Government releases White Paper on pensions reforms

The state pension age is to rise to 68 from 2044 as part of a radical government shake-up of pensions in the UK.

The link between the state pension and earnings will also be restored as part of the government’s long-awaited White Paper on pensions.

A new national savings scheme will also be set up. Employees will automatically be enrolled and employers must pay into the scheme.

The White Paper is the government’s response to the Pensions Commission’s report.

Pensions minister John Hutton said: “I believe [the changes] can lay the foundations for a lasting solution to the pensions challenge we face as a country.”

  • Key proposals include: 

  • Increasing the state pension age for men and women to 66 in 2024, to 67 in 2034 and 68 in 2044 

  • Making the state pension more generous and linking future increases to earnings

  • Cutting the number of years it takes for people to qualify for a full basic state pension to just 30 

  • From 2012, automatically enrolling people into a new, low-cost national savings scheme, while giving them the chance to opt out.

The CBI welcomed the White Paper, but expressed “deep disappointment” at its decision to press ahead with compulsory employer contributions.

Sir Digby Jones, CBI director-general, said: “Business supports a new national savings pensions scheme (NPSS) for those on low incomes and without access to an employer’s occupational scheme.  We must get the young and the low paid into the world of saving.

“But there will be anxiety among the business community that the government is forging ahead with compulsory employer pension contributions, despite the potential damage it could inflict on firms, particularly smaller ones.”

Compulsion will cost employers £2.3bn and they will need help in managing this burden, according to Jones.

“At the very least, the government must commit to a package of financial support for small firms to help them adjust and absorb the additional costs,” he said.

The Chartered Institute of Personnel and Development (CIPD) also welcomed the introduction of the NPSS and insisted that the scheme will not drag down the level of existing employer pension contributions – as has been predicted.

“It would make no sense for employers competing to attract staff to cut pensions to minimum levels,” said Charles Cotton, CIPD pensions adviser. “The recognition enshrined in the NPSS proposals that employees should make additional pension contributions unless they explicitly opt out is also a welcome new development.”

The only major anomaly, according to the CIPD, is government’s continuing refusal to abolish mandatory retirement ages altogether. 

Its current policy of a default retirement age of 65 is at odds with plans to raise the state pension age to 68, Cotton said.

“With the state pension age now certain to rise incrementally, it is barmy that employers will still be able to get rid of people on the basis of age rather than performance,” he said.

Manufacturers body the EEF, said the government’s proposals will go a long way towards putting in place a sustainable, simpler and more transparent system of pension provision.

Martin Temple, EEF director general, said: “The government must now seize the moment and ensure that it achieves maximum support for this package across the political spectrum and society as a whole.”

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