01 July 2005
If government meets its target of 80% in work, there would be no need for pension changes, says TUC
The government's ambitious plan to achieve an employment rate of 80% across the UK would prevent any need to increase the state pension age, a comprehensive study of the target has revealed.
A report published on July 1 by the Trades Union Congress concludes: 'Maintaining the state pension age at 65 – even with more generous pensions – is easily affordable if the government meets its employment target of 80% of those in working age in paid jobs.'
As well as the potential impact on pension planning brought about by higher tax returns and larger occupational contributions, the study also looks at the wider impact of Labour's long-term employment target on key government policies, including welfare reform and regional regeneration.
The 80 per cent solution praises the Department for Work and Pensions' Pathways to Work pilot schemes, which aim to get millions of people off benefits and into work. But it calls on ministers to develop active regional policies to boost employment and return older people of working age to the labour market.
Ministers responsible for key economic and social reforms have already accepted some of the TUC's findings.
In an interview with Public Finance to be published next week, benefits minister James Plaskitt said lifting the current employment rate from 75% to 80% was 'a core tenet' of the government's third-term agenda, because 'it helps us to address many of the challenges that we face as a country in the long term'.
However, it is not yet clear whether ministers would support the TUC's pension age conclusions. The Pensions Commission is due to report in September on potential retirement reforms.
TUC general secretary Brendan Barber has opposed 'quick fix' calls from lobby groups such as the CBI to prevent a demographic crisis of rising levels of retirees compared with workers (an increasing 'dependency ratio').
TUC research suggests that measures such as increasing the pension age to 65 would have a bigger impact on the poor, who have the shortest life expectancy.
Barber said: 'It is perhaps not obvious, but the best way of paying for better pensions is to get the economy working even better. We have a generation in which to get this right.'
The DWP is beginning to draw similar conclusions. Plaskitt told PF: 'If we succeed in raising the employment rate, we will in part address the pensions issue.
'If you hit the 80% target, the dependency ratio stabilises in this country to where it is now. The more you fail to meet your target on employment, the bigger the pensions problem.'
The DWP has undertaken wide-ranging reforms to help reach the target, which Whitehall insiders claimed could be achieved by 2040. Ministers plan to remove 1 million people from Incapacity Benefit and put a million older people and 300,000 single parents back into work. That 2.3 million job boost would take the UK close to 80% employment.
But the TUC report also outlines the potential pitfalls. Some UK regions, such as the Southeast, already have employment rates close to 80%. But it says 'new jobs must be created in the least favoured regions' of the UK, such as the North, Wales, east London and the Midlands, where employment rates are as low as 70%.
PFjul2005
