The 800-page roadmap to a new era for pensions

Lord Turner's report has its critics, but the UK can't afford to ignore what he has to say
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The Independent Online

It's not likely to be up there on this year's Christmas best-selling books list, but Adair Turner's 800-page opus on solving the pensions crisis will prove a page-turner for many during the next few weeks.

After three years' deliberation, the chairman of the Pensions Commission delivered his "new pension settlement for the 21st century" last week. Months of impassioned debate will follow as his proposals are pored over by politicians, the financial services industry and consumer groups ahead of an official response from the Government next spring.

Parts of the report were leaked last month - including a recommendation to raise the retirement age, leading to some sensational headlines in the press.

For the state pension, Lord Turner's core proposals include pushing up the age at which a basic pension is paid to between 66 and 69 by 2050. He also wants to link its rise in value to average wage growth rather than to inflation. The state pension would become a "universal benefit", based on residence in the UK rather than on years worked, redressing the current discrimination against women who take time off to raise a family.

As regards private provision, Lord Turner suggests a new national pension savings scheme (NPSS). Under this, you would pay in 4 per cent of salary, your employer 3 per cent and the Government 1 per cent. You can choose the type of fund you invest in, and its management charges should not be more than 0.3 per cent of contributions. While you would be automatically enrolled in the NPSS on joining a new company, you would also have the right to opt out; this feature has led the proposal to be described as a "soft" form of compulsory saving.

Lord Turner also wants a commission independent of government set up to take an overview of pensions policy. (See page 19 for a fuller list of proposals.)

Brickbats have been thrown at Lord Turner's report by the Treasury, which questioned the affordability of the revamped state pension: the money for it would possibly have to be raised from higher taxes.

Christine Farnish, the head of the National Association of Pension Funds, warned that the NPSS - with its cheaper management charges - could persuade companies to close their existing, more generous pension schemes in favour of a low-cost alternative.

The investment side of the financial services industry has been less damning, perhaps eyeing a future role as NPSS suppliers.

But the real bouquets for the Pensions Commission have come from consumer groups, including Citizens Advice, which urged the Government to accept its recommendations in full. Which? described the NPSS as the "lifeline that could save pension provision in the UK from drowning".

"We need to make sure that the political in-fighting over state pension provision does not divert focus from the real opportunity [the report] presents us with - for all our sakes," said Mick McAteer, principal policy adviser at Which?.

So what happens now?

Not much, says Tom McPhail of independent financial adviser Hargreaves Lansdown, since the debate has to encompass fiendishly complex issues that are going to run and run.

"When employees in the private sector have to work for as long as age 69, the public sector workers' deal, securing retirement at 60 and 65, has raised an issue that is going to be very difficult to resolve.

"There's an awful lot [of the Turner report] that won't happen, and it could be that we'll be three or eight years down the line and nothing much will have changed."

That, however, is an option the UK can no longer afford to indulge in, he says. "If we carry on as we are now and nothing happens, we will have a significant problem in 20 years - and it really will be too late to do anything about it."

The closure of final salary occupational pensions and the switch to cheaper "defined contribution" schemes has thrown a harsh spotlight on the inadequacy of millions of workers' pension provision.

The basic state pension has begun to creak too, as concerns grow over means-testing, the cost of the pension credit, inequality between men and women, and the complexity of the state second pension.

For millions of young and middle-aged savers, Lord Turner's blueprint could offer a way out of the confusion that now engulfs much pension planning. His recommendations will make workers of all ages look closely at their retirement planning - many for the first time.

"There's been a huge shift in people's awareness," says Mr McPhail. "With more debate on pensions to come, the more we'll find people taking seriously the consequences of not making any provision at all."

Lord Turner's key recommendations

* Raise state pension age from 65 to 69 by 2050 (to be introduced gradually from 2020 and linked to life expectancy).

* Restore rises in state pension linked to earnings growth, rather than to prices (from 2010).

* Keep "means-tested" element of basic pension as small as possible to encourage saving.

* Entitlement to basic state pension should move towards being based on residency rather than on national insurance contributions.

* Over-75s to get a universal basic state pension.

* The currently complex state second pension (S2P) to become a simple "flat rate" payment.

* Establish an independent commission to monitor government pensions policy.

* Workers to be automatically enrolled in the NPSS when joining a company if no existing pension scheme.

* New legislation on age discrimination to protect over-65s.

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