The Autumn Statement and pensions
There are four items of note on pensions if we include the delay in auto-enrolment announced yesterday. Today we also learnt of a rise in the state pension age, the uprating of the state pension and a dog that did not bark.
Let’s start with the relatively good news. The state retirement pension will be uprated by £5.30 in line with September’s peak 5.2 per cent CPI inflation. There were rumours that it wouldn’t.
While the triple lock of indexing by the higher of wages, CPI inflation or 2.5 per cent will lead to better pensions than the old RPI link over time, pensioners may feel hard done by this year as RPI inflation in September was 5.6 per cent. The old system would have given them a better rise next year.
Pensions credit which is normally indexed to earnings has also been given a one-off higher CPI linked lift of £5.35. However this is being paid for by scaling back savings credit. This means taking cash from the not very well off to give to the poor. One can see why the DWP would want to do this given Treasury constraints, but it would have been better to find money somewhere else to pay for it.
A further rise in the state pension age seems to be one of George Osborne’s favourite ways of looking responsible by saving money in the future. It will rise to 67 on a phased basis between 2026 and 2028. Bad news if you are under 51.And of course any rise in the state pension age, hits the poor with shorter life expectancies and greater difficulties working longer harder than the better off.
This is not unexpected and I have set out the arguments against here. It will have a particular impact on public sector pensions as the government wants to make the state retirement age the pension age in public schemes.
The delay in the final stages of auto-enrolment for smaller companies is very disappointing. While the strong lobby to completely exclude small firm staff from auto-enrolment has not been succesful, I doubt it will go away. Ensuring that no small firm is auto-enrolled before the election will encourage a huge lobby to get the Conservatives to commit to this for their manifesto. I suspect the DWP will be rather pleased they have headed this threat off for now, it is still very bad news.
It will not just hit the staff of smaller firms (probably just under half the workforce) but all workers. This is because auto-enrolment is being both staged and phased. Staging brings big employers in first (starting next year) and finishes with the smaller employers. We are talking all employers with fewer than 250 here, I think. Although the details are not yet clear, at present the plan is to treat all employers with fewer than 250 staff as the final batch for auto-enrolment. As there are so many they don’t all have the same date, but are meant to auto-enrol in random groups over two years.
Phasing of higher contributions only starts when staging has been completed. This leaves workers only getting a one per cent contribution from their employer until the final small business has been auto-enrolled. Only then do the contributions start to go up to the three per cent of band earnings ultimately required from the employer. This probably means that the system will only be fuly implemented in 2017.
This was not the original intention. Indeed there is a legal requirement to review various elements iof autro-enrolment in 2017 as the last government assumed it would have been up and running for a few years by then.
Finally comes the dog that did not bark. There were reports that there would be a crack-down on higher rate pensions tax relief – a progressive policy favoured by many Lib Dems – and not just those on the left.
This is the ideal source of funds to improve the state pension and ease Steve Webb’s long held plan for a flat rate state pension.
It has to be said however that if it had been cut today, there was not much chance that it would have gone into better pensions.
But it was the one proposal floated in advance of the Autumn statement that would have asked better off people to pay more in tax.