Spelling it out - in stark detail

FUTURE birth-rates in Brazil, Iran or Turkey? Adair Turner is the man to ask. How do the Swedes deal with uncertainties about life expectancy? He knows the details. Why is Albania unique in the whole of Europe? The facts are at his fingertips.

Turner, chairman of the Pensions Commission which produced a 316-page report last week on the challenges we face in financing our old age, has spent nearly two years immersed in the subject. And it shows. The former director-general of the CBI demonstrates an extraordinary grasp of both arguments and detail.

Is he surprised that the publication of his report caused quite so many gallons of ink to be spread on so many tons of newsprint?

'On one level, yes, it is quite surprising,' he says. 'Whenever I tell my teenage daughters that I'm spending a lot of time on pensions, it doesn't win me a lot of cred.

'And if you had suggested ten years ago that pensions would be such a big topic, no one would have believed you. But the closure of final salary schemes, the decline of the stock market, Equitable Life, pensions mis-selling - with all these issues, people are beginning to wake up to the long-term problems we face.'

And last week's report - only the first from Turner's commission - spells out the problems in stark detail while studiously avoiding making recommendations on how to tackle them.

Despite the report's length and extraordinary detail, its essence is simple: we are living longer. This, as Turner and his team are careful to point out, is a good thing. And we are choosing to have fewer children, which is again welcome.

'In terms of the environment and sustainability, it is probably good that we are ending up with population stability,' says Turner.

But these two welcome trends combine to produce a 'problem' - that over the coming decades, there will be fewer people in the workforce and they will be supporting an increasing number of retired people.

'We have to keep returning people to the fundamental truth that whatever policy option you choose, the relationship between retirees and people who are working is at the core of it,' says Turner.

'Any system extracts money from people who are still working and gives it to retirees. We need to work out what is the best system.'

Sounds simple? In essence, it is. And from this simple analysis one can derive some basic, if uncomfortable, conclusions.

Imagine that people start work at 25 and die at 85. If they retire at 65, they work 40 years and spend 20 years in retirement - a ratio of two to one. Shift the retirement age to 70 and the ratio becomes 45 years' employment for 15 as a pensioner: three years at work for every one as a pensioner. The difference is dramatic.

Of course Turner is not saying that raising the retirement age is the sole answer, 'but each extra year in work makes a big difference. Combine some change in retirement age with some change in taxation and some increase in the amount we save, and it begins to look manageable.'

It is all very interesting, and of course, all very important for us and future generations. But why did he agree to take on the Pensions Commission job? Yes, people have become increasingly engaged in the debate over funding retirement, but pensions are hardly the new rock 'n' roll.

He's already had one high-profile job - as head of the CBI for four years in the Nineties. And he has a demanding job as vice-chairman of Merrill Lynch Europe. So why do it? 'I like interesting intellectual challenges,' he says. 'At one stage I thought I might become a politician' - he chaired the university Conservative association at Cambridge in the Seventies - 'but I never managed to stay with one party long enough to make that very likely.'

He joined the SDP during its early-Eighties heyday, and more recently has been an adviser to Tony Blair. Now aged 49, he declares himself interested in public policy, but not party politics.

And though Turner says he has always been and remains 'a believer in market economics', the Commission's report is peppered with reminders that the free market is not always terribly good at coming up with efficient solutions.

Take one simple example. The cost of running a personal pension is likely to shave about 1% off the annual return of a fund, gobbling up as much as a third of a fund over its lifetime.

In a company scheme, the reduction in yield is less of burden, typically between 0.2% and 0.5% a year. And the cost of the State pension scheme? A mere 0.1% every year.

Turner says: 'It clearly shows that the State can provide an efficient and cost-effective way of making the transfer [of money from the working population to pensioners].

'If we are to compel people to save, one really needs to put some thinking into the design of the scheme to make sure administration costs are low.'

Last week's report marks only the start. The commission will now take soundings and come up with recommendations only after the General Election. Turner needs to keep his pensions hat on for a while yet.

And just what is unique about Albania? 'It's the only country in Europe that has a birth-rate above the replacement rate - more than two for every woman,' says Turner. Not a lot of people knew that.