A single pensions regulator and an independent commission will need to be set up to help protect pension savers when the new pension flexibilities come into effect from April 2015, according to a report by the Work and Pensions Committee.
Its Progress with automatic-enrolment and pension reforms report highlighted that an individual regulator would need to be set up to protect employees from frauds or scams, or from suffering financial loss by making the wrong decision about how to use their pension pots.
Currently, pension regulation is shared between the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR).
The report stated that it is not convinced that the FCA is sufficiently focused on pensions and that the Pension Wise service is unlikely to be sufficient in itself to protect all savers from financial risk.
Dame Anne Begg (pictured), chair of the Work and Pensions Committee, said: “The pensions industry has not always done enough in the past to help savers make the right decisions.
“What savers really need is a strong, single regulator to act in their interests.”
Independent pension commission
The committee’s report also wants a new independent pension commission to be established by July 2015 along the lines of the 2005/06 Pensions (Turner) Commission to assess the impacts of the pension reforms and recommend improvements where necessary.
It wants an independent pensions commission to:
- Review auto-enrolment implementation to date.
- Advise on necessary changes and adjustments to auto-enrolment.
- Consider the implications of the pension freedoms changes.
- Advise government on consequent amendments to existing pensions legislation, and on the development of future pension policy.
One issue the Work and Pensions Committee wants the new commission to explore is the minimum age at which individuals can take advantage of the new pension flexibilities.
This is currently set at age 55, in line with current tax rules, and will rise to 57 in 2028, when the State Pension age increases to 67.
Begg said: “A new independent pension commission would be able to identify any emerging risks, and explore with stakeholders how these can best be addressed. The Turner Commission brought political consensus, full involvement of stakeholders, and detailed consideration of the wider impacts of major pensions policy changes.
“Allowing people to take advantage of the new pension flexibilities 10 years before they get their State Pension could create unrealistic expectations about the age at which they can afford to stop working.
“Our view is that, given the significant tax relief provided for pensions, increased longevity, and the importance of ensuring that people do not underestimate the income they need in retirement, the age at which people should be able to access their pension pots should be changed to five years before the State Pension age, except where there are ill health grounds. This is one of the key issues the proposed new commission should look at.”
The report also found that the auto-enrolment process has gone well to date but identifies a number of areas where careful assessment is required.
- The challenges of extending auto-enrolment to smaller employers.
- The level of minimum contributions for employers and employees.
- How excluded groups, such as self-employed people and those in multiple low-paid jobs, can be brought into pension saving more effectively.
In addition, the committee found that the government has been slow to finanlise details of the pot follows member legislation.
Begg added: “Good progress has been made through auto-enrolment in increasing the number of people who are saving for their retirement, and the amounts being saved.
“But there is much more to be done. Four million employees will be brought into auto-enrolment over the next few years and the small businesses that employ them will need proper support to meet their obligations.
”It is also important that everyone who can benefit from pension saving understands the advantages of auto-enrolment and is encouraged to remain enrolled.”