What the Pensions Commission will do – and what it won’t

The terms of reference for the commission were published yesterday alongside a range of government research papers covering automatic enrolment, pension participation rates and the gender pensions gap.

The commissioners - Sir Ian Cheshire, Baroness Jeannie Drake and Professor Nick Pearce - have been tasked with considering “the long-term future of our pensions system”, the department said. This includes:

• Assessing outcomes and risks affecting future cohorts of pensioners on current trajectories through to 2050 and beyond;
• Exploring how to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty or undersaving;
• The role of private pension provision and wider savings in delivering financial security in retirement and supporting those approaching retirement, building on the state pension as a “foundation”;
• The long-term challenges of supporting an ageing population; and
• “Any proposals for change beyond the current parliament”.

The longer-term proposals are expected to build on the measures contained in the Pension Schemes Bill with the aim of ensuring that “Britain in the mid-21st century delivers financial security in retirement through a pensions framework that is strong, fair and sustainable”.

Announcing the launch of the Pensions Commission yesterday (21 July), work and pensions secretary Liz Kendall said it could look at existing concepts such as sidecar savings and lowering the age and earnings limits for automatic enrolment eligibility.

The Confederation of British Industry and Trades Union Congress will meet regularly with the Pensions Commission to feed in the employer and employee perspectives, but the DWP has encouraged the commissioners to “consider the views of a wide range of stakeholders to build an evidence base from which to generate consensus around improving the UK pensions landscape”.

Areas out of scope for the commission

However, there are several areas that the government has made clear that it does not want to change.

Addressing industry representatives and the media yesterday, Kendall confirmed that the government would not raise auto-enrolment minimum contributions during this parliament – effectively ruling out a change until 2030 at the earliest.

The tax system is also out of scope of the Pensions Commission. Asked about potential changes to taxation, pensions minister Torsten Bell – who also reports to the Treasury – said: “Tax changes are for the Treasury and so are not in scope for this review.

“Obviously the tax system is important. We have a system of pension tax relief that costs around £70bn a year that provides strong incentives for saving, and that’s a good thing.”

The triple lock on the state pension will also remain in place for the duration of the current parliament, meaning this too is unlikely to be part of the commission’s work.

Steve Webb, partner at LCP and a former pensions minister, warned that the limitations placed on the “excellent, respected and knowledgeable” commissioners meant they would have “one hand tied behind their back from the outset”.

“Central to any plans for the future of retirement incomes is a view on how the state pension will contribute, yet they have been told they are not to comment on the future indexation of the state pension and the triple lock policy in particular,” Webb said.

“Another key lever available to government is to use pension tax relief to incentivise pension saving and to do more to support under-pensioned groups. But despite having a pensions minister who is also in the Treasury, this review is not being asked to look at pension tax relief.

“On a day when the government admitted that the number of people under-saving for retirement has soared by two million in just two years, the need for a comprehensive review has never been greater. The tight remit of this review represents a missed opportunity.”