Pensions and other boring stuff

Unlike many financial journalists, Stephen King (no, not that one) in The Independent is able to offer a reasonably lucid explanation of the current spat between the Chancellor and Lord Turner:

"In the UK's case, we've come to depend on a three-tier system: a basic, pay-as-you-go, system which guarantees a minimum amount of income to prevent the old and infirm from starving or freezing to death: a funded system in either the private or public sector which is invested in assets designed to provide a decent return when people eventually retire, and a voluntary "top-up" funded system for those that feel that the likely income from the first two tiers just isn't up to scratch.
The spat between the Chancellor and Adair Turner really focuses on the first of these tiers. Turner wants to make sure that everyone has access to a "pay-as-you-go" system, indexed according to wage growth. The Chancellor prefers a means-tested system which is indexed according to inflation.
There are two key differences between these approaches. First, a system indexed according to wage growth is more expensive than one linked to inflation - one of the reasons that Margaret Thatcher severed the link to earnings in the early-1980s. A system linked to wage growth effectively means that pensioners will share in an economy's ongoing productivity gains. To reduce the cost of this policy, Lord Turner is suggesting that the retirement age should gradually rise, in line with likely advances in life expectancy.
Second, a means-tested system suffers from moral hazard problems: if you know that you will be bailed out in old age whether or not you've saved in earlier years, then you might as well carry on spending. Under a means-tested system, you know that future taxpayers will be forced to bail you out for your earlier spending indiscretions."

As Mr King admits, this is a relative sideshow compared with the deeper questions offered to society by an aging population. From a selfish point of view, however, it may be worth pointing out that, even if the current single person's old age pension of about £70 per week were doubled to £150, it is still not going to provide anyone with a comfortable living. Which we means that we have to rely on the other two "tiers", not a particularly comfortable prospect unless you are lucky enough to be provided with a pension linked to final salary.