13 CONCLUSION
455. The central package of reforms outlined in the
White Paper is to:
- Reform the state pension system
to increase coverage for those with caring responsibilities and
to provide a better platform for saving;
- Introduce a new system of personal accounts;
- Introduce limited reforms to the regulatory environment
for existing occupational pension provision.
- Increase the State Pension Age to 68 by 2044.
456. Evidence to the inquiry suggested that there
is a broad degree of consensus in support of this overall package.
A key question for the Committee was whether this consensus was
likely to be enduring. In Sweden, the Committee identified two
factors as being particularly important to lasting consensus around
pension reform - affordability and sufficiency of benefits. We
conclude this report by attempting to identify some strains that
might emerge in future and threaten to destabilise consensus.
Personal accounts
457. As part of the package of reforms in the White
Paper, the success of the personal accounts scheme will be critical.
In evidence to the Committee on 7 June, the Secretary of State
said:
"The question for us is how much more and
how many more people we can get to save. This is going to be
the acid test for these reforms, and I accept that. The whole
balance between what we were doing on personal accounts and then
the complementary reforms for the State Pension are designed fundamentally
to generate more savings, to provide people with the peace of
mind to know that it is worth their while to save. That is what
we have to do."
458. The Committee identified a number of possible
risks to the success of the scheme and recommends that the Department
prioritise:
- Maximising participation of
the target groups, in particular the self-employed and employees
in small businesses. This will be a challenge given that there
is to be no automatic enrolment process for the self-employed
and concerns expressed by small business representatives about
the new obligations the scheme will impose on them.
- Ensuring that the delivery model is universal
and that the process for auto-enrolment is as simple as possible
for both employers and individuals.
- Taking steps to ensuring people have the information
and advice to make the right decisions as to their participation
in the scheme.
- Developing independent, arms-length governance
arrangements.
Existing occupational provision
459. The Committee heard conflicting views on whether
there was likely to be a 'levelling down of existing provision
in response to the introduction of personal accounts. This will
need careful monitoring. The Committee welcomed the deregulatory
review and the inclusion of representatives from Which? and the
TUC on the group established to make recommendations to Government.
State Pension Reform
460. The Secretary of State explained that the state
pension reforms "are fundamentally designed to support the
introduction of the low cost personal accounts."[553]
In particular, therefore, it is vital that the scope of means-testing
is reduced so that people can safely be auto-enrolled with confidence
that they will not end up on Guarantee Credit in the future. To
encourage this confidence we recommend that the Government:
- make a firm commitment to re-link
the Basic State Pension to earnings no later than 2012 in primary
legislation; and
- publish details of what groups are likely to
find themselves entitled to Guarantee Credit in future and what
it estimates to be the range of possible outcomes for future entitlement.
- Other key parameters of state
pension reform - such as the indexation arrangements for Pension
Credit - should also be placed in primary legislation to give
confidence that they will be carried through.
462. The Committee notes that there is an element
of complexity in the state pension reforms, particularly as regards
future entitlement to the State Second Pension. Alternative proposals
for state pension reform have included the suggestion that the
Government should move more quickly to a single-tier flat rate
state pension. We recommend that further down the line - probably
as part of the independent review that we recommend - the case
for merging the Basic State Pension and the State Second Pension
should be reviewed. In addition, we strongly recommend that the
Government look again at the case for reviewing tax relief on
pension saving, recognised by the Pensions Commission as "costly,
poorly focused, and not well understood."
State pension Age
463. A further source of difficulty might be around
raising the State Pension Age. The Committee registered strong
concerns around the potential impact of this on lower socio- economic
groups. We recommend that this should be looked at by an advisory
commission, tasked with one of the periodic reviews of the pensions
landscape. We also recommend that future rises are subject to
achievement of the health inequalities target.
Locking in consensus?
464. The reforms will inevitably come under strain
over coming years. As we have suggested, some key parameters need
to be in primary legislation to give confidence that the reforms
will be carried through. At the same time periodic reviews will
be needed to provide independent advice as to whether changes
are needed in response to changing circumstances.
553 Q 248-9 Back
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