No easy fixes for pensions crisis, says Turner

There are no easy fixes for the looming pension crisis, compulsory contributions are just one of several options and not necessarily the answer, according to pensions czar Adair Turner in his speech to the Trades Union Congress Conference today.

His findings come against a background of calls by union leaders for compulsory contributions for both employers and employees.

Speaking at the TUC Conference this morning, Adair Turner, who chairs the Pension Commission’s review of pensions, due to publish its recommendations on 30 November, warned that there are several options, none of which is particularly attractive.

Taxes and national insurance contributions will have to rise to pay for more generous State pensions, people will have to save more for private pensions, or average retirement ages and pension ages must rise, or a mixture of all three. The fourth option – that pensioners will get poorer relative to average earnings – is regarded as politically unacceptable.

But in spite of union calls for compulsory private pension contributions, Turner points out that there are problems with this route too. ‘Some people and institutions urge the Pensions Commission to recommend compulsion. And we know that many individuals say that they would like to be compelled to save,’ Turner said.

‘But we also know that many say very clearly that they do not want to be compelled. And we know that resolving that conflict by saying, ‘let’s just compel employers not employees,’ is not an answer.’

He went on to point out that in the long term, compulsory employer contributions will be at the expense of cash wages. ‘Indeed in the major developed country which has introduced compulsory pension savings in the last two decades – Australia – that trade off – pension contributions instead of cash wage increases was a deliberate aim of the policy, recognised by government, employers and unions alike.’

He warned too that high charges on compulsory pension schemes in Australia have been a problem, eating into individual’s pension savings disproportionately. This could be dealt with however in the UK by channelling contributions through stakeholder pensions where charges are restricted. Compulsion would, of course, be a bonanza for both pension advisers and providers.

Referring to reform of the State system, Turner highlighted the difficulties government faces. ‘Present policies, if continued indefinitely, will mean substantially smaller pensions on average, relative to average earnings.’

Public expenditure is planned to stay roughly constant as a percentage of Gross Domestic Product, increasing only from 6.2% to 6.4%, while the State pension age is assumed to stay constant at 65. But the proportion of the adult population over 65 will increase by around 45%. ‘As night follows day that means that by 2050 on average pensioners will receive about 30% less relative to average earnings than they do today.’ Turner warned.