Pensions report calls for radical shake-up and hints at compulsory saving

Pensions report calls for radical shake-up and hints at compulsory saving

Britain's looming pensions crisis moved to the centre of the pre-election political stage last night after the report of the Turner Commission warned that 12 million Britons are failing to save enough for their old age.

The government was under mounting pressure from the Liberal Democrats and Conservatives to embrace the need for radical reform after the study expressed severe doubts about Labour's mix of policies.

The commission, headed by the former CBI director general, Adair Turner, said a combination of later retirement, higher taxes and additional saving would be required if pensioners were not to get poorer. It criticised the complexity of the government's means tests and dropped a strong hint that in its final report in a year's time it may call for compulsory saving.

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Ministers must take action or risk spending an extra £57bn a year by 2050 to maintain the current levels of retirement income, the commission said.

It warned that if there is a failure to put extra funds into pensions, either through savings or extra taxation, people will need to work until they are 70.

Mr Turner said: "The underlying problems have been getting worse for 20 years at least, but were masked by the temporary impact of the baby boom generation, by a failure to anticipate the scale of life expectancy increases, and by the irrational equity market exuberance of the 1980s and 1990s.

"We must now make adjustments which we should ideally have begun 20 to 30 years ago."

Both opposition parties called for the government to increase the basic state pension, as did most pensioner lobby groups.

Liberal Democrat work and pensions spokesman, Steve Webb, said: "While the poorest will be entitled to means-tested benefits, and the richest have continued to do well, middle Britain has been abandoned.

"Any solution to the pensions crisis must start with a decent basic state pension, payable free of means-testing, on which hard-working people can build their own savings."

The shadow work and pensions secretary, David Willets, said: "Adair Turner's report is a powerful wake-up call. We need to reform the state benefit system. We need to provide better incentives to save."

Government sources were last night defending the mixture of means-testing for poorest pensioners and incentives to encourage individuals to save more for old age.

The Treasury said increasing the basic state pension to limit means testing would either require around £30bn extra in taxes or a transfer of resources from poor to better off pensioners. The government will go into the next election with rules designed to encourage voluntary saving.

The pension bill making its way through parliament goes some way to simplifying the pension tax regime and making it easier for workers to draw some of their pension while still working.

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