State second pension is a 'major impediment' to saving, says Turner demands radical reform of state second pensions muddle

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The Independent Online

Adair Turner, the chairman of the Pensions Commission, called for a radical reform of the state second pension (S2P) yesterday, dismissing the current system as a "muddle which few people understand".

Adair Turner, the chairman of the Pensions Commission, called for a radical reform of the state second pension (S2P) yesterday, dismissing the current system as a "muddle which few people understand".

Speaking at the National Association of Pension Funds conference in Manchester, Mr Turner told delegates that the Government needed to either scrap S2P, formerly known as Serps, or transform it into an understandable compulsory savings scheme.

"One strikingly strong message from the focus groups of individuals which the Pensions Commission has been conducting, is that people just don't understand S2P," he said. "They don't understand what they will get. They don't understand whether the system is a forced saving system in which what you get out is proportional to what you put in, or a redistributive general tax system.

"They don't understand those letters suggesting they might want to think about contracting in, because in many cases they cannot remember or never knew that they were ever contracted-out. Indeed it is difficult to engage them in any sort of discussion about their attitude to the State Second Pension, because they hardly understand that it exists."

He went on to describe S2P as a "a muddle at the heart of our system, and a major impediment to rational individual saving decisions", saying that if it is to stay, Government needs to begin educating people about what it is and how it works. Alternatively, he suggested that it should be scrapped to help provide a more generous basic state pension.

Mr Turner also warned that the Government would have to seriously consider another rise in the state retirement age over the longer term, but advised against any rapid changes.

"We will have to find a way of making the basic state pension promise both less means-tested, and affordable in the face of rising life expectancy," he said. "So the issue of effective state pension ages beyond 2020 has to be on the table. But a rapid across the board increase ? [for example to age] 70 in 2030 is too crude."

Mr Turner said he will publish his recommendations for reform of the UK pensions system in the autumn, adding that he had not yet drawn any conclusions as to whether a greater degree of compulsory savings would be required to solve the looming crisis.

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