Johnson must grasp the nettle - or fail

THERE was an advertisement years ago which featured five pictures of a man's face 10 years apart with one line describing his attitude to the fact that his job did not have a pension. When he was young he did not care, when he was middle aged it worried him a bit, when he was on the edge of retirement he was desperate.

The Labour Government has gone through the same cycle, albeit rather more quickly. It came in thinking that the pension system was okay but could benefit from a bit of Labour tinkering.

It got more concerned three or four years in when it realised that most of its changes had had no effect at all or had backfired and provoked crises in other parts of the system - the Chancellor's change in pension fund taxation being a case in point.

But it began seriously to panic only a few months ago when it realised that with the ageing of the population retired people are very soon going to be one of the biggest sections of the voting population.

That has been enough to catch the attention of the Prime Minister, but the signs are still that the Government hopes to get by with the application of more sticking plaster.

Certainly that has been the cynical response to the appointment as pensions minister of Alan Johnson, who has yet to find out that an ability to charm and soft soap is no substitute for a willingness to grasp the issues.

He may feel rather differently after what promises to be an embarrassing autumn. Starting with the Trades Union Conference this week, pensions will be the subject of major debate.

The Tories, spearheaded by David Willetts, are bound to make similar waves at their conference in a couple of weeks' time and the Lib Dems too have come up with some interesting, radical and challenging proposals.

Labour silence

ONLY from the Government is there silence, which means it has a lot riding on the report to be published soon by another Labour appointee, former CBI director-general, Adair

Turner. For three years he has been heading the Pensions Commission with the brief to come up with a master plan which will get the country out of the jungle. Unfortunately Turner is known as much for his blandness as his boldness. Certainly there is no guarantee that his report will lead to action.

While he is waiting for Turner's report, Johnson needs to recognise, as a first step to getting his mind round pensions, that there are two problems with two distinct causes.

First there is a potential crisis in the State pensions and benefits system because fewer and fewer working people are and will be paying taxes to support an every growing proportion of retired people.

The difficulties are caused by the needless complexity of the State benefits system and by the collective ageing of the population. The Prime Minister's desire to cut back on sickness benefit, which many claim as an alternative to unemployment benefit, is a root part of the same problem.

Second there is a crisis in the private-pension sector which has been caused by the fact that, individually, people are living much longer, so more money is needed to keep them, while investment and stock market returns have collapsed, and Chancellor Gordon Brown increased pension fund taxation so there is less money with which to keep them.

This is causing companies to redo their sums and conclude that they can no longer afford to offer pensions in the traditional way.

In the early years of the Labour Government, Frank Field was made pensions minister, told to think the unthinkable and fired when he did so.

Many of his ideas have been adopted and developed by the pension reform institute which has proposed a single State pension for all set at roughly half the national average wage - in other words, enough for all to live comfortably.

Means-tested benefits

ALTHOUGH Gordon Brown and his Treasury team immediately squeal that the country cannot afford such generosity, the country could afford if it were allowed to sweep away all those means-tested benefits and social-security payments the Chancellor is so fond of and which eat up the money in administration costs, provided the Government was willing also to increase the retirement age by two or three years in line with the much greater life expectancy.

Clearly it would cost but ministerial objections are based on a fear of the politics, not the economics.

For the moment they remain paralysed but ultimately they will realise there is no other choice because if they do nothing more than half the pensioner population will soon be applying for means-tested supplementary benefits.

Tom Ross, the past president of the Scottish Faculty of Actuaries, foresaw this in one of the first reports commissioned by Government six years ago. He pointed out that an adequate State pension would always be essential because a substantial proportion of the population will never be able to save meaningful amounts.

Whistling in the wind

GORDON Brown may think poor people don't save because they don't have adequate tax incentives. Every one else knows poor people don't save because they don't have any money. Any idea that they could respond differently to compulsory saving - an idea Adair Turner is toying with - is whistling in the wind. And anyway, isn't that what National Insurance was meant to be when it was introduced.

Johnson should also understand that if the State pension was adequate, the problems of the private sector could be much easier to solve because company pensions could be recast as a supplement to the basic State pension, not as an end in themselves.

Payments could then be scaled back to a level which companies and people could afford - say a quarter rather than a half of final salary, or half of average rather than final salary and perhaps with a progressive increase in the retiring age towards 70.

Again though, at the heart of all solutions to the pension problems, there is this one central fact. Because we all live longer we have to raise the retirement age by a few years, so the time we do have can then be properly funded and enjoyed.

When a Labour minister, be it Alan Johnson or his inevitable successor, starts campaigning on that point, then and only then, will Labour be entitled to claim that it is taking the pensions crisis seriously.