Pensions Commissioner Adair Turner spelled out the options for funding future pensions at the TUC Congress, and said companies and employees should not expect easy answers
Pensions Commissioner Adair Turner has taken the stage at the TUC conference, but warned delegates that he would not tell them the conclusions he had reached about how to solve the UK’s pensions crisis.
But he insisted there would be ‘no easy choices’ in the final recommendations of the report which, is due at the end of November.
Turner outlined the two most difficult issues that the Pensions Commission faced – the first relating to the demographic challenge and the state system and the second to compulsion.
He said that in 1980 decisions about public pension policy and about the affordability of Defined Benefit promises, were being made on the basis of estimates that male life expectancy from age 65 in 2005 would be about 14 years. However, now that we have reached 2005 that estimate is 19 years.
He said this left a choice between four options:
- pensioners will become poorer, relative to average earnings
- taxes or national insurance contributions will have to rise to pay for more generous state pensions
- savings flowing into private pension funds must rise, and regardless of whether the money is contributed by employers or employees, in the long run that will be at the expense of wages
- average retirement ages and pension ages must rise.
Turner said that people who do want to work later should be able to do so. He said the Pensions Commission strongly supported forthcoming legislation to end age discrimination and would prefer there to be no maximum age for its application.
He also made clear that the case for forcing employers to contribute was far from clear-cut, as had been suggested by the unions.
“There is a wealth of economic theory to suggest that in the long-term compulsory employer contributions will be at the expense of cash wages,” he said.
He added that many individuals, as well as employers, did not want to be forced to pay into a pension.
“Many employers do not see it as their role to provide pensions simply for reasons of social responsibility, focusing only on what advantages they get in the labour market,” he said.
“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.”