May 27, 2010

UK: Plan to link retirement age to life expectancy

LONDON, England / The Times / News / Politics/ May 27, 2010

By Rosemary Bennett, Jill Sherman and Sam Coates

Plans to link retirement age to life expectancy are being studied by the man in charge of welfare reform.

Iain Duncan Smith, the Work and Pensions Secretary, signalled that he thought longer retirement periods were bad for the economy. The Government has already begun an inquiry into raising the retirement age to 66 not sooner than 2016 for men, and 2020 for women.

“It is an absolute imperative to start moving that retirement age up,” said Mr Duncan Smith, seeing it as attractive to link the state retirement age to rising life expectancy. “Ultimately, governments should head to that sort of process, which is rather like the link between benefits and RPI inflation.”

In an interview with The Spectator, he said that he wanted to “get rid of this statutory retirement age, which is a ridiculous nonsense, because people are going to have to work longer”. Mr Duncan Smith has also asked officials to “see how far they can get” in replacing 51 benefits, from disability to housing, with a single, flexible benefit for those of working age to ensure that those moving from unemployment into a job will always be better off.

He will outline his vision of a “21st-century welfare system” in his first speech on the subject in London today. But he will also acknowledge that spending cuts mean his initial proposals to spend more up front to make future savings may have to wait.

Mr Duncan Smith’s original reform proposals, drawn up in opposition, were costed at £3.6 billion over the Parliament, but are now highly unlikely to receive Treasury backing.

This means that some groups could see benefits cut dramatically. Experts say that the 37,000 lone parents who work 16 hours a week — where tax credits are the most generous — may be among those hit to pay for the changes.

But given that most spending departments will be cut by about 20 per cent in the next five years, Mr Duncan Smith may also be forced to look at means-testing universal benefits such as child benefit, disability allowance and attendance allowance to make his figures add up in the short term.

Freezing most benefits for a year or two is also being examined by the Treasury, which would save between £4 billion and £5 billion annually, and £25 billion if extended across the Parliament. The total welfare bill, which is now more than £200 billion including tax credits, has more than doubled since 1997.

Mr Duncan Smith will say in his speech today that he is not interested in making piecemeal reforms. “A system that was originally designed to help support the poorest in society is now trapping them in the very condition it was supposed to alleviate.

“We must not underestimate the challenge ahead. One of the biggest problems is that, for too many people, work simply does not pay. For many people, the move from welfare into work means they face losing more than 95 pence for every additional £1 they earn,” he will say.

“As a result, the poor are being taxed at an effective tax rate that far exceeds the wealthy. We have in effect taken away the reward and left people with the risk. That must and will change.”

One official from the Department for Work and Pensions told The Times that developing a single universal benefit was “very much the direction of travel”.

“It has long been a goal of reformers to try and achieve this. He wants to see how far we can get,” the official said.

Under current rules, those moving from income support to jobseeker’s allowance or into work can find that they suddenly lose not only almost all their housing and council tax benefit, but a range of other entitlements such as free school meals and school-trip subsidies, while they are still on very low rates of pay.

Mr Duncan Smith will say that creating one benefit would allow a far smoother transition, with these cost-of-living benefits being reduced more gradually.

“Instead of helping, a deeply unfair benefits system too often writes people off,” he will say.

He will also publish a “poverty audit” with the latest figures and analyses on the problem. One section will examine how 1.4 million people have been on an out-of-work benefit for nine or more of the past ten years.

The Tories’ programme to scrap Labour’s New Deal welfare programmes, and replace them with a single scheme operated largely by the private sector, will on its own cost £600 million over three years. Mr Duncan Smith is expected to give further details of the new programme today, but there are said to be some tensions over the scale of the sanctions proposed.

The Conservative manifesto said that, under the scheme, those who repeatedly refused jobs would lose their right to benefit for three years.[rc]

Copyright 2010 Times Newspapers Ltd.