Why did the Government commission this report?

The average age of the UK population is rising, so in 20 years time there will be fewer people in work paying taxes and National Insurance to support a larger number of elderly. With longer life expectancy, too, people need more money to see them through their retirement.

Lord Turner was asked to investigate possible solutions to this problem. He was also asked to examine how people with interrupted work records, such as mothers and carers, can be helped to accumulate decent pensions.

What were the main points in today's report?

Lord Turner’s report recommends raising the state pension age, to at least 67 by 2030, and possibly 68 by 2050. He indicated that the retirement age should keep rising as long as life expectancy does.

His other main proposal was a national pensions saving scheme. All employees that are not already members of a company pension scheme will be automatically enrolled but they will have the choice to opt out. Employees will have to pay 5 per cent of their salary above £5,000 and below £33,000. In addition, employers will make a 3 per cent contribution

His other proposals included restoring the earnings link to basic state pensions so that pensioners benefit from rising prosperity. He also wants means testing to be reduced and recommends that all women over 75 receive a universal basic state pension that is not dependent on contribution.

Were there any surprises?

Few experts were expecting Lord Turner to recommend that the contracting out of state second pensions should be phased out. Another surprise was the recommendation to abolish the law requiring pension holders to take an annuity by the age of 75. He also called for the permanent establishment of the Pensions Commission, or some similar independent body, to report on pensions every four years.

Why did Turner choose not to make pension savings compulsory?

Forcing workers to give up an extra 5 per cent of their salaries – the equivalent to a massive tax rise - would be politically unpalatable and so unlikely to be adopted by any political party. Compulsion would also face considerable opposition from business, which would face paying out even more in contributions that it would under an optional scheme.

Why does he want to scrap means testing?

Critics of mean testing say it punishes people who put aside money for their retirement and as such acts as a disincentive to save. Also, the number of people who must face means testing grows each year. Last year 46 per cent of the elderly applying for pension credits had their income assessed. This is expected to grow to 71 per cent by 2050.

Are his recommendations affordable?

Lord Turner estimates that indexing the state pension to earnings, maintaining the pension credit, reducing means testing and increasing pensions for the over 75s would cost £1.5 billion extra a year by 2020. The cost of the national savings scheme would be considerably higher and some commentators argue it would send the economy into recession, as consumer spending would inevitably fall. Whether Lord Turner's plans are affordable is open to debate and depends on whether people would prefer to work longer, save more, pay higher taxes or face a poverty-stricken old age.

Is the government likely to adopt these recommendations?

There is plenty of political wrangling ahead as Gordon Brown has privately raised doubts about the recommendations but the Government has promised to respond by the spring of next year.

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