Tuesday, 24 April 2018

    State pension reform live blog

    All the comment and reaction on the government’s update on state pension reform in one place

    15th January 11.33am: Punter Southall technical director Joanne Livingstone said: “The replacement of the two-tier basic state pension and state second pension by one single tier arrangement should lead to a welcome reduction in complexity.

    “The Government has described the change as fiscally neutral in the next couple of decades. However this fiscal neutrality has been achieved by paying out less to those who might have expected a full state second pension to the gain of the self-employed and, to some extent, those with career breaks.

    “Those losing the biggest proportion of their future pension benefit are not necessarily the highest earners for whom the state pensions are a lower proportion of income but those earning around £35,000 to £40,000 per annum.”

    “Those who contracted out of the state second pension through a defined benefit workplace pension scheme are likely to find they are having to pay more in National Insurance now to secure a higher State pension in the future.”

    “This could reduce their take home pay by up to £500. Their employers will also no longer benefit from a rebate of up to £1,200 a year meaning that employers may seek to change the benefits on offer in future.”

    5.24pm: Richard Parkin, Head of DC and Workplace Savings Proposition at Fidelity Worldwide Investmentsays:

    “Whilst the Universal State Pension will make planning for the future a lot easier, it is important to note that it will mean a lower State pension for many Britons in the long run. It is therefore crucial that people sit down and work out how much they need on top of the flat rate state pension to achieve a comfortable retirement.”

    4.36pm: On the same point Neil Carberry, CBI director of employment and skills policy, said:

    “Businesses have been concerned about the financial impact of abolishing the National Insurance rebate for contracting out defined benefit schemes.

    The changes will only be acceptable if employers with defined benefit schemes are not left worse off

    “They will be pleased that the Government has put a plan in place to deal with this. The rebate is in place to recoup the National Insurance owed to employers by the state for paying the Second State Pension on its behalf.  The changes will only be acceptable if employers with defined benefit schemes are not left worse off.”

    4.30pm: James Patten, head of benefit design at Aon Hewitt, agrees that the end of contracting out final salary schemes will excelerate the closure of DB schemes - increasing costs by 2.5-3%.

    3.45pm: Rumours that Steve Webb will speak in an hour…

    3.42pm: Niki Cleal, director at the Pension Policy Institute, says the self-employed will be the winners, and high earners the losers:

    “Some individuals will benefit from the Government’s new single-tier pension proposals but other individuals may lose out in the future depending on their personal circumstances.

    Those who lose out are likely to be consistently higher earners who would have built up considerable rights to the state second pension

    “The self-employed will all receive more from the state pension in the future and many women or carers who will retire after 2017 and have taken time out of work are likely to benefit from the new single-tier system. Those who lose out are likely to be consistently higher earners who would have built up considerable rights to the state second pension.”

    1.56pm: Some legal comment on contracting out from Freshfields’ pensions partner Chares Magoffin:

    “Many technical issues will need to be resolved, including whether the Government will need to provide schemes with an overriding power of amendment in order to allow the contracted out benefits to be removed  and whether current restrictions on transferring those benefits to other schemes will remain in place.”

    1.53pm: Raj Mody, head of pensions advisory at PwC, said: “If the Government wants to link the state pension age with life expectancy, we expect a rise to age 68 may need to be brought forward at some point to around 2035 to keep pace with life expectancy projections.

    “This means we could see the state pension age easily hit 70 by 2050.” 

    “A school leaver just entering the workforce may have to start saving an £100 extra a month just to bridge the gap between the current state pension age of 65 and their likely state pension age by the time they reach that stage of their life, assuming they have no other source of income to rely on.”

    12.09pm: Charles Cowling, director at JLT Benefit Solutions, says “the introduction of the flat rate pension is intended to be cost-neutral and so there will inevitably be winners and losers”.

    “According to Steve Webb, around 11.5 million individuals are projected to be receiving a state pension in Great Britain in September 2012. Around 5.2 million (around 45%) of these individuals are projected to have a gross state pension amount in excess of £140 a week (in 2012-13 earnings terms).

    “In other words, nearly half could receive less than they expected from the State and they need to know this if they are to respond accordingly.”

    Cowling also notes that “the removal of contracting-out debates puts further pressure on the sponsors of DB schemes”.

    12.00pm: TUC general secretary Frances O’Grady says poor people will lose out:

    “Today’s pensioners will be angry that they miss out on this reform and face continued threats to remove the winter fuel allowance and help with travel. The increases in the state pension age redistribute from poorer people with shorter life expectancies to the better-off who live longer.”

    and on the impact on National Insurance contributions:

    “And we are extremely concerned at the impact on both public and private sector employers who will face a big 3.4 per cent increase in national insurance contributions. Unless public sector employers are compensated for this, it will lead to big cuts across public services and, in particular, could derail the local government scheme proposals where councils are already under extreme financial pressure. In the private sector the government needs to ensure that this does not lead to further scheme closures.”

    11.22am: Tim Jones, CEO of NEST, said:

    Tim Jones, Personal Accounts Delivery Authority

    “The new flat-rate pension will make it easier for all workers to plan and save for their retirement.

    “Together with automatic enrolment, which has given millions new rights to a pension at work, this will provide workers with a solid basis for later life.”

    10.46am: Joanne Segars, chief executive of the NAPF, comments on the positive knock-on effect in auto-enrolment:

    Joanne Segars

    “People like their pensions simple. This will set a clearer, fairer state pension that offers an easily-understood foundation on which they can plan their retirement. A flat rate system also dovetails with the recent auto-enrolment reforms by helping workers see what they need to save in their new workplace pension.

    10.08am: Alan Higham tweets: “Hard to know whether detail of flat pension reform is good until we’ve seen it. Principle is right.”

    10.04am: Fraser Smart, managing director of Buck Consultants, says the changes are “long-awaited” and “warmly welcomed”. Adding:

    “Of course there will be winners and losers.  Likely losers include anyone who has reached state pension age already or will do before 2017 when this comes into force, higher paid employees who would have otherwise accrued a larger S2P and those with very short NI histories – below a certain number of years, maybe 10, there won’t be any state pension paid.

    It is likely to be the death knell for the few private sector final salary pension schemes

    “In addition, likely losers include employees still building up benefits in a contracted out final salary scheme whether in the public or private sector.  Their schemes are required to give something more generous than S2P in return for paying reduced NI.  These NI contributions will have to go up since contracting out will no longer be possible – for someone on £25,000 this would be £270 for the individual and £650 for their employer.  It is likely to be the death knell for the few private sector final salary pension schemes.” 

    10am: Tom McPhail, head of pensions research at Hargreaves Landsdown, reacts:

    ‘This vital reform lays the foundation to rebuild the UK’s retirement savings. It will simplify the state pension for millions of today’s workers, allowing them to plan their retirement with more certainty.’

    ‘There will inevitably be winners and losers from this package of reforms:’

    ‘Anyone retiring before the reforms are implemented in 2017 may wonder why they are missing out on the £144 a week pension.’

    ‘Public sector workers will probably be angered by their increase in National Insurance rate; in fact they will do quite well from the reforms.’

    ‘We will almost certainly see another wave of private sector final salary scheme closures in response to the abolition of contracting out.’

    ‘Low earners and the self-employed will potentially be the big beneficiaries from the new more generous basic state pension.’

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