Changes will not last

The government has lost the plot. For the first time ever a government had the opportunity to introduce an investment-led rather than serve up the traditional thin gruel of a tax-financed pension reform for which we have to work an extra three years.

Every tax-financed reform since the early 1960s has simply not lasted the course. The most ambitious, the state earnings-related pension scheme, was only on the statute book a few years before Margaret Thatcher was able to hack and hack again at the level of benefits.

The reason for this is quite simple. Tax-financed reforms are based on issuing IOUs, which future taxpayers may not wish to redeem. The record shows that when push comes to shove they prefer not to meet the IOUs.

Because pension credit has been so successful in breaking the link between mass poverty and old age, the government created the first ever opportunity to have an investment-led reform.

Instead of today’s increased contributions going into the chancellor’s pocket, it would be possible now to invest these contributions to ensure a retirement pension that takes everybody above means-testing.

The Pension Reform Group proposes building up such investment so that together with the basic state pension everybody would be offered in today’s money £130 a week. Carers would have their contributions paid by all other contributors.

Risks would be spread and a committee, similar to the Monetary Policy Committee of the Bank of England, would oversee the independence and governance of the scheme.

Serps lasted only a few years before it was reformed out of recognition. Four years ago this Labour government introduced a tax-financed state second pension (S2P). Now it is proposing butchering this scheme out of all recognition and yet, somewhat innocently, believes taxpayers will believe its new tax-financed proposals will last.

They won’t, and the government has now opened itself up to serious challenge from the Opposition parties to build up an investment-led reform for voters to pass judgement on at the next election.