The Pensions Commission set up last July is expected to publish its interim report next month, so what could it say?

Almost 20 years after the Turner Commission recommended auto-enrolment, the government ‘resurrected’ the Pensions Commission.  It came just four months after pensions minister Torsten Bell had dismissed the idea of setting up just such a commission.

Labour peer Baroness Jeannie Drake, who sat on the Turner Commission, former Barclays UK chair and ex-CEO of Kingfisher Sir Ian Cheshire, who now chairs the board of the Institute for Government, and public policy expert Professor Nick Pearce, who leads the Institute for Policy Research at Bath University form the commission that is considering why tomorrow’s pensioners are likely to be poorer than today’s and what can be done about it.

What the interim report will say will only be known once it is published, but Emma Douglas, non-executive chair of lobby group Pensions UK and future chair of the Pensions Regulator, thinks the commissioners are “looking quite favourably on the idea of emergency savings” but “probably less favourably on the ability to buy a home”.

The Turner Commission was looking at how the state pension, auto-enrolment and voluntary savings together could give an adequate retirement income, Douglas said speaking at the Association of Member Nominated Trustees conference on Tuesday.

“The state pension has been going up, that’s increasing quite nicely. The triple lock has worked from that point of view,” she said, while a full career of auto-enrolment should provide a 45% replacement rate on average earnings.  

“But the real problem is people are not paying in voluntary savings. So they reckon on average, voluntary savings are around 2%. It needs to be about double that to give people enough in retirement,” she said. 

“So it's how do we increase those voluntary savings? Maybe something like ‘save more tomorrow’, sign up for auto-escalation – there'll be some ideas on that, I think, as well in the Pension Commission,” she predicted.  

To avoid the 2030s being wasted in pension terms “we've got to pin our hopes on the Pensions Commission”, said LCP partner Sir Steve Webb. Speaking at the same event, he said that the 2020s will have been “a complete waste” in terms of increasing the size of people’s pension pot.   

The former pensions minister thinks the commissioners are particularly focused on retirement outcomes for people on the lowest incomes, noting that when the commission was launched, the then work and pensions secretary, Liz Kendall, said she wanted the Pensions Commission to think about short-term savings.

“Even I think people need short-term savings as well as long-term savings,” Sir Steve said, remarking that auto-enrolment has led some lower income people to get more indebted.

The commission is looking at things like Nest’s sidecar savings trial, he believes, but added: “My hunch is they won't do it. They're already starting to say things like, ‘Pensions are for pensions’, and I get that – but particularly if we're going to increase overall contribution rates, including for the lower paid, if we don't enable them to have a bit more flexibility, we may not be doing them a favour.”

He expects the commission to make no recommendations for big changes in this parliament – the government has ruled out increasing auto-enrolment contributions.

“But even if all they do is give us an agenda for the 2030s, perhaps a schedule for going from 8% to 10% to 12% to whatever, that would be a win, in my view,” he added.

The commission might set out a timetable after 2029 for gradually increasing contributions, he speculated, perhaps to 10% with a 50/50 split between employers and employees, and then perhaps moving to 6% each.

There should be a soft version of auto-enrolment for the self-employed, he argued, but claimed that “everyone is terrified of white-van man”.

Sir Steve criticised how small the commission’s remit is, which excludes looking at the triple lock, for example. “They're going to project future pension incomes and they're not allowed to look at how the state pension income is increased. It's just too political,” he believes.

The commission is also not allowed to look at tax relief on pensions, an issue that has long been in focus for industry and politicians.

“Surely this is the one reason to have a pensions minister in the Treasury, so they can look holistically at state pensions and private pensions and tax rates – but no, the Pensions Commission is not allowed to look at that, too political,” he said, calling the constraints put on the commission “frustrating”.