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Key Points in the Turner Report on Pensions Reform

By Paul Cummins FCCA AITI MSc.Multimedia Systems

4 November October 2004

The First Report of the UK independent Pensions Commission published in October 2004 presents the Commission's conclusions on the adequacy of pension provision and saving in the UK . It sets out the major challenges society faces and the unavoidable choices which need to be made. Key points in the report include:



  • Public expenditure constraints and an increasing number of pensioners mean that UK state pension provision per pensioner will decline relative to average earnings. But rather than increasing to fill the gaps, private pension saving, and in particular employer provision, is in significant long-term decline as provision shifts from final salary (“Defined Benefit”) schemes to less generous money purchase (“Defined Contribution”) schemes. (This is commonly called the ‘DB/DC' shift).


  • As a result, if current trends continued over the long-term, future pension income would be deficient in total and increasingly unequally distributed.


  • And many individuals will face more risks, for example on investment returns, that they are sometimes ill-equipped to deal with.


  • Home ownership could provide important retirement resources for many people, but it is not a sufficient solution to the problems and entails significant risks.


  • The problems will be more severe in 15 to 25 years time than in the next 10 years. A ‘muddle-through' option does exist but it would be less socially equitable and less economically efficient than we could achieve if we now thought through a planned and comprehensive policy for the long-term.


  • There are four barriers to the success of a voluntary pensions saving system;


    • most people do not make ‘rational' decisions about pension saving;
    • the cost of advice significantly reduces the return on saving;
    • the UK pensions system is extremely complex – leading to confusion and mistrust; and
    • means-testing increases this complexity and for some people reduces the incentives to save which the tax system provides.

Some of the graphics on the website will assist in simplifying the concepts

This means that unless new government initiatives can make a major difference to behaviour it is unlikely that the present voluntary private system combined with the present state system will solve the problem of inadequate pension saving.


The Commission is not at this stage making recommendations on specific policy changes but the Report does call for improvements in data sources.


And it states that the way forward must involve some mix of:


  • A major revitalisation of the voluntary system;
  • Changes to the state system;
  • Increased compulsion beyond that already implied by the State Second Pension and contracting-out arrangements;


These options will be the focus of the Pensions Commission between now and the publication of the Second Report, which will include policy recommendations, in Autumn 2005.