UK: Treasury will cash in as we all work to 70

Treasury will cash in as we all work to 70
By Greg Hurst and Peter Klinger
# £10bn late retirement windfall

GORDON BROWN was urged yesterday to veto plans to raise the retirement age as experts forecast that the Treasury could reap an annual £10 billion windfall by forcing people to work longer.

Ministers are still divided over whether to lift the retirement age to 70 or scrap it altogether in response to a European Union directive to ban age discrimination.

The Government must introduce some changes to the retirement age by October 2006 to comply with the European Employment Directive.

Business leaders are vehemently opposed to such a move and called on the Government yesterday to halt the process and proceed only with the minimum requirement of a retirement age of 65. Trade unions also voiced their concern, saying it must not become a back-door means of forcing people to retire later.

But the prospect of a £10 billion annual windfall, generated from additional tax taken from workers who would have otherwise have taken retirement, could not have come at a better time for Mr Brown who only last week faced criticism from Mervyn King, Governor of the Bank of England, over his forecasts for growth of tax revenue.

Business leaders fear that a higher cut-off point for retirement or removing it completely could result in companies facing a flood of employment tribunals cases from older workers.

Trade unions, however, believe firms may take advantage of a later retirement age to cut back on pension contributions or develop a "work-until-you-drop" culture. Those suspicions are likely to be further aggravated by the projections that lifting the retirement age to 70, one of the options being debated by ministers, would raise an additional £10 billion in taxes.

Raising the retirement cut-off point to 70 could affect 2.6 million people aged between 65 and 69 who pay an average £4,000 more in income tax every year.

Tom McPhail, head of pensions research at Hargreaves Landsdown, an indepedent financial advisory firm, said: "The reality underlying all this is that we cannot afford to have the type of retirement that many of today's retirees enjoy, because we haven't saved enough."

Ministers have made clear that the state pension age will remain at 65 although incentives are being introduced for pensioners who delay the age at which they begin to draw it. They will be able to receive a lump sum of up to £30,000 if they defer doing so for five years.

If the state pension age were ever raised to 70, it would save the Government a further £10 billion.

The indecision among ministers was highlighted when The Sunday Times published a leaked letter from Patricia Hewitt, the Trade and Industry Secretary, to Mr Brown admitting that there had "not been consensus" on a new retirement age and that there remained "different perspectives" in Whitehall departments.

The Government has to consider options on retirement age legislation in order to comply with EU laws on age discrimination.

The chief options are a retirement age of 70, which Ms Hewitt is believed to favour, and lifting the retirement cut-off altogether, the more radical option which is thought to have been backed by Andrew Smith, the Work and Pensions Secretary.

Asked about the leaked letter yesterday, Mr Smith said: "We have had extensive consultation and the Government will be reaching a decision shortly. It is a matter of ensuring employees can exercise their own choice. We are committed to laws to abolish age discrimination while at the same time enabling firms to operate sensible personal relationships."

Susan Anderson, the CBI's director of human resources policy, said it was critical to have a cut-off point but added that ministers should go for the lower age of 65.

A Trades Union Congress spokesman said: "We support the abolition of the retirement age as we believe people should have maximum choice about when they want to retire. But we will oppose anything that smacks of increasing people's retirement age by the back door."

David Willetts, the Shadow Work and Pensions Secretary, said: "The Government is looking at these draconian options because of the crisis in our pension funds for which they have to take a significant part of the responsibility."

Steve Webb, the Liberal Democrat pensions spokesman, said: "The age discrimination legislation of itself is a good thing . . . but the danger is that it gets used as a backdoor way for companies to plug the holes in their pension funds."

The Department of Trade and Industry said last night: "We do not comment on leaked documents."

http://business.timesonline.co.uk/article/0,,8209-1152970,00.html