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The Actuary The magazine of the Institute & Faculty of Actuaries

Paying for better pensions

Clifford Sharp is absolutely right to point out that we haven’t yet had a public debate on whether people would be willing to pay extra for a better state pension (Letters, September 2005). Partly this is because of the difficulties of calculating the costs of reform, and also in understanding the likely distributional impact on people in different age cohorts and income groups.

But help is at hand. The Pensions Policy Institute (PPI) has developed a set of economic models to do such calculations. We will be publishing technical details shortly. You can see the results in reports published recently by the EEF and, at the end of September, by the NAPF.

The short answer is that ‘the basic state pension at a level sufficient to eliminate most means-testing’ could be brought in immediately with no extra financing. It could be afforded over the long term by a combination of an increase in National Insurance contributions of something like the recent increase for NHS reforms, and a small rise in state pension age.