Pensions will be made fairer and simpler to accommodate an ageing population, according to the new government.
Iain Duncan-Smith, who was appointed Secretary of State for Work and Pensions within the new Conservative/Liberal democrat coalition, addressed the Department for Work and Pensions yesterday outlining his plans for reform over the next five years.
Although pension reform has been left relatively vague throughout the new coalition’s policy making there are several main proposals that have remained concrete.
These include the plan to scrap the default retirement age, which currently sits at 65. And to abolish the compulsory annuitisation age, which means that pensioners must buy an annuity by the age of 75 to provide their retirement income.
Also set out yesterday were plans to triple-lock the value of the State Pension so that it will rise by the minimum of prices, earnings or 2.5 per cent, or whichever is higher from April 2011.
This means that if earnings are going up fast, the pension will increase in line with earnings. If prices are going up it will increase in line with prices. And if neither is rising it will go up at least 2.5 per cent.
There was also mention of encouraging personal saving with a ‘vibrant’ private system too. Although there was no suggestion as to whether NEST, the Labour National Employment and Savings Trust, will go ahead or not.
NEST is due to roll out in 2012, offering a pension plan for those not currently enrolled on one by their employer. It will automatically enroll workers and they will have to opt out.
Commenting on the proposals the pension minister Ian Duncan Smith said their biggest challenge was addressing the problems brought about by an aging population and the affect it is having on the pension system.
According to figures one in four babies born today will live to 100 but in 1926 the average life expectancy for a boy was just 64 years and 4 months.
He said their policies will “simplify some of the rules and regulations around pensions".
“The idea of someone being fired just because they turned 65 is nonsense. People who are good at their job and want to work for longer should be able to do so.
“But it also means we will have a fairer system where people take proper responsibility for the decisions that make best financial sense for them,” he added.
“Real freedom in retirement comes from planning ahead for the future. It would be one of the most positive changes we could make in office.”
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