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The Actuary The magazine of the Institute & Faculty of Actuaries
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Pensions Commission over and out

he commission chaired by Lord Turner published its final report on 4 April, following which its work was at an end. The final report concentrated on analysing and responding to points raised in the debate since publication of its main report in November 2005.
Broadly, Lord Turner and his colleagues, John Hills and Jeannie Drake, were at pains to emphasise that their recommendations were an integrated consistent package and could not reasonably be cherry-picked, much as respondents might like to!

Commission conclusions
Private pension provision is in rapid decline the percentage of the private sector workforce which has no current private pension provision in addition to that provided or mandated by the state has grown from 51% to 56% between 2002 and 2004, a figure up from 44% in 1996.
The commission favours reforms of the state system to make it more generous and less means-tested than it otherwise might be, but with those reforms made affordable by a gradual long-term rise in the state pension age. The main debate on this has taken place not in public, but allegedly between a supportive Tony Blair and a hostile Gordon Brown (whose views may be aligned with those of Clifford Sharp see p28). A government white paper will emerge later this year.
The commission also recommends the application at national level of automatic enrolment, with employees not already in good pension schemes automatically enrolled by their employers into pension-saving but with the right to opt out. Lord Turner noted that this recommendation had apparently attracted universal support.
The commission also recommended a modest level of contingent employer compulsion, with employers required to make contributions of 3% of relevant earnings, where the employee chooses to stay enrolled. This has encountered some resistance from the Confederation of British Industry, and the commission is not unsympathetic to help for smaller employers.
Finally, and more controversially, the commission recommended the creation of a new national pension savings scheme (NPSS), designed to ensure that all individuals can enjoy the opportunity to save at the low costs currently enjoyed only by higher earners or by employees of large companies or of the public sector. This has attracted criticism and indeed alternative proposals from both the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF), mostly because it ‘reinvests the wheel’ of pension administration infrastructure. The commission continues to suggest that its own proposal is likely to be the most efficient, but acknowledges that this is not the only possible view and offers some comparative analysis. This appeared to leave room for a ‘hybrid’ approach as apparently favoured by the Department for Work and Pensions (DWP).
Lord Turner concluded with a plea for a medium-term consensus on pensions provision such as he suggests exists in Sweden and the US.

Reactions
The Association of Consulting Actuaries (ACA) expressed grave disappointment that the Pensions Commission’s final report ‘totally ignored making any recommendations on much-needed reforms to encourage employers to offer pensions better than the proposed NPSS’. ACA chairman Adrian Waddingham said: ‘It is quite remarkable that so major a study of voluntary pensions should have done so little to address the needs of pension schemes that are provided already to millions of employees. The report underscores that provision is being reduced, but its only solution is to raise state pensions which we support and to introduce a very basic national pension scheme, which the report recognises “is not sufficient to deliver conventional standards of pension adequacy”.’ This stance was echoed strongly by some consulting firms.
In contrast, the National Association of Pension Funds (NAPF) welcomed the final report. Chief executive Christine Farnish said: ‘We agree with the commission that significant reform to state pensions must be a vital component of the government white paper later this spring. A better, fairer state pension and a reduction in means-testing is needed if more people are to save for their retirement. We agree that any new NPSS should achieve low-cost and wide coverage.’ However, she added: ‘A single NPSS run by a government-appointed body, responsible for a complex new computer system and the design of a lifestyle fund into which many millions of people will be defaulted, is not the best way to do it. We believe that a pluralistic model run by not for profit super-trusts would give people a better deal, with fewer risks to government.’ The Equal Opportunities Commission was, if anything, more positive.
On the other hand, some would have wished to see employer compulsion. Social Market Foundation director Ann Rossiter said: ‘By rejecting compulsory pensions in favour of auto-enrolment, the Turner Commission has missed the opportunity to save the £19bn in tax currently spent incentivising savings. These saving could instead be targeted at low-income earners, carers, and women, and to minimise the burden of compulsion on small and medium-sized businesses.’
Interestingly, the chancellor responded positively if somewhat non-committally to the final report. He appeared to acknowledge agreement with the objectives of improving pension adequacy, even if still reluctant to accept that this must result in some cost to the exchequer. Some commentators suggested that this more positive tone must have come as a great relief to John Hutton at the DWP, who will be charged with bringing forward a white paper.
Dogs which failed to bark on this occasion but from which we can perhaps expect to hear in future included:
– changes to retirement age for public sector pension plans;
– possibly regressive effects of changes in retirement age (see comment on Scottish mortality on p16); and
– adoption of Turner’s proposal supported by the actuarial profession for a standing pensions commission to sustain fairness in the system.

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