Pensions: Acting to avoid a £57bn black hole
THE pensions white paper aims to address some of the concerns raised in report produced by the commission chaired by Lord Adair Turner that warned of a £57 billion black hole in future pensions provision.
In its two reports produced in 2004 and 2006 for the then Labour government, the Turner Commission recommended a simple, single-tier state pension along the lines of what the coalition government proposed yesterday.
It also said state pension provision needed to be more generous, something the government claims will be the case under its reforms, although it intends to make savings on pensions in the distant future.
The government has also previously accepted Turner recommendations on raising the retirement age to help compensate for longer lifespans and the costs of pensions, and linking the state pension to average earnings or the higher rate of inflation, whichever is the largest, in what is known as a triple-lock system.
However, a major gap in the measures taken forward by the government are workplace pensions.
The Turner Commission warned that compulsory schemes would need to be introduced to help offset pensioner poverty in the future. But, while the government has discussed the measures, nothing has yet been brought forward.
The commission pointed out that 12 million people were not saving for their pensions, and yesterday a similar figure was produced by Lib Dem pensions minister Steve Webb.
The commission actually recommended that the first stage of this process should be in place by 2010 with the creation of a new National Pension Savings Scheme.
Under that scheme, employees would contribute 4 per cent of their salary, employers 3 per cent and the government 1 per cent.
One reason that the coalition government and the previous Labour administration have cherry-picked the Turner Commission recommendations is that, at the time of publication of the second report in 2006, civil servants warned the proposals would lead to a £20bn black hole in pension provision by as early as 2020.
• A single-tier flat rate pension will be introduced, in April 2017 at the earliest, to replace the current one of £107 a week topped up by benefits.
• At today’s prices, it will be worth £144 a week.
• To get the full amount, a person will need 35 years of National Insurance (NI) contributions.
• Those people who take time out of work, for example to raise a family or care for a relative, will receive NI credits that will contribute towards their 35 years.
• If you are in a public sector pension, your NI contributions will rise. Currently, public sector workers belong to pension schemes that are “contracted out” but pay lower NI contributions and receive a smaller state pension. Under the new scheme, they will pay more NI.
• The Department for Work and Pensions says almost three million women receive a state pension worth less than £80 a week as they have taken time out to raise children or care for a relative.
• The highest earners, who pay large amounts in NI, are expected to be hit by the move.
• Anyone who pays NI for less than ten years will not qualify for a state pension.
• The retirement age is to be reviewed every five years.
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