Turner report calls for later retirement

People will have to work longer and save more for their retirement, according to a major report on the future of pensions.

The Pensions Commission, chaired by Lord Turner, published its final report on 30 November. It recommended raising the state pension age gradually to 68 by 2050.

An ageing population

The report says Britain faces a pensions crisis because people are living longer and not saving enough. The number of people over 65 is expected to rise sharply in the coming decades, while the number of working-age people paying taxes will grow more slowly.

At the same time, many companies have closed their final salary pension schemes, which promised a pension linked to earnings, and millions of people are saving little or nothing for their retirement.

The recommendations

The commission made several key recommendations. The basic state pension should be linked to average earnings rather than prices, so that it keeps pace with living standards.

The state pension age should rise from 65 to 66, 67 and eventually 68, to reflect longer life expectancy.

A new national pension savings scheme should be created, into which workers would be automatically enrolled, with contributions from their employers and the government. People would be able to opt out if they wished.

Who pays?

The report says the changes will require higher public spending on pensions in the long term, as well as more saving by individuals and employers.

Lord Turner, a former director general of the Confederation of British Industry, said the choices were stark: people must either accept poorer pensioners, higher taxes, more saving or later retirement.

Reaction

Trade unions have criticised the plan to raise the pension age, saying it will hit manual workers and those with lower life expectancy hardest. Business groups have warned about the cost of compulsory employer contributions.

Campaigners for pensioners have welcomed the proposal to link the state pension to earnings.

Government response

The government has said it will consider the report carefully and respond next year. There are reports of disagreements between the Prime Minister, Tony Blair, and the Chancellor, Gordon Brown, over the cost of the proposals.

Whatever the government decides, the report is expected to shape pensions policy for decades.