From the TUC

Pensions and the PBR

09 Dec 2009, by in Pensions & Investment

This is what I think has happened on the pensions front in today’s PBR.

The state retirement pension will go up by 2.5%. This is significantly higher than current inflation – although many think that inflation is higher for pensioners as they spend more on the things that have gone up and less on the things that have kept inflation down.

Right wing think-tank Reform think that the state retirement pension is a bad thing because it helps the middle classes, but I suspect that this will not be a popular view among anyone standing as a candidate in the next election.

The Independent this morning predicted that auto-enrolment into pensions and compulsory employer contributions would be postponed for a year.  This has not turned out to be true. (phew!!!).  Andy Grice, like so many journalists, also confuses personal accounts with auto-enrolment.

It looks rather as if auto-enrolment will start in 2012 as planned, but there is to be a review with the aim of allowing new and small businesses to delay auto-enrolment.

There is already to be a process of staging when employers start contributing. This is sensible as it is a huge logistical task, and it makes sense to start with bigger employers as they are both likely to be better organised and cover more staff. Phasing of contributions has always been part of the political settlement and allows employers and employees not to make the full contribution in their first year in the scheme. Both can be defended, but the unfortunate side-effect of the way that ministers plan to combine staging and phasing meant that people would not reach their full contributions until 2016. I suspect that today’s announcement means that at least for some this date will not be until 2017, but we won’t get the details until the New Year.

This is naturally a bit disappointing, but putting off the start date from 2012 – and I suspect Andy Grice’s story means that this was a favoured option at least in the Treasury – would have been much, much worse. Neither establishing the Turner Commission nor its report were received with equal enthusiasm across government. I wouldn’t be surprised if there had been a bit of a row about this – and the good guys have won.

The Chancellor has tweaked his Budget changes on pensions tax relief for those earning more than £150,000. It’s all a bit technical but it will also apply to those earning more than £130,000 who increase their pension contributions. I think it is to iron out some quirky unintended consequences with marginal tax rates.

It’s welcome, but the TUC’s maximum allowance proposal would be simpler.

Update: Such is the level of PBR excitement in the office, I forgot to mention the cap on public sector employer contributions. My hunch is that this is in fact nothing new but simply the operation of the burden sharing agreement that was part of the agreement reached betwen unions and Alan Johnson when public sector pensions were renegogiated.

If I did political commentary here, I would be tempted to say that this has been done in a way that is designed to appease the public sector pension critics (but won’t), but will in fact worry public sector staff – when the different policies on offer on public sector pensions could be very helpful to the government.

3 Responses to Pensions and the PBR

  1. Pre-Budget Report and pensions « Connected Research
    Dec 9th 2009, 4:31 pm

    […] About the other measures that did – and did not – appear in the PBR speech, predominantly the issue of the staged introduction of contributions into the new system of personal accounts, Nigel over at ToUChstone has a useful summary and comment. […]

  2. XpertHR’s Employment Intelligence blog
    Dec 9th 2009, 7:33 pm

    Pre-Budget 2009: reactions, links and more small print for HR…

    Here's a useful list of reactions to the Pre-Budget Report from unions and employers on ePolitix…

  3. Bryn Davies
    Dec 9th 2009, 7:34 pm

    I agree that it’s not clear whether the announcement on public sector pensions means anything new – but the report does claim a £1 billion pa reduction in public expenditure from 2012-13 that wasn’t there before. Maybe this is just another one of these old news announcements but it does require further explanation.