Government plans to increase state pension expenditure have been slammed by a Right-wing think-tank as unaffordable and irresponsible
In a report published today, the Institute of Economic Affairs urged the government to accelerate the introduction of a later retirement age and to urgently reform labour market regulations to enable people to work longer.
The Income from work - the fourth pillar of income provision in old age report makes ten policy recommendations to address what it called the 'state pension time bomb'.
Among these is the suggestion that the government consider the introduction of a compulsory private pension provision to replace the state pension. This means that any payments from the government to older people would be means-tested, reflecting the Australian model, which uses a system of compulsory private pension provision.
'Pressure on the public finances [in Australia] has been successfully alleviated through [this model]... These reforms saw employers putting aside at least 9% of employees' pre-tax earnings into a personal fund. Under such arrangements, individuals who choose to retire later benefit financially,' the think-tank said.
Philip Booth, editorial and programme director at the IEA, added: 'The government needs to wake up to the reality of the long-term state of the public finances.'
He also said, on average, people retire earlier today than they did in the 1960s despite huge improvements in life expectancy.
'People should have both the opportunity and incentive to continue some form of paid work into older age. Policymakers must urgently implement a coherent package of reforms, including a more rapid increase in the retirement age and a substantial reduction in employment protection legislation which is especially damaging to older people,' Booth continued.
The think-tank called for the state pension age for men and women to be increased by two months every quarter from November 2018, which would see the pension age hit 68 in January 2023. From January 2023, the state pension age should be tied to life expectancy, the IEA added.
Gabriel Sahlgren, author of the report, said the current state pension system was incentivising early retirement, while employment protection legislation deters employers from taking on older workers.
People should be choosing to retire later, he said, as this brought both improved health and higher retirement income for individuals as well as savings for the taxpayer.
In response, a DWP spokeswoman said: 'This government abolished the discrimination of a default retirement age and is reforming state pension age to ensure it reflects changes to life expectancy. We are introducing a simpler, flat rate state pension and will have a regular review of state pension age in the future, while automatic enrolment means millions more people will be saving for a pension with a contribution from their employer.'
At the weekend, Prime Minister David Cameron said that a Conservative government would continue to implement the ‘triple-lock’, which raises the state pension by at least 2.5% each year, until 2020.
