Pensions Update - Personal Accounts

• The state pension age for men and women should rise to 66 by 2030, to 67 by 2040 and to 68 by 2050
• Increases in the state pension age should be linked to rising life expectancy
• The state pension should be more generous, with increases linked from 2010 to average wages and not prices
• The state system should become "as non-means tested as possible"
• In future the savings element of the pension credit should rise by less than average earnings. However, the guaranteed income element of the pension credit should continue to increase in line with earnings
• With the aim of easing the plight of women pensioners, entitlement to the state pension should be based on residency rather than national insurance contributions
• The over 75s should be entitled to a universal basic state pension
• The current state second pension should evolve into a flat rate payment
• A standing commission to monitor pension policy should be established
• The option allowing personal pension scheme members to contract out of the state second pension should be abolished

Boosting savings

• A new National Pension Savings Scheme (NPSS) should be established by 2010, otherwise called 'personal accounts'.
• People who are aged between 22 and state pension age and earn at least £5,035 per annum (in 2006/2007 terms) and who do not belong to a workplace pension scheme would be automatically enrolled into the NPSS
• Employers would be compelled to contribute to their workers' NPSS
• Contributions to personal accounts would be phased in but by year 3, employers must contribute at least 3% and there must be total contributions of 8% (employees would contribute 4% of their salary and the government 1%).
• Employers can opt employees out of the NPSS if they offer a pension scheme which operates auto-enrolment and the existing scheme meets a 'quality test'. It is suggested the level of contributions would have to match those under the NPSS.
• Self-employed workers should be able to join the NPSS on a voluntary basis, while those not in paid work should be able to join and receive tax relief on contributions.
• Workers who wished to contribute more of their salary should be free to do so
• People would be free to opt out of the NPSS
• People will be able to choose from a range of funds where their NPSS is invested
• The commission said annual management costs for the NPSS should be no higher than 0.3%
• It should be possible for money saved in the NPSS to be inherited and to be split on divorce.

The DWP estimates that between six million and nine million workers will begin building up a private pension or begin building up a more generous pension.

Longer working

• Age discrimination legislation should apply to over 65s:
• The government should better publicise the already existing option for people to defer taking their state pension
• The government should consider whether to reduce or eliminate employer national insurance contributions for workers over age 65
• At present, training expenditure tends to be "skewed" towards younger people. The government should ensure all public training programmes are non-age specific
• We need to bear in mind that many of these points - as with Pensions Simplification (‘A’ Day) - are extremely likely to be amended somewhat prior to any inception.

The full 45 pages of the Pensions Commission Report can be viewed by clicking on the link below:
http://www.pensionscommission.org.uk/publications/2006/final-report/final_report.pdf

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