Update on pension reform
The issue of saving for retirement has never been more relevant. In an environment of falling annuity rates, low interest rates and dwindling support from the state for an ageing population, the government is introducing a range of pension reforms. The imminent arrival of NEST (National Employment Savings Trust) has been well documented, and is intended to encourage individuals to take responsibility for financing their old age by automatically enrolling qualifying employees in a suitable pension scheme unless they choose to opt out.
In the March 2012 Budget, the Chancellor of the Exchequer announced additional plans designed to simplify the state pension system, based around on a single-tier state pension of £140 per week, and a mechanism to align increases in state pensionable age with longevity. However, the Department of Work & Pensions (DWP) recently announced a delay in the publication of these plans. The government’s White Paper containing the detail was due for release earlier this year; however, according to pensions minister Steve Webb, the government is “still working on the details” and an announcement is not now expected until the autumn.
The planned reforms are intended to bring “much-needed clarity and simplicity” to the UK pension system. However, the National Association of Pension Funds (NAPF) commented that “the time for talking should be over by now”, adding: “Our state pension is one of the most complicated and least generous in Europe. People need to know that it pays to save for their old age, and that they won’t see their saving means-tested away.” The NAPF warned that the delay in announcing the detail could endanger the introduction of automatic enrolment, saying: “Defined benefit pension schemes need time to prepare for the end of contracting out. The government must give them enough time and give them clarity as a matter of urgency.” On the other hand, Saga’s director-general Dr Ros Altmann, highlighted the importance of ensuring that the changes are “effective and not rushed”.
Looking ahead, regardless of the finer detail in the White Paper, the state pensionable age is set to continue its rise, and many of us will have to save harder or work longer. Ultimately, the best approach is to get started as early as possible. Pension saving remains one of the most tax-efficient ways to save for your retirement and, the longer you save, the more time your contributions will have to grow.
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