Pensions experts Philip Booth (of the IEA and Cass Business School) and Deborah Cooper (of Mercer Human Resource Consulting Ltd ) propose radical reform not just of pensions, but of social security and tax systems.
Booth and Cooper show how the current pensions system is mired in complexity and encourages people not to save and not to continue working after state pension age. The system has grown up, the authors believe, as a result of successive governments trying to buy off voter interest groups with reforms designed to provide assistance to specific groups of older voters. The practical results of these successive reforms are:
· It pays people not to save for their pension.
· A complex social security and tax system that leads to 12 different rates of tax and benefit withdrawal before a couple receives £30,000 per year.
· Rates of tax and benefit withdrawal lead to individuals losing 90p in benefits and tax as a result of having an extra pound of income from private saving, over substantial ranges of income.
· An individual with a retirement income of £10,000 per year is likely to receive that income from nine different sources up to eight of them from the government.
· For many people there are negative real returns from pension saving after allowing for taxes and the loss of means-tested benefits.
· An incoherent tax regime for pension funds that taxes investments in equities but not in bonds and gives pensioners and anomalous tax free lump sum.
· Requirements to buy annuities, even where this is not in the best interests of the pensioner.
· Excessive costs of regulation imposed on occupational pension schemes and members of personal schemes.
The authors argue against piecemeal reform of pensions alone and in favour of a complete overhaul of the pensions, tax, social security and regulatory environment along the following lines:
· There should be a single state pension paid from age 70.
· The state pension would be offered on the contributory principle (there would be no citiz