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So, where do we go from here? Ian Hill, pension technical manager at Torquil Clark, assesses the future for pensions.

Byline: Ian Hill

he last couple of weeks have given the topsy turvy world of TTTpolitics an outcome that has brought constitutional matters to a head. The last hung parliament was in 1974 and resulted in a Lib-Lab pact. I am reminded that times were very different in those days due to major economic problems including high and rising unemployment and oil prices. In my mind however, the situation does not appear that different thirty six years later.

The difference now is that the Conservatives are in the 'whip' driving seat and have stated that they are keen to sort out the City. But what does this mean for pensioners and pension schemes.

During the election campaign all parties were particularly quiet on what their policy on pensions was going to be. This at a time when we need imaginative proposals for the future of private pension provision instead of bland and unspecific rhetoric. There was not one direct pension mention in the major parties' manifestos. Even NEST only had a slight mention, and that was to review what had already been proposed, although all main parties were committed to the auto-enrolment of employees into a work based pension of some kind or other.

We did have the Liberal Democrat pledge on pensions tax relief to raise pounds 3 billion through scrapping higher rate relief on pension contributions -a policy that would impact upon millions of middle-earners, damaging their pensions.

It could also lead to immediate tax charges for many of those in defined benefit schemes, affecting thousands of private and public sector employees. It will be interesting to see the Conservatives and Liberals arguing this one out as it could be the final nail in the coffin of what is left of our 'quality' schemes, with senior staff and directors no longer seeing any future in remaining with their company scheme. As ever, those who will suffer most will be those on modest incomes, unable to replace the value of a lost 'quality' scheme while hopes for extra revenue will just melt away, as the higher-paid move their sav-v ings offshore.

All the parties' pledges to improve the state pension system were similar. In fact, the coalition has agreed to phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66. This will not be before 2016 for men and 2020 for women.

The Conservatives said they would restore the link between increases in the basic state pension and rises in earnings quicker than Labour, that is within the next Parliament rather than in 2012. It has been confirmed that the earnings link for the basic state pension would be restored from April next year with a "triple guarantee" pensions are raised by the higher of earnings, prices or 2.5 per cent, as proposed by the Liberal Democrats.

The Lib Dems highlighted that they would allow early access to people's 25% lump sums, while the Conservatives have expressed an interest into examining this option. However, Gordon Brown's planned tapering of tax relief on pensions for high earners was omitted from any document.

A formal agreement has promised to address the increasing cost of public pension schemes and an independent commission investigating the long-term affordability of the schemes will be set up.

The Conservative pledged to cap public sector pensions above pounds 50,000 while the Liberal Democrats promised to reform public sector pensions to ensure they were sustainable and affordable for the long-term.

Outside this political arena, for anyone reaching retirement from April, it has become considerably easier to qualify for a full basic state retirement pension.

Until now, women needed 39 years of National Insurance contributions to qualify for a full state retirement pension, while men had to amass 44 years. Both now need only 30 years of contributions.

It will also be easier to receive a partial state pension. If more than 30 years are paid no more benefit is paid.

Previously, contributions had to be paid for at least 25% of the full term. Now, proportionate pensions are paid with contributions of five years.

The reduction in the number of qualifying years will mean most people no longer need to pay voluntary Class 3 NI contributions to make up for gaps in their records.

However, anyone who has retired since April 2008 on a less than complete pension could find that topping up their NI contribution record still makes sense. Normally, it is only permissible to buy back missing contributions for the past six tax years, but the Government is allowing recent pensioners to buy back another six years going back to 1975 to make up their pension.

The new coalition government has interesting and vital decisions to make. After all, it is our future they have in their hands.
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Title Annotation:Features
Publication:The Birmingham Post (England)
Date:May 20, 2010
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