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Last Updated: Thursday, 1 December 2005, 14:05 GMT
Turner defends pension age reform
Lord Turner
Lord Turner said rising life expectancy made reform a must
The head of the government's Pensions Commission, Lord Turner, has defended his proposal that the state pension age should rise.

He told the BBC that the UK was faced with the state pension becoming "meaner and meaner" or a higher pension age.

On Wednesday, the commission proposed that the state pension should rise gradually from 65 to 68 by 2050.

But people would spend longer in retirement even if the pension age increased, Lord Turner said.

He said that an average man would spend 19 years in retirement today, but - because of rising life expectancy - by 2050 this would rise to 21 years, even if the state pension age increased to 68.

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Lord Turner told listeners to BBC Radio 4's You and Yours and Moneybox pensions special programme that increased life expectancy made pension reform a must.

"Unless we want the state pension to get meaner and meaner we either have to have higher tax or a higher state pension age, we have decided on both."

The Pensions Commission report contained a host of recommendations for solving the UK pensions crisis.

In return for an increase in the state pension age the commission said in future the basic state pension should rise in line with earnings rather than inflation.

The report also proposed:

  • employees to be automatically enrolled into a new National Pension Savings Scheme (NPSS) if they are not already in a sufficiently-backed company scheme, although they would have the right to opt out
  • future entitlement to the basic state pension should become universal and be based on residency and not on contributions
  • the current state second pension should evolve into a flat-rate payment
  • the state system should be "as non means-tested as possible"
  • the savings element of the pension credit should rise by less than average earnings
Controversy

Many of the report's recommendations have been welcomed by unions, charities and pensions industry insiders.

However, there has been controversy over the likely costs of the proposals.

Business groups have expressed alarm at a recommendation that they should be compelled to pay into their workers' NPSS.

But Lord Turner suggested the cost to employers would be slight.

However, he did admit that small business would feel the burden of having to pay into their employees' pensions most keenly.

"This will be a bigger cost for small business than a big business... big business costs could go up by 0.4%, small business up by 1%," Lord Turner said.

Tax worry

Meanwhile, a statement issued by the Commission sought to dispel some of the worries about the eventual cost of its proposed changes.

It said that by the year 2020 its package would cost just 2.1bn a year more (after stripping out the effect of inflation) compared with the future costs of the government's present policies and state pension system.

Earlier, it had been reported that the Treasury was worried that income tax may have to rise sharply to pay for the proposal to link state pension increases with earnings.




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