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The design of any Pensions Commission needs careful thought, warns PPI

The idea of a Pensions Commission with an indefinite lifespan has been around for a few years now, but different people mean different things when they put this idea forward. In April, the Pensions Policy Institute published Briefing Note 29: What could a standing Pensions Commission look like?

The first type of Pensions Commission identified by the PPI is categorised as “general advisory”. This is the type of body which Adair Turner’s temporary Pensions Commission had in mind as its successor. The National Association of Pension Funds also supports a Pensions Commission of this form. The PPI envisages such a commission providing a general policy overview based on expert and independent research of trends, for example, the coverage of state and private pensions. This information would, in effect, monitor the impact of pension policy and assess its long-term suitability. It is this type of arrangement that seems to be proposed in the White Paper.

A second type of commission would be one that makes recommendations to Government on specific parameters, for example, state pension age or the minimum level of the state pension. Recommendations would, says the PPI, be based on extensive, independent research and close monitoring of the pension system. The role should also include explaining the rationale of such recommendations to the public. An example of such a body is the Low Pay Commission, which makes recommendations to the Government on what the level of the minimum wage should be. While such a body would not make policy, the Government would have to explain why it did not follow any recommendations. This type of commission is advocated by the Fabian Society, Help the Aged, the Liberal Democrats and the TUC, states the PPI.

A third type would be one that set policy in a specific area, for example, the state pension age. The PPI points to the Monetary Policy Committee as a model of this type. The MPC is responsible for adjusting the official rate of interest to achieve the Government’s inflation target. The ABI is a proponent of this type of commission to be an “economic regulator” in private pensions, for example, to use competition analysis to look at cost levels and set the optimum level of employer contributions to a national pensions savings scheme. Another proponent is the Pensions Management Institute.

The fourth type of commission, identified by the PPI, provides public information, for example, financial education and increasing the public’s understanding of the need to save for retirement and how to do so. A model for this might be New Zealand’s Retirement Commission. It runs a website called Sorted, and as a result of the perspective it gets from the use of this website, it has been asked to take on a policy advisory role. Proponents of this type of commission include the ABI and Scottish Widows.

The PPI warns that the design of any ongoing Pensions Commission would need careful thought. Should it have a permanent staff or should it be reconvened each time? The White Paper favours the latter. While a regular review of policy could be useful, might it encourage too frequent change to the system? Most important, its accountability and relationship with Parliament would have to be clear from the start. Politicians don’t like to think of anyone other than themselves having power, but the whole point of a Pensions Commission is to take long-term technical issues out of the short-term political arena.

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