The coalition programme and pensions
The coalition programme for government contains details of plans in 31 seperate areas, from banking to higher education. A lot more detail is needed to know precisely what will happen to pensions, although within the document there are several clear statements of intent.
The link between the State pension and earnings inflation will be restored from April 2011. This change is combined with a ‘triple guarantee’ that State pensions will increase by the higher of earnings, prices or 2.5%.
There are also plans to establish an independent commission to review the long term affordability of public sector pensions. A commitment has been made to protect pension rights already accrued by public sector employees.
As already proposed by the Conservatives, the State pension age is going to be increased. A review will be held to decide when the state pension age becomes age 66, with a commitment this will be no sooner than 2016 for men and 2020 for women.
One line in the coalition programme that has excited pension commentators is the removal of compulsory annuitisation at age 75. This means that older people will no longer need to purchase an annuity by the time they reach their 75th birthday.
It will be interesting to see how this is implemented in practice, as under current rules it is possible to use Alternatively Secured Pension (ASP) to avoid annuity purchase at age 75, although this route comes with massive tax penalites on death and very restrictive benefit rules.
Another big proposal is the promise to explore the possibility of allowing early access to pension funds. Research published by the Pensions Policy Institute (PPI) in December 2008 concluded that allowing limited earlier access to money saved in pension schemes under specific circumstances could increase pension saving.
With the emergency Budget scheduled for 22nd June, we might see some of these pension proposals implemented relatively quickly. For others, we will need to wait longer, as the Government focuses their attention on reducing the budget deficit and solidifying their coalition partnership.