Minister may raise pension age to 70

Britain is being pushed back to ‘the days of Dickens’ by plans to force workers to retire as late as 70, it was claimed last night. 

Ministers warned that millions of workers face the prospect of a retirement date which slips farther from their grasp every year. 

Work till you drop: The pension age is set to rise and rise.

In a major shake-up of state pensions, the Government said the age at which people can get their pension could jump in line with rising life expectancy.

Yesterday it revealed a fast-track, six-week review into the state pension age, currently 60 for women and 65 for men.

Under its current proposals, the state pension age will rise to 66 ‘no sooner than’ 2016 for men and 2020 for women – nearly a decade earlier than Labour’s original proposals.

Labour had also proposed a rise to 67 between 2034 and 2036 and 68 between 2044 and 2046.

But Steve Webb, pensions minister and a LibDem MP, said he was considering ripping up these plans, and raising the state pension age even higher to reflect increasing life expectancy.

He insisted that any new formula would not just be a ‘crude’ link between the two, but warned that leaving the age unchanged is ’simply not an option’.

The proposals triggered a storm of protest last night, with unions and campaign groups warning that they would unfairly penalise manual workers and the poor whose life expectancy is lower.

Bob Crow, general secretary of the Rail Maritime and Transport union, said: ‘If you are a rich banker with a private pension, you can sail off on your yacht at 55. But, for working men and women, retirement will be pushed further and further over the horizon in a step back to the days of Dickens.’

Work and Pensions Secretary Iain Duncan Smith said big increases in life expectancy left the Government with no option but to raise the age at which a state pension can be claimed.

In 1926, when the first contributory pension was introduced, only 34% of men and 40% of women were expected to reach 65. Today, one in four baby boys should reach the age of 100.

Experts said today’s workers should accept that their retirements will be dramatically different from those enjoyed by their own parents.

Laith Khalaf, a pensions analyst at financial advisers Hargreaves Lansdown, said: ‘Today’s children could well be working into their seventies as the state pension adjusts to rises in life expectancy.

‘They will barely believe that their parents and grandparents retired at such a young age. Retiring in your sixties could become a thing of the past unless you build up a big enough pot of private savings while you are working.’

Dot Gibson of the National Pensioners’ Convention said the move would lead to the poorest being forced to ‘work until they drop’.

She said: ‘There can be no doubt that the wealthier you are, the longer you live, therefore raising the retirement age is a direct attack on the very poorest in our society.

‘This policy isn’t about choice. It is about cutting costs.’

It is estimated that the taxpayer will save around £13bn for each year that the state pension age is raised.

Ros Altmann, a former No 10 pensions adviser, said moves to increase the pension age in line with life expectancy were ‘inevitable’.

She predicted a ’social revolution’ with soaring numbers of older people working part-time.

John Cridland of the employers’ organisation the CBI, said: ‘We are in favour of raising the basic state pension age gradually over time, probably reaching 70 by 2030.’

˜ French workers caused widespread disruption yesterday over far more modest plans to raise the retirement age to 62.

Trains and flights were cancelled, schools were closed and newspaper production was halted as unions staged an angry response to measures described by President Nicolas Sarkozy as ‘unavoidable’.

Even under Mr Sarkozy’s plans, French pension rights would remain untouched until 2018, when the retirement age would rise from 60 to 62.

But many French people, long accustomed to generous social benefits, are determined to resist the reforms.It is not uncommon for 60-year-olds in France to retire on virtually the same income as when they were working. 

Source:  http://www.thisismoney.co.uk/pensions/article.html?in_article_id=507025&in_page_id=6

It’s time to take politics out of pensions

We can no longer trust politicians to take care of our pensions, say experts. Instead, they should hand control to an independent body…

Out with the old: Pensions and politics don't mix well, say experts

After years of political meddling, Britain’s once-proud pensions system lays in ruins.

Criticised for being over-complicated and unrewarding, pensions have been rejected by millions of Britons, despite huge swathes of us facing terrifying gaps in our retirement savings.

Fewer than 40% of the working-age population has any pension whatsoever, thanks in no small part to an overly complex system that’s constantly changing.

Now, as the coalition government battles to cut the UK’s bulging deficit, pensions face the threat of the Chancellor’s axe once again.

Already, we know the state retirement age is to rise with sharp and immediate effect, forcing millions of us to work into past our 70th birthday.

Meanwhile, public sector workers have braced themselves for dramatic cuts to their ‘unsustainable’ old age benefits.

And as if that wasn’t enough, the new Government has now knocked a potential £100bn off the value of private final salary pensions in its first ’stealth cut’.

