Commission sets out solutions to pensions crisis

Nov 30 2005 by Nic Paton Print This Article

The Pensions Commission has proposed a gradual rise in the state pension age, a restoration of the link between pensions and earnings and the establishment of a national saving scheme as the answer to Britain's pensions crisis.

The long-awaited report by Lord Adair Turner has suggested the state pension age should rise to 66 by 2030, 67 by 2040 and 68 by 2050.

At the same time it has proposed that future entitlement to the basic state pension be universal and based on residency, not previous contributions. The state pension should also be indexed to earnings.

Turner's other big idea is the creation of a National Pensions Savings Scheme in which, as predicted, workers would be automatically enrolled unless they actively opted out.

Individuals would contribute 4 per cent of their post-tax earnings, their employer 3 per cent and the government 1 per cent, through either tax relief or a credit system.

The scheme, predicted Turner, would add just 0.6 per cent to the labour costs of the private sector.

"It is wrong to talk about a crisis of pensioner income today, but the problems in the UK's pension system will grow increasingly worse unless a new pensions settlement for the 21st century is now debated, agreed and put in place," said Turner.

Turner stressed there were "no easy answers". But, he added, "an integrated set of policies can ensure that increasing life expectancy becomes not a problem but an opportunity for everyone".

Of the new savings scheme, he explained: "The National Pensions Savings Scheme which we propose will provide a new opportunity for everyone – employees and the self-employed – to enjoy good value, easy access pension provision.

"Our proposals will enable people who are currently excluded from good quality pension provision to build up substantial assets in their name," he pointed out.

The Association of British Insurers said that, while it supported automatic enrolment, the new savings scheme risked creating an "expensive and risky state quango".

Sam Mercer, director of the Employers Forum on Age, added that, although there were 15 years before the proposals took effect, employers needed to be looking now at things such as flexible working, career breaks, part-time working and job sharing.

TUC general secretary Brendan Barber described the proposals as "bold and hard-headed".

But he warned of the difficulties for manual workers in increasing the state pension age and worried the report could now become bogged down in petty politicking.

"The great danger now is that a combination of vested interests who did not get their way, opposition politicians looking to make mischief and an underestimate of voters' willingness to back radical policies kicks today's report into the long grass," he said.

And the British Chambers of Commerce expressed concern that businesses just would not be able to afford the proposals.