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UK Conservatives plan to speed up pension age increase

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  • UK Conservatives plan to speed up pension age increase

UK - The Conservative Party has confirmed it will reinstate the earnings link for the basic state pension in the next Parliament if they are elected, but warned it would be funded by a faster increase in the state pension age (SPA).

In a keynote speech at the Conservative Party conference in Manchester, George Osborne, shadow chancellor of the Exchequer, today claimed "a saver's society" is the party's ambition and said the restoration of the earnings link would stop more pensioners from being driven into means-testing and provide a "more generous state pension for all".

However, he warned: "This is another one of those trade-offs any honest government has to confront. All parties accept that with an ageing population, the state pension will have to rise."

The current pension reforms in place allow for equalisation of pension ages, with women seeing an increase from 60 to 65 over the next decade starting in 2010, while the pension age for both men and woman is set to reach 66 between 2024 and 2026.

But Osborne claimed most experts, including Lord Turner (chair of the Pensions Commission), think 2026 is too far off.

"So we will hold the review which Turner's report proposed…. Our aim will be to bring forward the date when the pension ages rise. This is already happening in Germany, Holland and Australia. We will ensure that no increase will happen until the second half of the next decade - in the parliament after next," he added.

This means the pension age will start to rise to 66 from 2016 for men, however because of the equalisation reforms women's state pension age will not increase from 65 to 66 until "at least 2020".

Osborne emphasised: "No-one who is a pensioner today, or approaching retirement soon, will be affected. But this is how we can afford increasing the basic state pension for all."

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said the review would help address the questions of the timing of the state pension age in relation to rising longevity, and the increasing costs of state pensions.

But she warned: "There are some difficult matters that must be resolved, not least is the timing of the increase in women's retirement ages. It is vital the review is also extended to consider what positive measures and flexibilities could be introduced to help support workplace pensions."

Meanwhile, Osborne's speech also touched on plans to close the Parliamentary Contributory Pension Fund (PCPS) to new members as part of a cost-cutting programme on government spending.

He warned: "Parliament will be required to do what so many hard-pressed businesses have been forced to do, and close its unaffordable pension scheme to new members."

MPs pensions are currently the subject of a review by the Senior Salaries Review Board (SSRB), which is expected to report its findings on how to cut costs to the Prime Minister by the end of the year. At the last valuation the PCPS was around £50m in deficit. (See earlier IPE articles: MPs' pensions deficit is result of lower contributions and SSRB consults on future of MP pensions)

In addition, Osborne said: "The tax relief on private sector pensions is capped, so the time has come to find ways to impose a £50,000 annual cap too on the size of public sector pension payouts."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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