Bill of health for pensions?

The government’s pensions bill, published on 29 November, put some flesh,
though by no means all the flesh – on the bones of its white paper. It will soon
be official – once the bill becomes an Act – that people born in 1978 and after
will have to wait until they are 68 before retiring. At the rate at which
longevity is increasing, that increase in working life will doubtless seem
laughably small by the time we get to 2046, however.

It is also (almost) clear that the government is committed to restoring the
link, removed by the Thatcher government, between state pensions and earnings.
“Almost” because the government still appears to be fudging the introduction
date for this particular proposal. The Queens’ Speech said it would be some time
in the next Parliament.

The number of years people have to contribute to the State pension to receive
a full pension is being cut from 44 to 30 (39 for women).

A key provision is the creation of a “delivery authority” whose job it will
be to design and plan the individual personal savings plan suggested by Lord
Turner. However, the detail for this is not going to be forthcoming immediately.
In fact the government plans yet another round of consulting on this topic
before making up its mind as to what exactly the brief will be for this new
authority. What we are promised is another white paper some time in December. At
the moment the only firm thing about the “authority” is that it will oversee
automatic enrolment for all in workplace schemes, unless they choose to opt out.
Because people tend to stay where they are put in such matters, experience
around the world suggests that automatic enrolment massively increases the
number of people in company pension schemes.

There is still no word as to whether the task of investing and administering
these individual pensions will fall to the pensions industry, or whether the new
authority will look to do an in-house job, which will seriously annoy the pe
nsions sector.

What the Bill does not do, as a variety of commentators have hurried to point
out, is to introduce anything new into the mix. Most of the new provisions are
positive, but many in the industry are not thrilled by the ending of contracting
out for defined contribution schemes. As Andy Tully, Pensions Technical Manager
at Standard Life points out, this will remove around £3bn a year from private
pensions, putting the money instead into the unfunded State pension – which,
Tully points out, is the diametric opposite of what we should be doing.

Related reading