Turner suggests pension age could rise to 69
The basic state pension should gradually become more generous and less means-tested, paid for by an increase in the retirement age up to 69, Adair Turner said today.
Announcing the final report of his long-awaited pension commission, Lord Turner also recommended the creation of a national pensions saving scheme (NPSS), to “use the power of inertia” to encourage people to save for their old age.
The publication of the report comes after months of speculation about what solutions it would offer to deal with Britain’s ageing population, and today Lord Turner said he aimed to “stimulate rational debate” on the issue.
Hinting at reports that suggest chancellor Gordon Brown has already decided against plans to raise the basic state pension in line with earnings, rather than prices as at the moment, the former CBI director general said his recommendations were only suggestions.
He said the details would fall to “a political judgment”, but warned that “unless people are willing to discuss it, they are not serious…[and are] indulging in fairytale economics in which the fairy godmother makes all difficult decisions disappear”.
Lord Turner’s recommendations on an increased state pension age could not be specific, he said, because he did not know how demographics would change in the coming decades, but he suggested it rose after 2020 to somewhere between 67 and 69.
There should also be a gradual shift towards raising the basic state pension in line with earnings, and, while he would maintain the pensioner’s credit, he would freeze the maximum level of payments to limit means-testing as much as possible.
In order to pay for higher pensions pay-outs, Lord Turner recommended the amount of money the government spends on the state pension increase from 6.2 per cent of gross domestic product, as it is today, to between 7.5 and eight per cent.
To address existing inequalities in the pensions system, especially those faced by women, he said introducing a universal pension for those over the age of 75 would be “highly desirable”, but admitted it would also be expensive.
Any changes would have to be gradual to ensure younger workers had time to prepare for the new arrangements, but Lord Turner warned that, although there was not currently a crisis of pension income or a quantifiable savings gap, there would be if action was not taken.
Turning to the NPSS, Lord Turner said employees would be automatically enrolled in a scheme when they started work, although they could opt out, contributing four per cent of their salary, where employers would contribute three per cent, and the state one per cent.
TUC general secretary Brendan Barber welcomed the report as “bold and hard-headed”, saying it set a “real challenge” for politicians.
The organisation remains opposed to an increase in the state pension age, but said that “the clear majority of the conclusions are undoubtedly progressive”.
The FSB, Britain’s biggest business organisation, welcomed the report but warned against “shackling” small firms with the proposed compulsory contribution.
“The FSB recognises the need to tackle the pensions crisis and we welcome the current debate. But shackling small firms, the drivers of economic growth, with extra expense is not the answer,” said national chairman Carol Undy.
