Word on the street
Secretary of state for work and pensions John Hutton said it was an “important milestone towards a lasting pensions settlement”.
“Put quite simply, we can not go on as we are. But it is also vital that we get reform right for future generations, and we are determined to reach a national consensus in order to achieve this.”
He continued: “The government has an open mind and we will continue to take on board people’s views in coming months through the national pensions debate as we work towards the publication of a white paper in the spring. We are ruling nothing in and nothing out.”
Pensions minister Stephen Timms has challenged the industry to come up with an alternative model to the National Pensions Saving Scheme. Timms urged all parties to “work out the details” and submit proposals by early February 2006.
“Success in pension reform requires government and industry to work in partnership with employers and employees. The voice of the industry has always been at the heart of our consultations on reform – and we need it to be at the heart of our response to Turner,” said Timms.
The Investment Management Association said the NPSS is “a potentially powerful and exciting idea” – although work was needed on the detail.
“If introduced properly the scheme could bring about a real increase in the levels of saving, reaching those who currently do not save for their retirement.” But it was important to ensure that the scheme did not hit the existing savings market.
Assistant director general Duncan Brown of the Chartered Institute of Personnel and Development – represented on the government’s Employers’ Taskforce on Pensions – also delivered comment.
“Raising the state pension age may well increase the notional supply of older workers, but it won’t necessarily increase the actual supply of them, or demand for them,” he said.
“This is a wonderful piece of work and the ball is now firmly in the government's court. Once they have considered the Commission’s recommendations, the government should lead the debate,” said Watson Wyatt senior consultant Alan Pickering. He added: “You cannot make pension policy by focus group.”
Donald Duval, who is chief actuary at Aon Consulting, said: “Whilst a lot of what we have seen in the Turner Report makes sense, without the support of the Treasury, the suggestions will not be worth the paper they are written on.
“Pension reform will never happen in the UK without the personal backing from Gordon Brown and as we have seen over recent weeks, he just does not seem to want to make the necessary changes to the UK's wider economic policy that will see a proper reform of our pensions system pushed through.”
Worldwide Mercer partner Tim Keogh commented: “We have reservations about a system which forces people to save 7% of earnings for their retirement from a young age. Such an arrangement will leave people indebted for longer than is necessary.
“Turner’s report talks about soft compulsion, but to the extent that employees miss out on employer contributions if they opt out, it is actually pretty hard. The choice is between NPSS and an alternative pension, not NPSS and no pension.”
According to Hewitt pension consultant Kevin Wesbroom: “The Commission's report is a pragmatic compromise which should help increase saving rates – but it offers scant relief to hard-pressed employers with final salary schemes. It would be sad if the government ignores this or waters it down any further.”
Deloitte & Touche UK chief executive and senior partner John Connolly stated that the proposed reforms could lead to a “seismic shift in the structure of the pensions market”.
Meanwhile, Deloitte’s insurance practice head Mark FitzPatrick commented: “The proposed changes will have a significantly negative impact on the UK financial services market. The life and pensions industry would expect to lose up to 30% of its revenue, putting up to 50,000 jobs at risk.”
Michael Pomery, president of the Institute of Actuaries, said: “We have serious concerns about the modest rise in the state pension age proposed by Lord Turner, from 65 to 68 by 2050.
“We welcome Lord Turner's recognition that a continuing rise in the state pension age is an important part of the overall solution.
However, his laudable principle of keeping the number of years lived in retirement as a constant percentage of adult life may simply not work in practice. The problem is that the number of years spent drawing a pension inexorably rises from each generation to the next, with consequent increases in the cost of providing those pensions.
“There is therefore a serious risk that this principle, which underestimates the impact of longevity, will prove unsustainable in practice. I believe that further, steeper rises in the retirement age will be needed long before 2050."