How can we plan for the future if every new government changes the pensions goalposts? How can we be sure our pots won’t be unceremoniously raided in years to come?

We can’t. It’s as simple as that.

Experts fear that there may only be one way to make pensions good again: ban party politics altogether.

Giving power to an independent body, they say, could pave the way for the essential, sustainable reforms needed to stave off a nationwide retirement crisis. Finally, pensions could be made attractive again.

And after the emergency Budget left ‘the most important pensions questions answered’, the clamour to take politics out of pensions has intensified.

Former Treasury adviser, Ros Altmann, has called for a new non-political commission of the best pensions minds to work closely with new minister, Steve Webb, to overhaul the current system and introduce sustainable policies.

‘You’ll work till you drop’: Britons stop saving into pensions

Pensions are too important for politicians

Once properly reformed, overall responsibility for Britain’s pension system could then be permanently handed over to this independently-appointed body, ending the political toing-and-froing that has tainted the past 30 years.

Altmann said: ‘We need an independent body responsible for pensions. These issues are too important to allow party politics to stop decisions being taken for the good of the country.

‘If we had an independent body that’s set in and lasts, we could begin to get to grips with what has become a very serious crisis by making sure that pensions policy stays out of political meddling in future.’

Every week a new report shows the financial torture awaiting many of the Britons who will retire in the coming decades.

Nearly 20% of over 55s still have a mortgage, with an average loan of £50,000, described by insurer Aviva as ‘a significant debt burden’.

Furthermore, a quarter has less than £2,000 in savings, while only 13% have more than £100,000 to see them through old age.

It means millions of over-50s are on a ‘collision course with an impoverished retirement’, with almost eight in ten set to receive an annual income worth less than £8,000.

It smacks of an uncomfortable reality: a generation of Britons has lost touch with the ’savings culture’, disillusioned by constantly flip-flopping pension saving rules and a general lack of clarity when it comes to state benefits in old age.

Now just 14.5m Britons – fewer than 40% of the working-age population – have any sort of pension, according to the Department for Work and Pensions.

Source: http://www.thisismoney.co.uk/pensions/article.html?in_article_id=504342&in_page_id=6

Pension age: Ministers to speed up rise to 66

The government is to speed up plans to raise the state pension age for men to 66, possibly by as early as 2016.

Ministers will also raise the option of extending it further, perhaps to 70 and beyond in the following decades.

The default retirement age of 65 – at which workers can be legally axed by employers – is also set to be axed.

Work and Pensions Secretary Iain Duncan Smith said it was time to “reinvigorate the pensions landscape”.

Under the plans women will move to a state pension age of 66 a few years after men.

‘Talent and enthusiasm’

The coalition team running pensions policy – Conservative Work and Pensions Secretary Iain Duncan Smith and Liberal Democrat pensions minister Steve Webb – announced the proposals at a briefing in London.

Mr Duncan Smith said: “Britain used to have a pensions system to be proud of, but due to years of neglect and inaction we are left with fewer people saving into a pension every year and the value of the state pension has been eroded, leaving millions in poverty.

“We must live up to our responsibility to reinvigorate the pension landscape.

“People are living longer and healthier lives than ever, and the last thing we want is to lose their talent and enthusiasm from the workplace due to an arbitrary age limit.

We also need to recognise that to meet the challenge of providing an affordable, stable pensions system in a society with ever increasing life expectancy, people will need to work longer.”

The previous Labour government’s policy was to raise the pension age to 66 in 2024 and then gradually to 68 by 2046.

The coalition argues that this should be speeded up, eventually meaning a pension age of 70 or older.

The government also wants to scrap the default retirement age – which allows employers to shed staff at the age of 65.

Adam Marshall, director of policy at the British Chambers of Commerce, said such a policy would damage “businesses’ ability to manage their workforce”.

‘Days of Dickens’

He urged the coalition instead to raise the default retirement age or “offer employers a new dismissal route that helps business manage their workforce, regardless of age”.

For Labour, shadow work and pensions secretary Yvette Cooper accused the government of “moving the goalposts” for people in the fifties, leaving them thousands of pounds worse off.

People in Cardiff give their opinions on the changes to the age of retirement

She added: “This is unfair for a group of people who haven’t got time to change their plans.”

Bob Crow, general secretary of the Rail Maritime and Transport union, said: “As well as hitting pay, living standards, public services and jobs, the latest assault from the government is work until you drop.

“If you are a rich banker with a private pension you can sail off on your yacht at 55, but for working men and women retirement will be pushed further and further over the horizon in a step back to the days of Dickens. That is not sharing the pain, it is hitting the poorest hardest yet again.”

