Pensions policy clarification from coalition, but industry still waiting for detail on higher rate relief

Duncan Smith and Webb: Nest will not be put on hold
Duncan Smith and Webb: Nest will not be put on hold

THE Conservative/LibDem coalition has confirmed that the earnings link for basic state pension will be restored from April 2011, and that Nest will not be put on hold.

But no announcement on whether or not higher rate tax relief will be abolished or subject to further restrictions has been made at this stage.

A document published by The Coalition last month lists a series of policy commitments for pensions
and older people:

  • The restoration of 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 per cent
  • A commitment to establishing an independent commission to review the long term affordability of public sector pensions, while protecting accrued rights
  • The phasing out the default retirement age and a pledge to 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
  • The abolition of the rules requiring compulsory annuitisation at 75
  • The implementation of 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.
  • A commitment to explore the potential to give people greater flexibility in accessing part of their personal pension fund early
  • A pledge to protect key benefits for older people such as the winter fuel allowance, free TV licences, free bus travel, and free eye tests and prescriptions
  • Simplification of the rules and regulations relating to pensions to help reinvigorate occupational pensions, in a bid to encourage companies to offer high-quality pensions to all employees
  • A pledge to work with business and the industry to support auto enrolment

Kevin Wesbroom, senior consultant at Hewitt Associates, says: “There are still huge gaps in the statement, like what is happening on higher rate tax on pensions. I think they are keeping their powder dry on that one, and possibly on capping the amount of tax-free lump sum you are
allowed to take. They have normally floated a rumour about tax-free cash going by now to see what the response is. That, and higher rate relief are the low hanging fruit.

Joanne Segars, chief executive of the NAPF says: “The really good news is the Government has recognised the need to simplify the rules in order to boost workplace pensions. This will help enormously in restoring them as the best choice for employees wanting to save for a comfortable retirement.

“There is a vast amount of work to do, not least on public sector pensions, but the creation of an independent Public Sector Pensions Commission is exactly what NAPF has called for, and we look forward to contributing fully to the public sector pensions debate.”