Pensions look set for a shake up after the new Liberal Democrat/Conservative coalition announced their plans.
Although pensions did not feature heavily in either the Tories or Liberal Democrat’s election manifestos the new coalition is setting to work with a list of plans that will breathe life into a pension system that many have accused of being outdated.
One of the most controversial of the proposals for pension reform so far include lowering the pension tax relief threshold for those who earn over £150,000 to 20 per cent. At the moment it sits at 40 per cent for everyone and It is estimated that this move would raise around £5.46 billion despite coming as a bitter blow for many higher rate tax payers.
Clegg and Cameron have also promised to reform public sector pensions, announcing plans for an independent commission which will review the long term affordability of these schemes.
And to oversee the proposals former leader of the Conservatives Ian Duncan-Smith has taken on the cabinet role as secretary of state for work and pensions.
Speaking about his appointment, Dr Ros Altman says he has his work cut out to simplify what she calls ‘the most complex pension system in the world’.
“He takes charge at a crucial time for pensions policy. Pensions hardly featured in the election campaign, but, the demographics demand action, notwithstanding the state of public finances. Those retiring now are often facing financial difficulty. Equally, younger people are not engaging in pensions, as policy has encouraged borrowing, rather than saving and as a series of scandals has hit pension confidence.
“We all know there is a pensions crisis. For the past 13 years, we have watched our once-thriving retirement savings culture fall apart.”
There are also plans to scrap the compulsory annuitisation age which currently sits at 75 and raise the state pension age to 66 (although this will not happen before 2016 for men and 2020 for women)
Mark Stopard, head of marketing at Sun Life Financial of Canada has praised the move to drop the annuitisation age calling it ‘archaic and ‘outdated’.
The new government has also confirmed that it will restore the link with earnings for the state pension so that pensions rise automatically in line with increases in average earnings, something that was abolished by Margaret Thatcher during the 1980’s. From April next year, pensions will be raised by the higher of earnings, prices or 2.5 per cent.
In addition to the new proposals the Conservative/Lib Dem government will also oversee the upcoming pension reforms scheduled for 2012 including the introduction of auto-enrolment into company pensions and the establishment of the National Employment Savings Trust (NEST).
© Fair Investment Company Ltd