendations the Pension Commission makes for or against compulsory savings must reflect clarity on whether adequate earnings related pensions are a policy objective, but there is no agreement on this today. We sometimes hear that there is an emerging consensus on the way forward on pension policy, and that we just need to get on with it. But on this issue there is currently no consensus, as the submissions to the Pensions Commission have made clear.
'Several major commentators are arguing for an increased compulsory level of earnings related provision, while some propose moving at an accelerated pace towards a New Zealand flat rate model.'
Mr Turner's lecture at LSE set out some of the arguments for and against having a compulsory earnings-related element of the pensions system. The need for a careful consideration of this open issue was also highlighted in the Department for Work and Pensions Principles for Reform statement, issued on 24 February.
The lecture, Pensions: political choices and macro-economic consequences, was held on Tuesday 8 March at LSE and was organised by LSE's Financial Markets Group. See http://fmg.lse.ac.uk/
The Department for Work and Pensions Principles for Reform document is available at www.dwp.gov.uk
10 March 2005