UK state pension age to rise in line with longevity
UK - The UK's state pension age will soon rise in line with longevity, the chancellor of the exchequer announced in today's Budget, as he said the government needed to make savings of £10bn (€12bn) to the country's welfare bill.
Addressing the House of Commons, George Osborne also praised the work of pensions minister Steve Webb, pledging to end the state pension system's current two-tier approach and backed the introduction of a single-tier state pension, independent of means testing.
"I can confirm today that there will be an automatic review of the state pension age to ensure it keeps pace with increases in longevity," he said, adding that the government would likely need to cut the welfare budget by £10bn over the next four years.
Automatically increasing state retirement ages in line with longevity has long enjoyed the support of prime minister David Cameron, while also following on from a number of recommendations made by the European Union.
However, the Department for Work and Pensions (DWP) has been cautious about the use of a formula, last year saying there could be difficulties in balancing automatic increases with the need to require a workforce with sufficient notice of changes.
Osborne also confirmed that the Debt Management Office would consider the introduction of perpetual gilts, which the National Association of Pension Funds (NAPF) had previously said would be of little interest to UK schemes.
The chancellor said perpetual gilts had not been issued in more than six decades.
He also said that, at a time of low yields - partially triggered by the Bank of England's Asset Repurchase Scheme, itself extended until next year - it was right to extend the benefits the UK enjoyed compared with European neighbours.
Simon Hill, chief investment officer at Buck Global Investment Advisors, said that, with defined benefit schemes closing, there might not be much need for 50-year and perpetual gilts.
"If this consultative period does eventually move to reform, it is more likely to express a Treasury belief that yields cannot go much lower rather than a genuine desire to help pension schemes," he said.
The Treasury also gave further details of the reform of the state pension system, saying the new single-tier state pension would launch "early in the next Parliament", requiring a launch in late 2015.
"As set out in the Green Paper published by the Department for Work and Pensions, the single tier will cost no more than the current state pension system in every year," he said.
"The government will bring forward further detail in a White Paper in the spring, with final decisions on the detailed implementation of the policy being taken at the next spending review."
Osborne outlined in his speech that the new pensions payments would start above the current level of means-testing, saying payments would be "around £140" a week, a figure already widely used by the industry.
The chancellor further touched on infrastructure projects he hoped would attract pension fund interest.
"We also want investment from British pension funds in British infrastructure - and we're now working with a dozen of the largest pension schemes specifically on that," he said.
An update on the National Infrastructure Plan, launched as part of the autumn statement last year, added that the government had "supported" the launch of a new Pension Infrastructure Platform.
The Treasury said the vehicle, created as a result of a memorandum of understanding between the NAPF and the Pension Protection Fund (PPF), would invest the "first wave" of its £2bn in assets by early 2013 - echoing a statement by Cameron that has since been greeted with silence by the NAPF and PPF.
"A separate group of pension fund investors has also presented proposals to the Treasury for increasing pension plan investment in infrastructure in the construction phase," the update added.
Osborne also announced changes to pension tax relief, saying any claims in excess of £50,000 would soon be capped at 25% of a claimant's income.
The move, which had been opposed by the industry, was criticised as a "recipe for complexity" by the NAPF's head of policy Darren Philp.