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Last Updated: Tuesday, 4 April 2006, 11:17 GMT 12:17 UK
Q&A: What the pensions report means for you
Adair Turner
Lord Turner says problems will worsen unless policy changes
The Pensions Commission has published its final report, proposing a series of far-reaching reforms to the UK pensions system. It says there are significant problems with the current model, which will worsen unless action is taken.

BBC News explains the key findings.

What has been proposed?

The headline proposals are:

  • Increase the state pension age for men and women to 66 by 2030, to 67 by 2040, and to 68 by 2050
  • Make the state pension more generous and link future increases in it to earnings rather than prices
  • In future, entitlement to the state pension should be based on residency rather than national insurance contributions
  • Automatically enrol people into a new low cost government-administered savings scheme
  • Give people the chance to opt out if it's not suitable for them

Does this mean I can kiss goodbye to my aim to retire early?

Perhaps not.

The proposals, if adopted, may take many years to come into force. They may be phased in, just as the rise in the women's state pension age from 60 to 65 is being introduced between 2010 and 2020.

Facts and figures outlining the depth of the UK pensions crisis

In addition, the proposal is that you wait longer for your state pension, not that you should have to continue work.

You will still be free to retire early, as long as your employer agrees, but under the proviso that you will have to support yourself until whenever the state pension kicks in.

I have heard there is a political row surrounding pensions provision. Who is involved?

The report has sparked a row between Prime Minister Tony Blair and Chancellor Gordon Brown over whether the plans are affordable. Lord Turner said that taxes may have to rise to pay for higher pensions.

Pension age for both men and women to rise to 68 by 2050
Entitlement to be linked to residency rather than national insurance record
More generous payments, increasing in line with average earnings rather than prices

The chancellor is said to be annoyed at the proposal to end the means-tested pension credit and raise the state pension in line with average earnings.

BBC political editor Nick Robinson says the two men are "deadlocked".

Previously Mr Brown and John Hutton, the new Work and Pensions Secretary, have said they want the commission's report to start a national debate on pensions.

But some cynics have suggested this is a holding tactic and that the report will be kicked into the long grass.

However, Mr Hutton said earlier this year that an increase in the state pension age was "inevitable" by 2020.

What about people who work in the public sector? Won't they be able to retire early?

They may benefit from a recent deal struck between unions and the government allowing public sector workers to continue to collect their workplace pension at age 60.

But, like everyone else, public sector workers will not be able to collect their state pension in 2050 unless they are 68.

In effect, this means they will have to survive on their savings and workplace pension from age 60 to 68.

Under such circumstances some may choose to work on beyond 60.

Full basic state pension of 82.05 for single pensioners and 131.20 for couples, increases linked to prices
Men have to make national insurance contributions for 44 years, women for 39
Women can collect a state pension from 60, men from 65
The pension age for women is set to rise to 65, phased in between 2010 and 2020

What's the big deal over pensions anyway?

An ageing population means that in future there will be fewer workers to pay the pensions of a greater number of older people.

In addition, private saving has fallen and many employers, for a variety of reasons, have been cutting the amount of money they have been paying into their workers' pensions.

Am I going to be forced to save for my retirement?

The Commission has proposed a system of "soft" compulsion.

If you are an employee you will be automatically enrolled in a new low-cost National Pension Savings Scheme (NPSS).

Employers can opt their employees out of the NPSS if they offer their own scheme on an auto-enrolment basis and are making contributions at a higher level than would be the case under the NPSS.

Employees can choose to opt-out of the NPSS.

And there are lots of reasons why someone would choose to opt out.

They may be happy with the amount of money they have put aside for their old age or have other pressing financial commitments.

Ultimately, though, the idea behind automatic enrolment is that savings rates will increase because people will think it is too much bother to opt out.

So when will all this happen?

Not for a long time, if at all.

The Pensions Commission envisages reform of the state pension starting in the next decade.

As for the NPSS, this should start in 2010 the commission said.

Ultimately, though, pension reform depends on the attitude of the government.

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