The Garrulous Jay – A Flawed Design For Life

Last week the Tony Blair Institute published its proposals for a replacement for the UK State Pension. The Lifespan Fund: Reforming the State Pension for a More Affordable, Flexible and Fair Future represents a bold attempt to grasp a political nettle that politicians of all parties have feared to touch.

It also falls victim to the breadth of its ambition and the complexity of its proposed solutions.

The Lifespan Fund would have three key design features:
•    Earning entitlement through contribution, with a maximum entitlement of 20 years’ support at current State Pension levels for 40 years’ contributions;
•    Flexible access during working life, for those wishing to drawdown when job-searching, returning to training or education, or caring for family members;
•    Personalised conversion to a guaranteed pension, based in part on the age at which the fund is accessed, as well as ‘health status’ at the age of conversion.

Everyone would be able to track the status of their Lifespan Fund through the Lifespan App, allowing them to choose when to retire based on what they might receive from their fund.

The proposals for the Lifespan Fund would, it is claimed, “avoid almost £70 billion a year of the projected increase in today’s terms” of the cost of the State Pension by 2070, capping the cost at 5.5% of GDP.

It would also be fairer because “everyone receives the same overall level of support” such that those that live longer, who are generally wealthier and in better health would receive the same as those with shorter life expectancies.

The ambition of the Lifespan Fund proposal, along with its recognition of the need to tackle the unsustainable nature of the current State Pension system, is to be applauded.

The solution less so.

The report itself states that, “conventional reforms to fix the problem rarely survive contact with political reality”. The same is likely to be true of the Lifespan Fund due to the breadth of its ambition, the complexity of the solution and the devilish nature of some of the detail.

Seeking to merge State support for those of working age with the more generous State Pension and other ‘older age’ benefits, with the introduction of a pot from which people can draw at any age, endeavours to do too much all at once.

The logic may be sound, but it would be difficult for people to understand and manage, complex to administer and open to abuse.

Some of the detail is also potentially politically toxic, most obviously the link between entitlement and health at the point of conversion, “drawn from [an individual’s] NHS digital health record”.

The toughest political decisions often have the simplest solutions. The Lifespan Fund attempts to tackle the first but fails to deliver the second.

A far simpler alternative, were any political party brave enough to introduce it, would be what I would call the Triple Shock:
•    A phased introduction to means-testing of the State Pension;
•    An incremental and earnings-linked increase to auto-enrolment;
•    An expansion of tax incentives for private pension savings.