Tory MP puts case for later retirement

A FIRM challenge to the growing Conservative view that Britain is facing a demographic crisis from the growing numbers of elderly, and that the only solution is to means-test the state pension, came yesterday from David Willetts, MP for Havant.

Mr Willetts, a Number 10 policy unit member under Margaret Thatcher and past director of the Centre for Policy Studies, the think-tank that she founded, said: 'The real problem is not that too many people live too long, it is that too many people stop working too soon.'

A package of policies that equalised women's retirement age with men (from 60 to 65) and then raised both to 67, would improve the 'dependency ratio' - the numbers in work who pay for the pensions of those retired, he said. And the pension should be re-cast by providing more to the over-80s - those who retired in the Sixties and Seventies who are much worse off than later retirers benefiting from occupational pensions and Serps (the State Earnings Related Pension Scheme).

But, at the same time, personal pensions should be encouraged at the expense of occupational schemes which aim to pay two- thirds of final salary. In a paper for the Social Market Foundation, Mr Willetts said that because the pension entitlement built up heavily in the final years 'it pays employers to save on these'. That, combined with increments which give older workers higher pay, gives employers 'a double incentive to press for early retirement'.

Reducing pay, or moving to part-time work for older workers, was so unattractive under final salary schemes that personal pensions had to be encouraged in their place, Mr Willetts said. 'It immediately creates an incentive for someone to stay in work for as long as possible.'

Raising women's retirement age to 65 would save pounds 3bn, which could be spent helping poorer, older pensioners. That would allow state pensions to be better targeted 'without becoming involved in further complicated and intrusive means tests'. However, the paper acknowledges 'a crisis' in the labour market from the dramatic fall in the numbers in work in their 50s and 60s - the result of compulsory early retirements and redundancies. 'This is a dangerous absurdity,' Mr Willetts said. 'Such men have been compulsorily driven out of work, but cannot regard themselves as simply retired. The emotional and psychological strain must be appalling.'

The trend towards earlier and earlier retirement, 'makes little sense, either for the nation's economy . . . or for individuals who often find themselves eking out an existence on a relatively modest income for decades to come. It should be a high priority of public policy to try to reverse this trend'.

He added: 'Society might be able to handle the relatively modest and gradual increase in life expectancy. The strains become serious if . . . people leave the workforce younger and younger. The de facto retirement age for men is rapidly moving down into the mid-50s. The right policy is to move gradually back up to the mid-60s and beyond.'

The Age of Entitlement; Social Market Foundation, 20 Queen Anee's Gate, London SWH 9AA.