| Employees of the future will have to retire later and put more money into their pensions if the proposals announced by the Pensions Commission at the end of last year are formally adopted by the government. But, under the body’s proposals, individuals would receive a higher basic state pension that will rise in line with earnings, and women who take career breaks could also receive a better deal.
Unveiling his report ‘A New Pension Settlement for the Twenty-First Century’, Lord Adair Turner announced these proposed key changes to the pensions regime, designed to avert a future pensions crisis.
Raise the age at which the basic state pension becomes payable
There was no specific recommended state retirement age in the report but, based on current projections for increased life expectancy, recommendations are that the state pension of the future should start paying out only from age 67, or as late as age 69 in the year 2050, compared to the current state retirement age of 65. These changes would be phased in gradually and people currently aged 50 or over are unlikely to be affected by the proposals. However, younger people who still want to retire at age 65 and who have been planning to rely on the state pension may need to invest more in private pensions.
Increase the basic state pension
To reduce the percentage of the population relying on the Pensions Credit, the Pensions Commission proposes raising the basic state pension
and raising this payout in line with earnings. The report suggests implementing an increase in the basic state pension from 2010.
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Introduce a National Pension Savings Scheme, nicknamed “Britsaver”
Similar schemes already exist in the US and Sweden. Under Lord Turner’s proposals, all employees would automatically be opted into a national savings scheme unless ‘employees are not covered by other adequate pension arrangements’. Under the proposals, employees will pay contributions of 4 per cent of salary, a further 1 per cent will be paid by the government via tax reliefs and 3 per cent of salary will be paid by compulsory matching employer contributions. Individuals could opt out of the scheme.Phase out the state second pension
The state second pension, formerly known as SERPs, provides an additional earnings related retirement income stream. The Turner report does not recommend abolishing this system altogether, partly because many final salary schemes are contracted out and use the cash rebates to help fund their schemes.
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Levels and bases of, and reliefs from, taxation are subject to change.
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