We all know pensions numbers are scary. The final report of the Turner Commission reminds us just how scary.
The government's projection of our unfunded state pension costs out to 2050 shows that from around 6.1% of GDP this year, costs will increase to 7.6% under current policies. And although they don't do the sum, that's equivalent to a capitalised liability of about 235% of GDP, or around £2.8 trillion in today's money (discounting future pensions payments at 1%, the average yield on Index Linked Government Bonds).
Plus of course, the liability doesn't actually stop at 2050 with the published projections. Extrapolating on from the last figures given, my envelope suggests we have to add another £4 trillion for the present discounted value of the state pension liability beyond 2050. Giving a grand total of nearly £7 trillion for our state pensions liability.
Now that's a lorra lorra money, especially when you add it to the other £1.7 trillion of government debt we blogged about here. It means our government is already sitting on a total debt mountain of nearly £9 trillion. Or getting on for £400,000 owed by every household in the land.
Against that background, Turner's proposals don't actually add much to what we're already planning to spend anyway. Because he'd increase the state pension age to 68 by 2050, he'd generate the savings to fund restoration of the earnings link. In fact his proposals would only increase our capitalised state pension liability by another £140bn- hardly worth bothering about in this mountainous sea of government debt.
So why's Gordo been so hostile? He's still banging on about affordability, not something he normally gets at all concerned about.
Partly of course, it's because the Report lays into all that means testing he's so fond of. He likes it because in the short-term it saves money, and allows him to target money on those he deems most deserving- he has control. But of course, we know there are serious problems. First, it disincentivises personal savings, leading to higher public spending in the long-term, and a spiral of dependency. Turner reckons that if things carry on as now, by 2050, 75% of pensioners will be drawing means tested benefits. As Jeff Randall puts it, "it's a form of subjugation by handout".
Second, the means testing and pension credit system is already far too complex for even its own administrators to understand, let alone its "customers". The Department of Work and Pensions employs 125,000 bureaucrats, but the level of error and fraud is catastrophic, and their accounts have been qualified each year for the last 15 years (see previous blogs). Brown's fantasy world of tapering scales and claw-back reliefs is a recipe for unrelieved waste and misery.
But the real reason Brown doesn't want to accept Turner is that he knows just how difficult the next 10-15 years are going to be. After all the grillions he's pumped into our dysfunctional public services, he knows the cupboard is bare. Yes, he could crank up taxes even more, but the pips are already squeaking, and he doesn't want to be remembered as the Labour PM who handed power back to the Tories.
From where he's sitting, there's one chink of fiscal light- the forthcoming move of womens' pension age back to 65 by 2020. According to Turner, that will save about £4bn pa.
Turner wants to use that money to improve the Basic State Pension. But Gordo's seen all the public finance books, and he knows we can't afford it. It must feel demeaning: at one time he wouldn't have wiped his Golden Rule on such a trifling sum. But right now, £4bn is real money.
Consider this: if we stick with the current system and push the State Pension Age (SPA) up to 68 as Turner suggests, then by 2050 we could save another £6bn pa (equals c 0.5% of GDP). Which would be an overall saving relative to Turner of £8-9bn pa (in today's money). And if we push SPA up to 70, the saving would be in the region of £15bn pa, maybe more.
Of course, if we pushed the SPA up to say 100, by 2050, we'd be saving maybe £80bn pa. Which would knock £3-4 trillion off the National Debt.
Sounds pretty simple.
I think I'll go and lie down.