- The House of Commons Treasury Select Committee has recently published its Report on “The design of the National Pension Savings Scheme and the role of financial services regulation”. Copies of this Report can be accessed at http://www.publications.parliament.uk/pa/cm200506/cmselect/cmtreasy/1074/1074i.pdf .
- EEF submitted written evidence to the Select Committee for this inquiry and, at the request of its Chairman (Rt Hon John McFall MP), provided some supplementary information based on the findings of the EFF/Aon Consulting 2004 Pensions Survey. A copy of EEF’s written evidence to the Select Committee is attached as an Appendix.
- In its Report, the Select Committee concludes that “the proposals of the Pensions Commission offer a great and unique opportunity to reverse the decline in private pension provision and restore confidence in long-term savings”. It goes on to say that “it is essential that any new pension savings vehicle is designed so as to minimise the need for financial services regulation about the suitability of the product for its target market” and that “success in removing the costs of such regulation depends upon a decision about the employer contribution and long-term trends in means-tested State provision for pensioners”.
- The Report adds that the following three pre-conditions are necessary to achieve an integrated approach for any new pension savings vehicle:-
(a) “The correct balance is struck between the role of the State in securing and promoting a new pension savings product and the sense of individual ownership”,
(b) “The new product maintains the simplicity and near-universal suitability proposed by the Pensions Commission to minimise cost and the need for regulation”
and
(c) “Reform of private pension saving take place in tandem with a new direction in the State pension system”.
- In its Report, the Select Committee analyses the alternatives to the NPSS that have been proposed by both the ABI and the NAPF and comments that, in its evidence, “EEF expressed concern about the potential costs and risks for employers” in choosing pension providers or “super trusts” on behalf of their employees. The Committee’s conclusion is that, whereas the NPSS and the NAPF models remove the element of employee choice about a provider, the ABI’s model introduces consumer choice which, according to the Financial Services Authority’s evidence to the Committee, “will create additional regulatory requirements which may in turn affect the overall cost of any scheme based on that model”. It therefore concludes that “this places additional onus on the ABI to produce convincing evidence that provider competition will serve to drive down cost”.
- It adds that “it is of crucial importance to the success of the NPSS and the overall trend of private pension saving that the Annual Management Charge is as low as possible and moves in a downward direction”. It also states that “a move to auto-enrolment is an essential precondition if the NPSS or any rival option is to be implemented” and that “the compulsory matching employer contribution is an integral element”.
- The Select Committee also examined the possible impact that the introduction of the NPSS would have on existing occupational pension schemes. In its Report, it states that it agrees with the oral evidence that had been given to it by Lord Turner that “the higher social priority in this area is to promote additional pension provision for those who currently lack it”. However, it goes on to state that the market impart of a new scheme “merits further study” and recommends that the Government gives “further consideration to these issues at an early stage” and considers “further measures to enhance public understanding of the long-term financial value of occupational pension schemes”.
- The House of Commons Work and Pensions Select Committee is currently undertaking a more wide-ranging inquiry into pensions reform to which EEF has also submitted written evidence and is due to give oral evidence on 12 June 2006.