‘Unacceptable’

UK life expectancy is currently 77 years for men and 81 for women.

Paul Kenny, general secretary of the GMB union, said: “The government knows that manual workers in the industrial regions of the UK do not enjoy anything like the same life expectancy as professionals or other classes or employees.

“To force someone who has done a lifetime of toil on building sites, farms or in factories to work until they are 66 is completely unacceptable.”

In Tuesday’s Budget the government announced that, from April 2011, the state pension would go up by the increase in average earnings, or in line with prices, or by 2.5% – whichever is highest.

Previously it would go up every April by 2.5%, or the level of the Retail Prices Index the previous September.

This had been considered as unfair by some, as prices had lagged behind average earnings

Source: BBC News channel  11:33 GMT, Thursday, 24 June 2010 12:33 UK

NEST admin contract to be ‘re-examined’ – UPDATED

The computer contract for administering the National Employment Savings Trust – signed by the Labour government just months before they left office – will be re-examined, David Laws says.The chief secretary to the treasury said he had written to all secretaries of state asking them to re-examine all spending approvals since January 1 this year and all pilot schemes.

Pensions Tax Changes For High Earners

Pensions tax changes for high earners criticised

The government’s plans face growing criticism The government’s plans to tax the pension contributions of high earners have been criticised as “complex, unfair and inefficient”. The Institute for Fiscal Studies (IFS) also says many wealthy people will simply alter their pay arrangements to avoid the new taxes. From April 2011, the government hopes to raise an extra £3.6bn a year from about 300,000 top earners. That is on top of a new 50% tax rate and the withdrawal of tax allowances. Those two measures, starting next month, will raise about £3.9bn by phasing out the universal personal income tax allowance from anyone earning over £100,000, and by taxing people at 50% on their earnings over £150,000. The pension tax changes, which will come in a year later, will steadily reduce the tax relief high earners can obtain on their own pension contributions, once they earn over £150,000. And some high earners will be taxed on the value of the pension contributions made by their employers. This could affect people with gross pay of just £130,000 if the benefit of their employers contributions pushes them above a proposed £150,000 limit. “The average tax increase would be a whopping £12,000 per affected person per year,” said Carl Emmerson, deputy director of the IFS. Salary sacrifice The government wants to restrict the amount of pension tax relief given to high earners. Higher rate tax payers were given 65% of the £28bn granted in pension tax relief in 2008-09, though they make up just 19% of pension savers. And the very highest earners, the 1% of adults whose income is over £150,000 a year, gained 25% of all pension tax relief, worth an average of £20,000 a year to each of them. The IFS argues that it would be possible for many of them to alter their pay arrangements by using a concept known as “salary sacrifice”, in which they take smaller salaries in exchange for larger pension contributions. By doing this some could depress their earnings below the £130,000 starting point for the new pension tax restrictions. “Treasury figures suggest that nearly two-thirds (63%) of the 300,000 individuals potentially affected by this reform are members of defined contribution schemes, which are inherently more flexible [than final-salary scheme],” said Mr Emmerson. “The scope for some individuals to respond to this reform in a way that minimises its impact on their lifetime tax bill must mean that estimates of the Exchequer gain from the reform are subject to a large degree of uncertainty.” Tax-free cash The IFS suggested that one alternative to the government’s plans would be to restrict the amount of tax-free cash people can take from their pension pot when they retire. “The most obvious anomaly is the fact that individuals can take up to 25% of their pension as a lump sum free of income tax up to a maximum of £437,500,” it said. “A reform that placed a much smaller cap on the amount that can be taken as a lump-sum would improve value for money for the public purse as there is no obvious justification for providing such a generous amount tax free,” it added. The government is currently consulting on its pension tax proposals before finalising details of any changes. Last week, the National Association of Pension Funds said the proposals would do “enormous harm” to company pension provision and called on the government to abandon its plans.

Source: BBC News  http://news.bbc.co.uk/1/hi/business/8543505.stm

TCS bags £600mn UK pension deal

Conservatives plan to restore dividend tax credit

The Conservatives will reverse the effects of Labours abolition of dividend tax credit for pension funds.

Bank Of England Keeps Interest Rate On Hold

The Bank of England has announced its decision to hold the interest rate and pause its programme of pumping newly-created money into the economy.

The Monetary Policy Committee’s move was widely predicted by the City, including all members of the Sky News Money Panel. They expected the Bank to shift into “wait and see” mode to judge the strength of the recovery.

The Bank last week finished the latest round of quantitative easing (QE), bringing the total amount of newly-created money spent on Government and company bonds to £200bn.

