Pensions & Older People

The Coalition Government inherited an incredibly complicated state pension system in 2010, with many workers (young and old) unsure of how to calculate their retirement income and often expecting more money than they will actually receive. The Government therefore set out a series of pledges in the Coalition Agreement on pensions, which sought to: provide clarity; help savers better navigate the system; and deliver incentives for saving for old age.  

During a joint press conference on the Mid Term Review, the Prime Minister highlighted reforms to public sector pensions as an example of a key achievement for the Coalition. However, despite this and the Government’s other successes in the area, it has recently come under fire from the House of Lords Select Committee on Public Service and Demographic Change on the basis that Britain remains ‘woefully under-prepared’ to cope with the prospect of an ageing population.

The Committee’s well-publicised report, published in March 2012, called for Ministers to raise the retirement age and to tackle the costs by reviewing pensioner benefits. Led by Lord Filkin, the report cited recommendations made previously by Lord Turner, Chairman of the Pensions Commission, who had said the threshold should rise to 70 by 2030. The Government has yet to publish its formal response to the report’s findings, however, Iain Duncan Smith recently said he ‘would encourage’ wealthy pensioners to pay back their state subsidies for perks such as heating, bus passes and tv licences.

Nonetheless, it is difficult to argue that the Coalition Government has not achieved a great deal of what it set out to do in 2010. In addition to the pledges already achieved, in March 2013, the Chancellor confirmed that the Government will bring forward the implementation of the single-tier state pension to 2016-17. Provisions for this will be included in the Pensions Bill, which was announced in the 2013 Queen’s Speech. The Department for Work and Pensions said that this will be good news for women, low earners and those who are self-employed, whilst campaign groups for older people say that it will ensure a fairer system. However, these same campaign groups also point out that it does little to help current pensioners who are struggling to make ends meet.

PENSIONS

Progress against the Coalition Agreement

Pledge: We will restore the earnings link for the basic state pension from April 2011, with a ‘triple guarantee’ that pensions are raised by the higher of earnings, prices or 2.5%.

Status: Done - The Government introduced a triple lock guarantee in 2012.

Pledge: We will commit to establishing an independent commission to review the long-term affordability of public sector pensions, while protecting accrued rights.

Status: Done - The Government established an independent commission on public sector pensions, chaired by Lord Hutton. It introduced the Public Service Pensions Bill to Parliament in September 2012 following the commission’s recommendations. The Bill received Royal Assent on 25 April.

Pledge: We will 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, although it will not be sooner than 2016 for men and 2020 for women. We will end the rules requiring compulsory annuitisation at 75.

Status: Done - The Government phased out the default retirement age in October 2011. It has legislated to increase the state pension age to 66 by 2020 and will have brought the women’s state pension age in line with that of men by 2018. The Government legislated to end compulsory annuitisation at 75 in the Finance Act 2011.

Pledge: We will implement the Parliamentary and Health Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure.

Status: In progress - The Government has established the Equitable Life Payment Scheme and begun payments to policy holders. In addition, Budget 2013 outlined that savers over 60, who took out with-profits annuities before 1992, will now be given ex-gratia payments of £5,000 each. These people had been excluded from the Government compensation scheme agreed in 2010. However, the Financial Times has since reported that figures from the National Audit Office show that little more than a third of planned payments have been made.

Pledge: We will explore the potential to give people greater flexibility in accessing part of their personal pension fund early.

Status: Done – A call for evidence was undertaken in 2010, and a summary of responses was published in 2011 by HM Treasury. In its formal response, the Government ruled out implementing any form of early access, as it believes that there was an absence of evidence showing that allowing such a course of action would increase pension saving.

Pledge: We will protect key benefits for older people such as the winter fuel allowance, free TV licences, free bus travel, and free eye tests and prescriptions.

Status: Done – Despite increasing pressure to review these benefits, and Iain Duncan Smith’s recent comments encouraging wealthy pensioners to pay them back, the Government has protected them to date, as this was a Conservative manifesto commitment. However, following Budget 2013, Age UK expressed disappointment that the Government is not investing in improving the energy efficiency of Britain’s housing stock, which they argue would help provide ‘a sustainable solution for the nearly six million older people in the UK living in fuel poverty’.

Pledge: We will simplify the rules and regulations relating to pensions to help reinvigorate occupational pensions, encouraging companies to offer high-quality pensions to all employees, and we will work with business and the industry to support auto enrolment.

Status: In progress – The Government is committed to expanding enrolment in workplace pensions and increase incentives for pension savings. It published its ‘Reinvigorating Workforce Pensions’ strategy paper in November 2012, in which it outlined that further work with industry is needed. The Government also published a consultation on proposals to improve the automatic enrolment process in March 2013. This consultation closed on  7 May 2013.