5 Retirement Planning Changes under the Coalition Government

By: Katie Jenkins
13-May-2010

Now that the Conservative-Liberal Democrat coalition government has begun announcing its key policy areas, we can start to get a picture of how retirement planning will be managed over the coming years. 

As well as continuing investigations into the retirement age and the age at which we are eligible to start receiving the Basic State Pension, there are plans for a review into Labour's proposed pensions restructuring and compensation pledges for Equitable Life policyholders.

State Pension age Review

There is going to be a review of the age at which people can claim the State Pension.  The age is currently set at 65 for men and 60 or 61 for women (depending on your year of birth).

The review is expected to result in an age increase to 66 faster than originally planned, and it is likely that raising the State Pension Age to 68 for both genders is the end goal.  The government has given assurances that the first stage of the age increase will not happen sooner than 2016 for men and 2020 for women.

State Pension Payout Changes

From April 2011, the basic State Pension will be more closely links to price rises.  A "triple guarantee" has been given, meaning that pensions will be raised annually either by earning increases, inflation or 2.5%, whichever of these is more beneficial for employees.

Retirement Age

The Default Retirement Age (DRA), which is currently set at 65, will be phased out.  The coalition government revealed that the DRA would be gradually removed rather than immediately scrapped, so as to allow time for consultations with companies.  

One of the implications of phasing out the DRA is that companies will no longer be able to impose retirement on their employees at the age of 65.  In addition, the two Parties have agreed to end the current rules that require pension savings to be annuitised by 75.

Auto Enrolment Review

There will be a review of Labour's plans to introduce auto enrolment - the scheme whereby UK employers would be legally obliged to enrol their workforce in a qualifying pension scheme unless they specifically decide to opt out.  

Although the aim of helping people to save for their retirement is still considered important, the concern is that auto enrolment - and the resulting increase in government pensions contributions - is not sustainable in the current economic environment.

Equitable Life Policyholders Compensation

Following recommendations from the Parliamentary and Health Ombudsman's recommendation, the government plan to compensate Equitable Life policyholders for their loss in retirement savings as a result of regulatory failure.  This will be implemented through an independent payment scheme, although specifics of the compensation plan have not yet been announced.