Pension age 'must be raised to 68 to avoid tax rate hike'

PENSIONS Secretary John Hutton today warned that the Government had to raise the state retirement age to 68 to stop a 4p in the pound income tax rise for everyone.

In a major speech in London, he admitted the move announced in the Queen's Speech last week was controversial. But he said it was unavoidable, and failure to take the unpopular decision would place "an unsustainable burden on our children and grandchildren".

Mr Hutton tackled head-on Scottish criticism that the increase was unfair to Scots who tended to die earlier, saying life expectancy north of the Border was now predicted to improve faster than in the rest of the UK.

In the Queen's Speech last week, setting out the Government's programme of legislation for the next year, the Government promised to restore the link between the basic state pension and earnings.

It also promised to simplify the state second pension, but said that as people lived longer and fitter lives, the pension age would have to go up steadily.

Under the plan, it will rise from 65 to 66 between 2024 and 2026, to 67 between 2034 and 2036 and 68 between 2044 and 2046.

Mr Hutton, speaking to the Association of British Insurers, was unrepentant about the unpopular move.

He told his audience: "Possibly the most significant part of next week's Bill is to legislate for gradually raising the state pension age to 68 by 2046. It is a big step to ask one parliament to set a course for 40 years. But it is the right thing to do.

"We need to lock in stability in pensions policy to allow future generations to plan ahead with confidence. We need to be straight with people on this crucial issue.

"As unpopular as it may be to talk about working longer - the simple fact is that if we aren't prepared to increase the state pension age, we will simply pass an ever greater burden on to our children and grandchildren.

"Those who would oppose the increase in the state pension age must do so in the full knowledge of the predicted consequences - that they are, in effect, arguing for more than a 4p rise in the basic rate of income tax."

Mr Hutton said the UK was not alone in struggling with the issue and that the ageing population was a global phenomenon which meant governments could not duck the difficult decisions needed as a result. Mr Hutton promised the Government would keep the programme for the increases in the state pension age under review in coming years, with particular regard to life expectancy in the most deprived areas of Britain. But he added: "But we also need to remember in this debate about the state pension age that life expectancy is increasing in all parts of the country. In Scotland, for example, where life expectancy has been lower, longevity is now expected to improve faster than in other parts of the UK.

"And the increase in state pension age to 68 will still leave men in Scotland with a longer period of time above this pension age."

He said that the way to deal with differences of life expectancy across the UK was not through the pension system but through better public health strategies, early intervention to tackle the root causes of child poverty, and better childcare, education, skills and opportunities to work.

He said the Government remained committed to investing more in improving people's health throughout life, especially in areas which had suffered the greatest deprivation. The bill on raising the state pension age and restoring the links to earnings will enact many of the recommendations of last year's Turner Commission.