House of Commons - Treasury

Select Committee on Treasury Fifth Report

1 Introduction

Pensions policy and long-term savings

1. The need to save for the long-term, and for retirement in particular, raises issues of fundamental importance for individuals and for public policy. The capacity to meet that need profoundly affects the welfare of the individuals concerned and their families, as well as the sustainability of the public finances. In 2004 the then Treasury Committee drew attention to the fact that "confidence in savings and the savings industry is at a low ebb".[1] Our predecessors explored factors that would affect prospects for restoring that confidence, including marketing practices and costs in the long-term savings industry, the role of financial services regulation and the impact of tax and benefit policies.

2. Pensions provide the cornerstone of long-term savings. A possible way forward for private and public pension provision has been mapped out in the work of the Pensions Commission chaired by Lord Turner of Ecchinswell.[2] The Commission was an independent body established following the Pensions Green Paper in December 2002 with a remit

The Commission published its First Report, which set out the challenges society faced and the choices that needed to be made, on 12 October 2004.[4] The Commission's Second, and most substantial, Report, which contained recommendations for new policies relating to private and public pensions, was published on 30 November 2005.[5] On 4 April 2006, the Commission published a third and final Report commenting on specific issues which had arisen in the debate on pension reform since publication of the Commission's Second Report.[6]

Our inquiry

3. At the beginning of March we announced our intention to conduct an inquiry into the design of the National Pension Savings Scheme and the role of financial services regulation. We indicated that we would particularly be concerned with exploring factors affecting the costs of any pension measures arising from the proposals in the Second Report of the Pensions Commission for a National Pension Savings Scheme, the regulation of such measures, the roles of the Financial Services Authority and the Treasury, and lessons from Stakeholder pensions. We decided to conduct a short, focused inquiry with a view to reporting to the House of Commons prior to the publication of the Pensions White Paper, which is expected by the end of May.[7] We heard oral evidence from Which?, Mr Ned Cazalet of Cazalet Consulting, the Investment Management Association (IMA), the Association of British Insurers (ABI), the National Association of Pension Funds (NAPF), the Financial Services Authority (FSA) and Lord Turner. We also received a range of written evidence which will be published alongside the oral evidence in Volume II of this Report.[8] We are grateful to all those who assisted the Committee in the course of this inquiry.

4. The reports of the Pensions Commission cover a very broad canvas. Many of the issues relating to pensions reform are being examined in a wide-ranging inquiry by the Work and Pensions Committee of the House of Commons.[9] Our own inquiry has concentrated on the issues surrounding the National Pension Savings Scheme and the other models that have been proposed for further private pension provision, including issues of cost and regulation. We have not sought to take evidence on the costs and merits of particular policy measures relating to pensionable age, the level of Basic State Pension and the operation of Pension Credit. We do examine the interaction between the various proposals for further private pension provision and possible future trends in relation to public pension provision.

1 Treasury Committee, Eighth Report of Session 2003-04, Restoring confidence in long-term savings, HC 71-I, para 1 Back

2 The other members of the Commission were Jeannie Drake and John Hills. Back

3 Pensions: Challenges and Choices: The First Report of the Pensions Commission, October 2004 (hereafter Pensions: Challenges and Choices), Executive Summary, p 1 Back

4 Pensions: Challenges and Choices Back

5 A New Pension Settlement for the Twenty-First Century: The Second Report of the Pensions Commission, November 2005 (hereafter A New Pension Settlement) Back

6 Implementing an integrated package of pension reforms: The Final Report of the Pensions Commission, April 2006 (hereafter Implementing an integrated package) Back

7 HC Deb, 8 May 2006, col 1 Back

8 For a list of memoranda in Volume II, see p 41 Back

9 For further information on which, see www.parliament.uk/workpencom. Back