At a first glance, the latest Turner report appears to be very thorough and provides the government with options rather than being prescriptive.
That being said, some of the issues that would normally be considered peripheral are being dealt with in a way that suggests that Santa has arrived early this year. Basing a strategy for the reform of the pensions system in the UK on narrowing the health gap between socio-economic classes by promoting best practice amongst employers seems to be more shaky than shake-up given the sums of money involved.
Pensions are expected to perform two functions. One is to be an extension of social security and provide a safety net – this market will be taken over by the universal pension and the national savings scheme. It will take business away from life assurance companies, which were probably unprofitable, and the government can now concentrate on bringing wealth management to a wider population. The other purpose of pensions is functional – to bring people choice and comfort in their later life. It is a means of establishing a tax-efficient income function of the total portfolio.
Perhaps the main topic to be picked out of the report, by the UK population as well as industry insiders, is the fact that under the suggested regime employees will be required to work for longer. However, this change would be introduced very gradually and in stages. Nobody who is now over the age of 50 would be affected and an individual over 40 would find that their state pension age had only increased by one year. The report actually suggests that people should have 15 years notice of an increase. And although the ultimate state pension age would be 69 by 2050, this is only quoted as a possibility.
Lord Turner also manages to face potential criticisms of the later state pension age head-on. The government would be required to promote best practice in occupational health issues or the state pension age should reflect evidence of socio-economic class. The aim must be to reduce health inequalities. This seems very complicated and very expensive for a pay as you go scheme, but is dealt with rather summarily.
Under the changes that Turner has suggested there would be a universal citizen’s pension instead of the current basic state pension. This would be based on residency in the UK rather than a national insurance contribution record and would therefore be fairer to those women who take career breaks.
The report does not, however, get everything right and fails to pinpoint some of the major issues that are in existence in the pensions industry. The main example is the issue of the education of the UK consumer – something which is barely touched upon. If there is talk of such grand designs as narrowing the health gap, then surely Turner should have also taken a look at what is being taught in schools. Children need to be taught about the basics of financial planning, such as compound interest, risk, planning, budgeting and so the list goes on – they are after all the pensioners of the future. Yes, this is a long-term plan, but the basis for the entire report appears to be a long term strategy for solving the UK’s pension crisis.
Some of issues that have been highlighted seem as though they would benefit from some further thought. Examples that spring to mind are reforming the tax system – with tax relief on pensions worth £12.3bn and national insurance contribution savings £6.8bn it would be too complicated – as well as investment in training – who is going to train workers for a maximum of about five years.
Finally, the plans for a national savings scheme will mean that government bonds will need to be in big supply. A big issue of bonds would raise the price and reduce the yield further and this would be extremely bad news for the annuity market. It would be like giving with one hand and taking away with the other.
But, criticisms aside what the Turner Report does show the government, is that there is more to retirement than just pensions. If the Report does get it right and is adopted, there is a possibility it could go some way to helping deal with other problems areas such as long term care.