FORMER CBI director general Adair Turner will deliver his long-awaited government-sponsored review of UK pensions on Tuesday (Oct 12).

It comes amid concerns over the long-term viability of the Pensions Credit and the countdown to A-Day - the overhaul of pensions on April 6 2006.

A new report from Mercer Human Resource Consulting is calling for the basic state pension to be combined with the flat rate state second pension to provide a single flat rate, integrated state pension which increases in line with earnings, instead of inflation.

Mercer European partner Tim Keogh said: "Recent comments by the Prime Minister suggest that the government finally realises the state system is in need of radical reform.

"No one disputes that the changes made so far, especially the Pensions Credit, have greatly improved the situation for many pensioners, and the government deserves recognition for this.

"But even the best medicine can have unfortunate side effects, particularly in the long term, and lifestyle changes are often needed once immediate symptoms have been treated.

"Malcolm Wicks, the Pensions Minister, said the Pensions Credit was a 'short to medium-term policy only', and we take from this that government is looking at a more sustainable long-term solution."

Mercer believes a new system is needed to:

l set the integrated state pension at a sufficient level for most people to avoid means-tested top-ups.

l set the eligibility age for the integrated state pension high enough to make it affordable.

l abolish contracting out to clarify the different roles of the state and private sectors.

l renew incentives for employers involved in supplementary retirement provision so they continue to participate on a voluntary basis.

"The government should offer people a clear deal in return for their taxes and leave them to decide whether to top up their pensions.

"Compulsory private pensions must be avoided as they will simply create an inefficient system for small amounts of money.

"An integrated state pension would be a far more effective place to start."

But Dorset Business director Howard Lee said: "In reality, compulsion will happen as the government's tinkering with pensions is never likely to resolve any of the issues that currently confront the retiring populous.

"It's a matter of when - not if," added Mr Lee, MD of Bournemouth IFA Burgess & Lee.

Adair Turner's review had been expected in the summer but was delayed to October 12.

Two weeks ago Mr Turner criticised the government's pension statistics for being "inadequate".

His attack came as the Inland Revenue admitted that it had overstated the amount of pensions tax relief it paid by £3 billion a year since 1999.

First published: Oct 11