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UK roundup: default retirement, Local Government Pension Scheme

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UK - The government today confirmed its plans to abolish the default retirement age, allowing workers to continue in their position beyond 65.

While a consultation on the matter will take place, the Department for Business, Innovation and Skills (BIS) said the changes would be phased in over a six-month period starting in April 2011.

Ed Davey, minister for employment relations, consumer and postal affairs, said older workers brought a wealth of talent and experience with them, and he promised to aid a smooth implementation of the new measures.

"We are committed to ensuring employers are given help and support in adapting to the change in regulations, and this consultation asks what kinds of support are required," he added.

Despite the changes, it would still be possible for certain employers to enforce a compulsory retirement age if there were sufficient justification, with the BIS citing the police force as one possible example.

Roger Mattingly, a council member at the Society of Pension Consultants, said the effect on pension funds would be neutral, as workers could either draw their benefits at 65 while continuing to work, or decide to defer.

"However," he added, "it does raise the question as to whether late retirement factors will be allowed or whether they will be deemed age-discriminatory, in which case employment terms being offered as one approaches the age of 65 will have to be continued for the remaining employment term.

"Either way, funding costs should be containable."

Ian Naismith, the head of pensions market development at insurer Scottish Widows, said that, due to the demographic shift, many had to work longer to guarantee a comfortable retirement and estimated that around 12% of monthly income should be put toward this period.

He added: "We welcome any measure that will encourage people to save more for longer, so that the majority of people can enjoy their retirement years without worrying about how they will fund them."

In other news, the Audit Commission today released a report arguing that the Local Government Pension Scheme (LGPS) should increase retirment age and allow individual schemes to adjust the level of benefits paid out.

The report looking at local government pensions warned that while issues such as increasing longevity had already been taken into account, current proposals would not guarantee long-term sustainability.

However, the report did highlight that the 79 LGPS members were still seeing positive cash flow, with overall contributions in 2008-09 of £7.3bn compared with £5.6bn in benefits.

The Audit Commission outlined six possible reforms, including locally managed unfunded schemes, but conceded this may not make pensions more affordable in the long term.

Another option suggested would see the funds consolidated into fewer, larger funds with the aim of guaranteeing a higher return.

The commission argued that larger funds had performed slightly better last year than smaller counterparts and could also take advantage of economies of scale.

Further, it speculated that benefits could be lowered, with individual schemes offering additional benefits on top of a core package.

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