Lessons for the government’s 'revived' Pensions Commission

In the 2000s Tony Blair and Gordon Brown could not agree on the future of pensions, and responded by kicking their disagreement into the long grass and tasking a commission to investigate what they assumed was the big problem: the closure of defined benefit schemes in the private sector. Its chairs – Adair (now Lord) Turner, former director general of the CBI, alongside an academic tax and welfare expert, the late John Hills, and trade unionist Baroness (Jeannie) Drake – soon recognised that a much bigger problem was the lack of any pensions saving at all among many in the private sector. 

They changed focus and after a two-stage process came up with a new settlement: mandating a pension offer for all employees with a minimum contribution from employers, automatic enrolment of employees (an early explicit outing for behavioural economics) and a rise in the state pension age. The National Employment Savings Trust (NEST) was established to offer low-cost pensions as an alternative to private providers, and a long timetable for enrolment was set out – final enrolments only occurred in April 2019. 

Now Torsten Bell wants to revive the commission approach. Bringing back Drake as chair, and with a similar line-up of a business person (Sir Ian Cheshire) ⁹ Sir Ian Cheshire is chair of the Governors of the Institute for Government  and an academic (Nick Pearce), the new Pensions Commission will look not just at how to ensure people are saving – many more now are, largely thanks to automatic enrolment – but at how they can save enough to give themselves a decent retirement. 

Alongside that, Bell has asked Dr Suzy Morrissey to undertake the statutory review of the state pension age ¹⁰ https://www.gov.uk/government/publications/third-review-of-state-pension-age-independent-report-terms-of-reference/third-review-of-state-pension-age-…  (the third to date – with the pensions age currently scheduled to rise to 67 between April 2026 and April 2028, and to 68 between April 2044 and April 2046). 

The Turner Commission was exemplary in looking in depth at the evidence

The Turner Commission was notable for its two-stage process – itself a product of a Blair-Brown compromise that kicked the date for the final report beyond the 2005 election. In stage one, the commission laid out its evidence that the current system was not working for millions of workers. By getting people to agree on the nature and scale of the problem, the commission created a robust basis to look for solutions. It was helped by the fact that both Adair Turner and John Hills in particular were willing to engage deeply with the numbers and assumptions; the new commissioners will need a similar readiness and aptitude.

That laid the ground for the Commission coming up with a package of recommendations that involved both benefits but also new obligations for each group. Employees could access new pension saving, supported by a mandated employer contribution, but would have to wait longer for their state pension. Pensions would be tied to average earnings, something Brown thought at the time would be unaffordable, and the report managed to take on the perceived taboo against raising the state pension age (for men). Employers would have to contribute, but SMEs for the first time could access a low-cost pension scheme for their employees.

The commission did a lot of active engagement with both sides at a series of ‘Pensions Days’ to explain its recommendations. 

Gaining political consensus was also key to implementing the reforms

Then the commission worked to build political consensus around its package as the lengthy timeline (which probably helped with the acceptance of the proposals). That involved engaging with opposition parties as well as with government and is something independent reviews are very well placed to do. The Pensions Act 2008 that brought in the proposals was passed with cross-party support and it survived the advent of the coalition; a rapid implementation review ordered by George Osborne, with the new arrangements fully implemented under Theresa May.

Since Bell is already saying there will be no increase in employer contributions this parliament, the new commission should set itself a similar goal of making sure that their proposals gain political consensus. 

Bell needs to ensure that the Treasury is on board – or the Commission should be ready to ignore it

Gordon Brown was always sceptical about the need to look at private sector pensions, and was known to be agitating behind the scenes – and his successors at the Treasury have been only grudging in their support of automatic enrolment. It has always seemed half hearted about throwing its weight behind the policy, because any significant increases in both employer and employee contributions would each put upward pressure on pay and business costs, but with added costs for tax relief. 

The Treasury meanwhile continues to send confusing messages to savers about the best vehicle for them. In April 2017 it introduced Lifetime ISAs ¹² https://assets.publishing.service.gov.uk/media/5a806786ed915d74e33fa3ba/Lifetime_ISA_final.pdf  targeted at younger savers (one of the groups that Bell has also said he is concerned about) which offers potential benefits in terms of access to deposits for housing, but also means that anyone choosing to save into a LISA rather than a pension forgoes both upfront tax relief on their contributions but also the employer contribution, making it a much worse deal for most people.  

But there is always a risk that the Treasury declares areas off limits. Perhaps the most important lesson the new Pensions Commission can take from its predecessor should be a preparedness to keep its eye on the prize and range as widely as it feels necessary – for example by looking at the savings products the Treasury supports with tax reliefs.  

The Turner Commission exceeded its remit – and expectations – and prepared the ground for radical reform. The new Pensions Commission should be as ambitious.