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Welfare Reform on the Web (December 2010): Pensions - UK

Interim report

Independent Public Service Pensions Commission

2010

The Commission's interim report states that the status quo for public sector pensions in the UK is untenable, that workforce contributions will have to rise, that final salary schemes are unaffordable, and that pension ages should reflect longer life spans. The report argues that although employees used to pay around half the cost of their pension schemes, this has now fallen to between a fifth and a third and contributions may need to rise. However, increases in contributions should be staged where appropriate, to minimise the risk of employees opting out of schemes. It also recommends that while traditional defined benefit pension schemes should be abandoned, replacing them with defined contribution schemes would be unacceptable. The commission will now examine alternatives, including career average benefit schemes, notional DC schemes and hybrids. It will also examine pension ages, indexation and accrual rates.

(For trade union comment see Labour Research, Nov. 2010, p. 9-11)

Making automatic enrolment work: a review for the Department for Work and Pensions

P. Johnson, D. Yeandle and A. Boulding

London: TSO, 2010 (Cm 7954)

The report looks at the scope of automatic enrolment and whether a new national pension scheme (National Employment Savings Trust or NEST) needs to be put in place for it to work. One of the most significant recommendations that this review makes is that people should only be automatically enrolled once they reach the income tax threshold (which will increase to 7.475 in 2011) but that contributions should be on earnings in excess of the National Insurance earnings threshold (5,715 in today's prices). The report also recommends that there should be no changes to age thresholds and automatic enrolment duties should apply to all employers, regardless of size. Employers should be given three months before auto-enrolment to ease the burden on companies. If staff choose to enrol before the three month period then companies will have to make contributions.

Pension fury of Forces families

D. Haynes and T. Coghlan

The Times, Nov 12th 2010, p. 1 and 6

'Coalition not looking after its people' Vice-Admiral Sir Michael Moore, chairman of the Forces Pension Society' attacked the government in a letter to the Times calling on them to intervene to protect widows and injured soldiers. Plans to link increases in all public sector pensions to the consumer price index (CPI) instead of the retail price index (RPI) mean that both groups will miss out on thousands of pounds during the course of their lives. Widows are also required to give up their service pension if they marry or move in with a partner.

A sustainable state pension: when the State Pension age will increase to 66

Department for Work and Pensions

London: TSO, 2010 (Cm 7956)

The report outlines the Government's new plans for the timing of the increase in state pension age to 66. The Pensions Act 2007 legislated for the state pension age to increase for both men and women to 66 by 2026, to 67 by 2036, and to 68 by 2046. But subsequent gains in average life expectancy have outpaced the projections on which that timetable was based. Official projections for life expectancy for those reaching 65 in 2026 have increased by 1.5 years for men and 1.6 years for women. The cost implications for maintaining the state pension are serious. The increased life expectancy means that, just for those reaching state pension age this year, the costs would increase by 6.5 billion over the lifetime of that cohort. Women's state pension age is currently rising from 60 to be equalised with men's at 65 by 2020. To enable an increase to 66, this timetable will be adjusted so that equalisation is reached in November 2018. The increase to 66 will then occur between December 2018 and April 2020 for both men and women. The increase will be phased in at a rate of three months' increase in state pension age every four months. This means that 4.9 million people will have their state pension age revised, of which 4.4 million will have an increase of a year or less. It will result in 30.4 billion of savings between 2016/17 and 2025/26, which would otherwise have to be met by the working-age population.

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