Some good and bad news on pensions
Buried in the spending review today is confirmation that the government is to continue funding the new NEST low -cost pension due to start in 2012.
Its future had been in doubt following the establishment of the independent (if consumer-free) review by the government – which I understand is likely to report next week. There was a strong lobby to tear the heart out of the post Turner Commission pension reforms, but it looks like this has been beaten off – as getting rid of NEST was one of its key objectives.
Well sourced leaks also suggest that the review has also rejected the campaign to exclude small businesses from auto-enrolment.
While I doubt that we are going to like some of the recommendations in the review, these were probably the two issues that were red-lines for the TUC.
- Excluding small businesses would have stopped this being a new pensions system for everyone at work
- Scrapping NEST would have left in place the market failure that leaves poor and middle income workers without decent low-cost pensions.
If either were breached, I suspect that this would be the trigger for the TUC to say that there was no longer a consensus around the 2012 pension changes.
A quiet but intense campaign has been waged to keep the review on course. My hunch is that the opposition came as much from within government as outside. The bill for pensions tax relief will go up when auto-enrolment starts making the Treasurya suspect and BIS is always receptive to burdens on business arguments.
But while we will need to read the small print next week - it does look like while we may be bloodied we have defended the main planks of the new pensions system (where ‘we’ goes very much wider than the TUC).
Universal benefits such as the including Winter Fuel Payments, free eye tests, prescriptions and TV licences have been kept. That’s a good thing, but ministers may find it hard to square with government arguments that child benefit should not be paid to higher rate tax payers as they do not need it.
There is one change to means- tested benefits:
freezing the maximum Savings Credit award in Pension Credit for four years, thereby limiting the spread of means testing up the income distribution and saving £330 million a year by 2014-15;
I’ll leave others who understand means-tested benefits to work out what this will mean in practice. Other changes to benefits not restricted to pensioners may also have an impact.
Raising the state pension age to 66 is much less welcome. However it is at least on a somewhat slower timetable than George Osborne’s ambition to do this by 2016. In 2009 he told the Conservative conference that he would do this to save £13 billion. Many observers said that it looked like he had simply forgotten women, and others, including one Steve Webb, said the sums did not add up.
Today’s announcement speeds up the existing timetable for the increase in the state pension age for women from 2016. This will now reach 65 in 2018. After that both men and women will go up in six month increments until SPA reaches 66 for all in 2020. I’ve not yet found the figure for the savings this will achieve. I doubt it’s £13 billion.
Alice has the bad news on public sector pensions.