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Breakfast with Frost
Adair Turner, chairman, pensions committee
Adair Turner, chairman, pensions committee
BBC BREAKFAST WITH FROST INTERVIEW: ADAIR TURNER, CHAIRMAN, PENSIONS COMMITTEE MARCH 9th, 2003

Please note "BBC Breakfast with Frost" must be credited if any part of this transcript is used

DAVID FROST: Now every week we seem to hear more bad news on pensions, the falling stockmarket, changes to company pension schemes and problems with life assurance companies, could all mean that for many people retirement will be decidedly less comfortable than they had expected. The Government has appointed Adair Turner to look into what's now routinely described as the pensions crisis. He's the former head of the employer's organisation, the CBI, and he joins me now. Looking at the figures, the top ten hundred companies says Dresner have a deficit on their pensions of a hundred billion. Pension black hole of 27 billion. It is a crisis, isn't it?

ADAIR TURNER: Well, it's certainly a major problem that we need to think about. I think the important point to realise is there's really two things that people are debating - two problems that we need to think about. One, which is the long term structure of the way that we save for pensions and how long we work - which probably has to change because we're all living longer. And that's an issue to get right for 20 or 30 years -

DAVID FROST: Right, so

ADAIR TURNER: There's a separate issue of what's going wrong with the system right at ...

DAVID FROST: Right. That one for a start really means that people, in order to be able to afford pensions later, are probably going to have to work 'til 70.

ADAIR TURNER: Well, I think it will vary for individuals and I think one of the things we're going to get away from is the idea that there is one fixed retirement age that everybody retires at the age of the state pension. In fact, one of the key things at the moment that happens is that many people retire long before state pension age - they retire in their mid-fifties - and they've been able to do that during the course of the Eighties and Nineties because actually because of the rise in the equity markets they had some pension funds which were in surplus and gave them very good deals. That may well not be the case in the future. Overall, the thing we have to remember is, the working population support people who are in pensions - that's the way it works and therefore as we live longer, either the working population have to save more or pensioners have to get poorer or we have to work longer. That's the iron logic which underlies whatever way you organise the system.

DAVID FROST: And so, what about in terms of the fact that, as you say, not enough people save - and they say 25 per cent of workers don't save or whatever - the key issue there is compulsion, isn't it? Should people be made to save for their own good?

ADAIR TURNER: Well that is the key issue which the commission that I'm chairing is asked to look at over a number of years. The Government has made a set of steps, which were set out in the green paper in December, which it believes will improve the voluntary system by making it easier for people to understand, by simplifying taxation, by providing them with better information. But our task on the commission is to look at it over the years and say is that making enough difference or when you actually step back will people always not save enough, and do we have to move, as some other countries have moved, to a compulsory basis. It's not something where the commission starts with any assumption - and nor does the Government - but it's an issue which I think we have to debate over the next several years.

DAVID FROST: And we've seen a big drop over from 1991 to 2001 in terms of the defined benefit, generally seen as the best form of pension, instead of the defined contribution which doesn't define what they're going to get at the end of the day. Now the numbers have gone rocketing down, downwards there, and 60 per cent of firms are saying they're closing that, that desirable scheme to any future employees who want to join it. Now isn't that very bad news?

ADAIR TURNER: Well it's certainly true that for the individual pensioner a defined benefits scheme is very attractive. The problem which has emerged over the last couple of years, of course it puts a large risk on the company when you have falling equity markets in particular. Many companies are then reacting to that by actually closing defined benefit schemes. Some of them, however, are renegotiating with employees to say look if we both put some extra contributions into this defined benefit scheme, or if we change the terms of it, then we may be able to keep it going. And I suspect that one of the future may lie in hybrid mixes, where somebody has some of their benefit in a defined benefit form, so that at least they've got a base-load of a pension guaranteed, with elements which are dependent on their own investment decisions and the, of what's called a defined contribution. I suspect it's going to be difficult to preserve the numbers of people in as good defined benefit schemes as people enjoyed in the Eighties and Nineties, but it would be attractive if we can preserve at least some element of defined benefit rather than go all the way to getting rid of it entirely - because for the individual it's a very attractive thing.

DAVID FROST: Adair, thank you very much indeed.

ADAIR TURNER: Thank you.

DAVID FROST: Adair Turner on that worrying subject there of pensions.

INTERVIEW ENDS


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