FOOL'S EYE VIEW
Do You Fancy Retiring At 70?

By Jane Mack (TMFJane)
October 8, 2002

I was sitting at my computer last night trying to visualise what it will be like to be 70 years old (if I make it that far). I'm not going mad, honest!

It's just that yesterday the National Association of Pension Funds (NAPF) launched a 72-page paper detailing the changes they think the Government ought to make to the state pension and it included the proposal that we all work until we're 70 before we're entitled to our pension book.

It's not a new suggestion, of course. The influential Pensions Policy Institute recently stated that the ideal state retirement age should be between 72 and 75 if the country's pensions crisis is going to be resolved.

What NAPF is proposing is comparatively simple. Get rid of all the bits and pieces attached to the basic state pension such as the second state pension, the minimum income guarantee and the pension credit that's due to be introduced next year and have a simple 'Citizen's Pension' that provides a flat £100 a week for all pensioners. It wouldn't be means-tested and it would rise in line with earnings.

If people want more than that to live on in their old age they can be encouraged to save by being given higher rate tax relief on their pension contributions regardless of how much they pay in income tax. So a 22% taxpayer could get 40% tax relief on his pension contributions. This is all on condition that the retirement age goes up to 70.

As TMFJimmyC outlined in his article yesterday, the current system is extremely complicated so the NAPF's proposals seem reasonable enough - especially as they say it wouldn't put any more pressure on the public purse than there is now. And, if the state pension was re-vamped along the 'Keep it Simple, Stupid' principles, then at least we'd all know where we are.

As their report points out there have been seven major changes to the state pension system over the last 25 years alone, including the introduction of SERPS, the MIG and the second state pension. Oh, and there was the abolition of index-linking.  These changes have all been introduced during my working life-time and, like many people, I started out expecting one thing only to find I'm going to get something else. What it will be I haven't a clue since I've still got a few years of work ahead of me – another 30 years actually, if the NAPF get their way – and the rules will, no doubt, change yet again before it's my turn to collect my state pension.

Curiously, the NAPF report doesn't mention the massive change that was introduced by the 1995 Pensions Act. You know the one I mean? The one that affected a significant part of the population? If you haven't guessed it's the one that 'equalised' the rules for retirement between men and women. Any woman under the age of 47 now has to work for an extra five years before they can claim their state pension. I'm one of them.

That's fair enough. We wanted equality and, hey, we certainly got it in this instance. But when the NAPF starts talking about moving the goalposts yet again – this time for both sexes – you'll forgive me if I start to get a bit annoyed.

The trouble is the Government doesn't really have many other options. There are rumours circulating that they could make it compulsory to save a certain amount in a pension fund but I rather think there'd be a bit of an outcry at what effectively would simply be another tax. And, besides, don't we do that already via our National Insurance contributions? Another rumour is that they'll abolish our current right to take 25% of our pension fund as a tax-free cash sum so we have to use the whole of it to buy an annuity. But the NAPF says that would remove one of the major incentives to save in a pension.

Hmmm.... it looks like raising the retirement age is really the only logical step, don't you think? The Government doesn't, of course, have to take any notice at all of the NAPF or anyone else. But I can't imagine what their alternatives are. As it happens they're expected to produce a major Green Paper on the subject of pensions before the end of the year. I'm looking forward to seeing what sort of spanner they're planning to throw into the works this time. Not!

You can find out more about pensions in our Pensions Centre and don't forget you can get answers to your pension questions on our Pensions discussion board.