FT923-9560 _AN-CHGA7ABIFT 920804 FT 04 AUG 92 / Ageing process may benefit less well-off: Norma Cohen reports on the implications of the proposed equalisation of the retirement age By NORMA COHEN THE government's pensions advisers have made it an offer that politically it will be hard pressed to refuse. In short, benefits improvements for the most vulnerable elderly people - most of whom are women - can be paid for by requiring the most well-off women to work five years longer before they are entitled to any benefits at all. Indeed, the Department of Social Security is likely to be secretly gloating over the advice yesterday from its own Social Security Advisory Committee that the state pension ages be equalised at 65 - an option that will save it about Pounds 3bn a year. The catch is that DSS advisers do not want the saved revenues to be returned to the Treasury. Instead, they should be devoted to a cause long recognised as deserving of additional funds. 'Our recommendation for an equal pension age of 65 is part of an indivisible whole on the basis that the cost savings will be recycled,' said Sir Peter Barclay, committee chairman. The move appears to offer the government a politically palatable method of raising women's retirement ages to 65 - something it has hinted it wanted to do all along. 'It is clear that if you are going to reduce social security entitlements, you have to say the savings will be used to help the poor,' said Mr Andrew Dilnot, director of the Institute for Fiscal Studies, a social policy think tank. Mr Dilnot said that in spite of the government's disavowal of means testing for benefits, it had already begun to move down the road to diverting social security benefits to those who need them most. Meanwhile, the committee acknowledged that if the government follows the advice to raise women's retirement age, there is no guarantee that a future government would choose to spend the cost savings on enhancing benefits for the poorest elderly. But Sir Peter said that pressure to do anything other than that would be so great that a government would have little choice. Among the ways the committee has proposed spending the saved revenues are: Enhancements to the State Earnings Related Pension Scheme to assist the low-paid and those with broken employment records, who are primarily women. A new premium with income support for those unemployed for more than two years and aged 55 or over and those 55 and over who are long-term sick or disabled. Enhanced 'home responsibility protection' and an extension of the invalid care allowance to those aged 65. The committee has also urged that the government extend the date at which equalisation would be phased in to a 15-year period rather than the 10 years suggested in the DSS's initial discussion document. That means that no one currently 52 or over would be affected by the proposals and no one 42 or over would feel the effects of the full five-year rise in women's pension ages. While the recommendations contain a certain logic, it must be remembered that the move to equalise state pension ages had nothing to do with improving benefits. In Britain, women are eligible to receive full basic state pension at age 60 while men must wait until 65. But a recent European Court ruling on occupational pensions determined that men and women must not receive disparate pension benefits and the European Community is drafting a directive for member states requiring equalisation all around. Last December the DSS released a discussion document on proposals to remove sex-related differences in state retirement benefit. The options were lowering men's retirement ages to 60 - at an estimated cost to the Treasury of Pounds 3.5bn a year - raising women's ages to 65 or equalising at the actuarily neutral age of 63 in a move with no cost implications. It also included the option most favoured by the pensions industry and providers of occupational pensions: the introduction of a so-called flexible decade of retirement between 60 and 70 that would give lower benefits to those who retired before 65 and higher benefits to those who retired later. In explaining why the other options were ruled out, Sir Peter made clear that the committee's main goal was finding ways to use equalisation to channel scarce benefits to groups that need them most and to ensure that the best-off receive no additional benefits. Already, some 75 per cent of male retirees will be eligible for some form of occupational pension and are therefore better off in old age than women. Because many women have interrupted or part-time service that is ineligible for the receipt of pension, they are the most needy group of elderly. In explaining why retirement at the neutral age of 63 was rejected, Sir Peter said the option did not produce any cost savings that could be used to help the worst off. The pensions industry is sure to be disappointed by the committee's rejection of flexibility in retirement ages. This is increasingly a feature of occupational schemes - the basis of the best retirement packages available in Britain. Sir Peter said that not only would flexibility not save money, but it would penalise those who genuinely needed most to retire at 60 for reasons of ill health. ---------------------------------------------------------------- STATE PENSION AGE: How the EC compares ---------------------------------------------------------------- Country Men Women ---------------------------------------------------------------- Belgium Flexible 60-65 Denmark 67 67 France 60 60 Germany 63 63 Greece 65 60 Irish Republic 66 66 Italy 60 55 Luxembourg 65 65 Netherlands 65 65 Portugal 65 62 Spain 65 65 UK 65 60 ---------------------------------------------------------------- Germany plans a standard pension age for men and women of 65 to be phased in by 2012. Italy also plans a standard pension age of 65 by 2016 ---------------------------------------------------------------- Source: Options for Equality in State Pension Age, DSS (1991) ---------------------------------------------------------------- The Financial Times London Page 6