No easy fixes for pensions crisis, says Turner

Turning to means testing and Pension Credit he pointed out that if current policy remains unchanged, the contributory State pension paid to the average earner on about £22,000 per year, would have to fall even further than its current level of 27% of average earnings

‘The State pension system is either going to become more means tested, or it’s going to require higher taxes or NI contributions, or there are going to be higher State pension ages, or some mix of all three.’

‘But whatever choices we make on the State system, it is clear that increased pension saving into funded pensions will also have to be part of the response to the demographic challenge if people are to achieve what that they are likely to consider adequate pensions,’ Turner said.

Meanwhile fewer employees are members of occupational pension schemes as employers close schemes to new entrants. And in the move away from defined benefit final salary schemes to defined contribution, money purchase schemes, employers are taking the opportunity to cut their contributions, leaving employees with lower pensions.

Turner pointed out that many employers do not see it as their role to provide pensions simply for reasons of social responsibility. They focus only on what advantages they get in the labour market. ‘Many are also convinced that pension promises – deferred pay – don’t bring them as much bang for their buck in recruitment and retention as cash wages.’

He also highlighted the fact that many individuals find it very difficult to make sensible decisions about long-term savings without encouragement and advice because the pension system is complex and difficult to understand.

The problem is compounded by the fact that it is very difficult for the financial services industry to sell pensions to people on average earnings and below, working for small and medium size companies, or even to sell pension schemes to their employers, at annual management charges sufficiently high enough for them to make a profit but sufficiently low enough to represent good value for money for the person saving. Compulsion would, of course, largely remove that difficulty since marketing costs would virtually disappear.

Turner concluded by saying: ‘All the Pensions Commission can promise you, or government or business or individuals, is that there are going to be no easy choices among the recommendations we present on November 30th.’