The Government says it has revived the 2002-06 Pensions Commission to “consider the long-term future of our pensions system”. It has also launched a review of the State Pension Age.
One of the three original commissioners, Baroness Jeanie Drake (a Labour Peer) will help lead the new Commission’s work, alongside Professor Nick Pearce (a former head of the No.10 policy unit under Gordon Brown) and Sir Ian Cheshire (formerly CEO of Kingfisher).
The Commission will report in 2027 but Torsten Bell, the pensions minister, has underlined that no changes to default pension contribution rates will be implemented before the next general election.
Its terms of reference are quite general. For example, it will look at “how to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty or undersaving” and at “the role of private pension provision and wider savings, building on the foundation of the State Pension...”. Important levers such as the tax treatment of pension savings and the level of the State Pension are not explicitly in or out of scope. The Work & Pensions Secretary, Liz Kendall, said this morning that the triple lock will be out of scope, but it is not completely clear whether or not that refers only to the Government’s commitment to preserve it throughout the current Parliament.
Mr Bell says: “We cannot allow tomorrow’s retirees to be poorer than today’s – which is what we are on track for”. The Government projects that people retiring in 2050 will on average have 8% (£800 pa) less private pension income than people retiring in 2025. Its policy document explains that default contribution rates under automatic enrolment were “never intended to...fill all of the ‘retirement savings gap’” but that “relying on individuals to choose to save more has proven risky”. Changes in the housing market and in the number of people who are single in retirement have added to the challenge of retirement adequacy since Lord Turner’s Commission reported in 2005, while the Government suggests that “there could be scope for further innovation” in how defined contribution pots are turned into retirement income.
Other statistics cited are that 45% of working-age people (not just employees) are not currently saving anything into a pension, that almost half of private sector employees earning £10,000-£20,000 save at the default minimum rates, and that a typical woman currently approaching retirement can expect a private pension income that is around half that of a typical man.
The Commission is positioned as being about “finishing the job” started in the early 2000s – the title of a new policy paper. (There was, however, a similar sense of urgency to the title of the 2017 review of automatic enrolment, entitled Maintaining the Momentum, and its recommendations have yet to be implemented.)
Legislation requires the Government to conduct a review of the State Pension Age at least once every six years. The next review does not legally have to conclude until 2029 and the Labour Government had not previously reaffirmed its predecessor’s commitment to hold it within the first two years of this Parliament.
In line with the legislative procedure, the Government has commissioned two reports:
The previous Government said in 2023 that the next review should consider all options consistent with giving affected individuals at least 10 years’ notice. Today’s documents do not reaffirm that principle and Labour ministers have previously spoken about giving “sufficient notice”.
The most aggressive formula that the Government Actuary has been asked to crunch numbers for would see the State Pension Age start rising towards 68 almost as soon as it reaches 67 in 2028. However, a Government that will not contemplate increasing default pension contributions until after the next election seems unlikely to sanction that.
Documents accompanying today’s announcement include:
