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nuts4chic - current affairs
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by Vicky Hales-Dutton Women with families are among the biggest beneficiaries of the government’s White Paper on pensions reform, published recently in response to proposals made by the Pension Commission. Described by John Hutton, the Work and Pensions Secretary as “the biggest renewal of the system since the Postwar Bevan reforms,” the White Paper intends to simplify and modernise the current complex and unwieldy system so it becomes fairer and more generous.
In accepting most of the recommendations made by the Pension Commission, led by Lord Turner of Ecchinswell, the government also signalled its intention to create a savings culture that encourages people to build up their own retirement fund without the fear of being penalised through means testing. As he unveiled the contents of the White Paper to MPs, Mr Hutton stressed that the reforms would be both affordable and gradual. He also said that they would not lead to tax rises – a view not shared by The Institute of Fiscal Studies, which predicts a total cost of ?18bn by 2050 – equivalent to a 4p rise in income tax. As a result of the reforms, the state retirement age – for both men and women – will rise gradually over the next forty years to reach 68 by 2044. The link between the state pension and earnings will be restored within the next parliament and, from 2012, employees will automatically be enrolled into a new, low-cost savings scheme. The age at which people finally down tools will increase in several stages, each phased over two years. By 2020, women will retire at 65 - in line with men. There will be another rise from 2024 from 65 to 66, for both sexes, and further increases to 67 and 68 will occur from 2034 and 2044 respectively. This could herald a major change to both the pattern of employment (in particular the demand for ‘light’ part-time work among older people, any of whom at 68 cannot do the type of work they did in their 30s) and to the current workplace culture in which youth reigns supreme. From 2010 women, many of whom are penalised by the current system for taking time out to care for children or elderly relatives, will qualify for a full state pension based on 30 years’ national insurance contributions, rather than the current 39. On that basis, 70% of women reaching retirement age will receive a full state pension, compared with just 30% (but 85% of men) today. By 2020, 90% of women will qualify. The Department of Work and Pensions responded by insisting that small firms could “adjust prices, offer lower wage increases or absorb the costs through profits.” Other changes in the White Paper affect the state second pension (formerly the State Earnings Related Pension Scheme or SERPS), which will gradually become a flat-rate weekly top-up to the basic state pension by 2030. The pension credit, which tops up the income of the poorest pensioners, will be brought into line with average earnings from 2008.
Frank Field MP, (chair of the Pension Reform Group and once tasked by the Blair government to ‘think the unthinkable’ about pension reform) was also critical about certain aspects. He described the White Paper as a “lost opportunity” to “secure an investment-led rather than a tax-financed reform of pensions.” He was particularly concerned about changes to the second state pension which, he said, had only been on the statute books for four years. “No tax-finance reform of state pensions enacted since the 1960s has lasted more than a few years,” he said. Let’s hope for everyone’s sake that he’s right. Pensions White Paper – the main proposals
Pension facts
Source: Department of Work and Pensions
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Changes to the way in which the savings credit is calculated – in particular the reduction of means-testing - will also make it easier for people to save without being penalised.
