Key themes in the final report of Lord Turner of Ecchinswell's Pensions Commission released today:

Retirement age

The Commission says there is an "unavoidable trade-off" to be made in setting pensions policy: the only way to keep public expenditure within acceptable limits is to raise the state pension age. The report suggests that the retirement age should be gradually increased (from the current 65) from 2020 onwards, reaching 67 by 2030 and 68 by 2050. This means that those just starting their careers face up to 50 years' work before they could retire, unless they have arranged private pension provision.

Lord Turner pointed out that those ages are not fixed in stone. If the retirement age was raised to 69 by 2050 that would reduce the proportion of gross domestic product spent on state pensions from around 7.75 per cent to 7.5 per cent, compared to the current 6.2 per cent.

The former CBI chief said in his presentation that the retirement age should rise gradually in line with life expectancy, so that the proportion of adult life spent at work should stay the same. If people do not accept that principle, he said, then "they are indulging in fairytale economics in which a fairy godmother makes all difficult choices disappear".

National Pensions Savings Scheme

To counteract a decline in private pensions savings, Lord Turner proposed that a new National Pension Savings Scheme (NPSS) should be established by 2010. Employees not already covered by a workplace pension scheme would be automatically enrolled into the NPSS, but could decide to opt out. Employees would contribute 4 per cent of their salary, employers an additional three per cent and the government 1 per cent. Self-employed workers could join on a voluntary basis and workers could choose to beef up their pension pots by extra contributions. The management costs for the scheme should not exceed 0.3 per cent.

Restoring the earnings link

Lord Turner proposes that the basic state pension should be linked to earnings and not to prices from 2010 onwards (which is more expensive since earnings tend to rise at twice the rate of inflation). This is the most politically contentious point, especially for Gordon Brown and the Treasury. The Commission also says that the state pension should be more generous than it is currently; it argues against means-tested pensions credits as favoured by the Chancellor, which it sees as a disincentive for savers, and says that it should become "as non-means tested as possible". The current state second pension (SERPS) should evolve into a flat-rate pension.

The Universal Basic State Pension

Lord Turner and his colleagues on the Commission were keen to end the historical disadvantage faced by women caused by lower career earnings and interrupted contributions towards their state pensions because of parenthood or caring duties.

The Commission proposes a Universal Basic State Pension, conditional on residency instead of contributions, from the age of 75, a move that is considered especially valuable for women.

The Debate

Lord Turner expressed the hope that his report will spark a "rational debate" among both public and politicians about the trade-offs needed to fund a sustainable and fair pensions system.

"I think there's going to be an open debate across all of politics. As I have said, I'm an optimist," he said.

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