Means testing bad for savings, says Turner

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The Independent Online

Adair Turner, whose Pensions Commission last month published a wide-ranging interim report into pensions, yesterday took a swipe at Gordon Brown's commitment to means testing.

Mr Turner told the Work and Pensions Committee of MPs: "People on low incomes fear that saving will bar them from receiving means tested benefits such as the Pension Credit."

This credit guarantees that everyone aged 60 or above will receive an income of at least £105.45 a week if single, or £160.95 for a couple. If they think they are receiving less than those levels, the state will top them up as long as they subject themselves to the means test.

This assumes an income of £1 a week from every £500 (or part of £500) of savings of more than £6,000 - the equivalent of more than 10 per cent interest. That is about double what is currently available in the best deposit accounts. This notional income is added to pensions and income from work to see if it adds up to the guaranteed amount.

Mr Turner told the committee that complexity and high charges were putting off as many as 12 million people from saving for retirement, and that financial advisers were scared of telling clients on low incomes to start pensions for fear of accusations of mis-selling.

Mr Turner stressed he was not criticising means testing but he said: "There are some people whose rational incentive to save is impacted by means testing."

He appeared before the committee with his fellow commissioners, Jeannie Drake and John Hills. Their report, paid for by the Government, said the pension income of more than 12 million people would be cut by 30 per cent three decades from now unless they paid more tax, saved more or worked longer. It added that Britain had been living in a "fool's paradise" over pensions and had about 15 years in which to deal with the problem.

One of the main problems identified by the report was greater longevity than forecast by actuaries. A 65-year-old man can expect to live for another 19 years, seven more than a 65-year-old in 1950. Savings, including pension contributions, have not kept pace with this change.

But many people have been deterred from investing in pensions because of the industry's mis-selling scandals. The majority would prefer to rely on the state and are spending savings they accumulate to qualify for benefits such as Pensions Credit.

The commission's final report is due next autumn and will include recommendations for government action.