In a statement, the Bank said: “The committee noted that this stock of past purchases, together with the low level of Bank rate, would continue to impart a substantial monetary stimulus to the economy for some time to come.

“The committee will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them.”

The MPC’s no-change position, which leaves the cost of borrowing at its historic low level of 0.5%, follows a surprisingly weak climb out of recession in the final quarter of last year.

The UK’s longest and deepest economic downturn officially ended with growth of just 0.1% in the last three months of 2009, leading to fears of a so-called “double-dip” recession.

As a result, some economists rightly predicted the Bank would keep the door open to more QE if the economy continues to struggle.

City expert David Buik, of BGC Partners, told Sky News: “I think the Bank of England is absolutely right to be very cautious and vigilant.

“It wouldn’t surprise me at all if, in the advent of higher taxation almost certainly coming later this year, the Bank had to inject another £25bn, say, in another three months’ time.”

MPC members had access to detailed economic forecasts from the Bank’s forthcoming quarterly inflation report during their two-day meeting.

Recent signs on the economy have been underwhelming, with figures from the UK’s crucial services sector showing slowing growth last month after disruption from the snowy weather.

Meanwhile, Consumer Prices Index inflation jumped at a record rate to 2.9% in December – well above the Bank’s 2% target.

There are concerns among committee members that inflation may become a problem, although the weakness of the banking sector and credit availability are pushing prices in the opposite direction.

Source: Ed Merrison, Sky News Online

Tories vow to axe compulsory annuities

The Conservatives have pledged to scrap laws which force savers to purchase an annuity by age 75, if the party gets into power.

In a Tory document, A New Economic Model, published yesterday, shadow chancellor George Osborne said that he would axe the much maligned rule of compulsory annuitisation at age 75.

Under current laws, savers have to use their pension savings to purchase an annuity by age 75, which will provide them with an income for their remainder of their life.

But annuity values have plummeted in recent times to an all-time low – offering savers very poor value. Retirees buying an annuity today are getting pension incomes of almost half the level of their counterparts back in 1994.

Commenting on the proposal,  a pensions expert at a well known adviser group, says: ‘The Conservative proposal to scrap the age 75 compulsory annuitisation is a good one. There is no decent justification for forcing investors to buy an annuity.

‘There are currently around 450,000 people aged 74 and the best part of 2.5m between the ages of 70 and 74. A fair proportion of them will not want to buy an annuity. Ever.’

What does an annuity get me?

Research from the financial information firm Moneyfacts looked at what annuity a £10,000 pension pot can buy.

In 1994, a 65-year-old man could have received an average annual payout of £1,145. Today, he would get just £625, a drop of 45%. This would leave someone with a £100,000 pension pot getting £6,250 per year, rather than £11,450.

Each year, around 450,000 people buy annuities with pension pots averaging £25-£30,000.

The average buyer is 63, but the age is likely to rise as workers realise the income would be too low to let them retire. The state retirement age is 65. Notably, the Association of British Insurers, the mouth-piece for the pensions industry, recently called for the age at which people have to buy them to be pushed up to 80.

Research shows that the vast majority of pension funds, at 88%, are worth less than £50,000 at retirement. For investors with small funds, an annuity will continue to present the most efficient way to eliminate investment and longevity risk.

The pension expert said: ‘Changing the rules would benefit those who have a more substantial fund or a secure source of income elsewhere, for example from a final salary scheme. It would also send an important message to prospective savers; that they will be able to retain control of the money that they have saved up. This in turn will encourage more people to engage with the pension system in the first place.’He added that he would like to see one further option, which is for investors to be able to bequest undrawn pension funds on death to their children’s pension funds, thereby keeping the money in the pension system, ‘encouraging thrift and helping to avert the next generation’s own pension crisis’.How do I get the best annuity?The key for savers right now is to ensure that they shop around in order to find the best annuity deal available to them, as opposed to just settling for what their pension company offers. Typically about a third of people fail to look elsewhere, although it is frequently possible to find a better deal.

Source of Article: www.thisismoney.co.uk

Jigsaw Corprate Financial Management can help clients find the best deal on an annuity.

Pada settles on national employment savings trust (Nest) for personal accounts

The Personal Accounts Delivery Authority (Pada) has announced that National Employment Savings Trust (Nest) will be the new permanent name for personal accounts, due to come into effect under workplace pensions reform in 2012.

Nest will be run by a not-for-profit trustee body, the Nest Corporation. Pada developed the brand identity after carrying out research among 3,200 jobholders, employers and advisers, and working with external specialist agencies.

Jeannie Drake, acting chair of Pada, said: “We have one goal in mind: to make saving for retirement become the norm.”

Source: Employee benefits 1st Feb 2010