UK Budget notes 'huge' public-sector pension liabilities
UK - The first Budget of the UK coalition government - expected to unveil the deepest spending cuts for decades - has produced few surprises for the pensions industry.
George Osborne, the Chancellor, underlined taxpayers' huge liabilities in terms of public-sector pensions, saying the UK would be spending more than £10bn a year by 2015-16 to meet the gap between pension contributions and payments to unfunded pensions, according to the Office for Budget Responsibility.
He confirmed John Hutton, the newly appointed chair of the Independent Public Service Pensions Commission, would provide an interim report next September and that a full report would be available before next year's Budget.
Chris Johnson, head of human capital business at Mercer, said: "Public and political concerns about funding and misalignment with private-sector pension provision mean the current position is unsustainable.
"The public sector needs to take its fair share to help reduce the UK's debt."
More specifically, the increase in the state pension age to 66 - originally planned to come in by 2036 - will be accelerated.
A consultation on how to do this will be launched this coming Thursday.
The coalition agreement had stated the increase would be introduced no earlier than 2016 for women and 2020 for men.
A consultation is also planned to enable a decision to be made as to whether to phase out the default retirement age of 65.
From April next year, benefits, tax credits and public-service pensions will be increased in-line with the consumer prices index (CPI), rather than the retail prices index (RPI).
The CPI - the inflation measure targeted by the Bank of England - excludes housing costs and is generally lower than the RPI.
However, the state pension and pension credit - which guarantees a minimum income for those over a qualifying age - will still be protected by a 'triple lock', with increases calculated at earnings or price inflation, or 2.5%, whichever is highest.
But the basis for price inflation will also be switched to CPI from next year.
The government also intends to abolish compulsory annuitisation at the age of 75.
Meanwhile, the Labour government's controversial proposals to reduce pension tax relief for people earning more than £150,000 per year, due to start in 2011, are likely to be scrapped.
Instead, the chancellor said he would work with industry on alternative ways of raising the £3.5bn a year - the revenue the measure was intended to save - by potentially reducing the annual allowance.
Joanne Segars, chief executive at the NAPF, said: "The previous government's proposals were a disaster in the making.
"They would have been very damaging to the pensions of all working people, not just the well-off.
"However, there is a lot of detail to be ironed out, and the level of the allowance is critical."