Lord Turner has used the final report of the government's Pensions Commission to defend his pension reform plans. The commission proposed a state pension age rise from 65 to 68 by 2050 and that future increases should be linked to earnings rather than inflation. 

The report has sparked a row between Prime Minister Tony Blair and Chancellor Gordon Brown over whether the plans are affordable. Lord Turner said that taxes may have to rise to pay for higher pensions. 

He stated that the costs were "not significantly higher" than the government's current pension spending plans. But without reducing means-testing, Lord Turner warned that the entire programme of pensions reform may not work. 

He added that most pensions experts and interest groups believe the commission should have proposed a "more radical" rolling-back of means-testing. "The government now faces the difficult decision of how far and how fast it can move to reform of the state pension," Lord Turner said. 

Falling-out 

It has been widely reported that the chancellor is unhappy at Lord Turner's proposal to end means tested pension credits and raise the state pension in line with earnings rather than inflation. 

KEY PENSION PROPOSALS 

-Increase the state pension age for men and women to 68 by 2050 
-Make the state pension more generous and link future increases in it to earnings rather than prices
-Automatically enroll people into a new low-cost government-administered savings scheme 
-Give people the chance to opt out if it's not suitable for them

The BBC's political editor Nick Robinson says Mr Blair and Mr Brown's failure to agree has led to the latest rumours of a political falling-out. "One of those close to the Whitehall negotiations told me 'Blair is minded to overrule the Treasury'." 

When pressed about reported Treasury disquiet at his proposals, Lord Turner said "he had a set of very useful discussions with the Treasury throughout this process." However, there have been strong signals from the government that it accepts the idea of a later state pension age. 

In February the work and pensions secretary, John Hutton, said that an increase in the state pension age was "inevitable" by 2020. A government White Paper, outlining its proposals for solving the UK pensions crisis, is due to be published soon. 

Reaction 

The Pensions Commission has now published three reports. 
The first outlined the extent of the UK's pension problems, while the second suggested possible solutions. This short final report, now published, outlines what the Pensions Commission thinks about the public, governmental and financial industry response to its proposals. 

Reacting to the final report, pension groups urged the government to take bold steps. 
"The government must not squander this golden opportunity to radically reform the pensions system," Gordon Lishman, director general of Age Concern England said. 
"Lord Turner's proposals stand or fall as a package and must not be watered down," he added. 

Savings scheme 

The Pensions Commission proposed the setting-up of the National Pension Savings Scheme (NPSS), which many workers would be automatically enrolled into. This would allow people who were not part of an employer's pension scheme to take part in an occupational pension programme. They would contribute 5% of their salary, with their employer paying in an extra 3%. 

The NPSS proposal has drawn fire from some pensions industry insiders. Organisations including the Association of British Insurers and the National Association of Pension Funds have said that the NPSS would be more expensive to administer than Lord Turner presumes. 

In addition, the Confederation of British Industry (CBI) has called for employers to have an opt-out from the NPSS. 

It suggests the costs of the NPSS would prove a heavy burden on business and could ultimately cost jobs. To help small business, Lord Turner put forward a new proposal that their contributions to the NPSS could be subsidised with government money. 

This would involve the end to some workplace pensions contracting-out of the state second pension system.