Which political party will save your pension?
What will each of the three main political parties do about our very serious pension problems?
Pensions have been constantly weakened by state meddling. Our retirement provisions are too low, and we're left facing the prospect of a small workforce supporting increasing numbers of retired people.
With all that in mind, let's look at pension manifesto pledges, according to the Pensions Policy Institute:
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Donna Werbner goes out to get your two pence on whether the State Pension is enough to live on.
State pension age
We're living longer, but we don't want to work longer. This is something governments must tackle, as we can't support an ageing population otherwise. Here's what the parties propose:
Current Government policy and Labour proposals
From 2024-2046 the state pension age will progressively rise to 68 for both sexes.
Conservatives
Will hold a review, but are currently planning to bring forward the date that the pension age starts to rise to 66, perhaps as early as 2016 for men and 2020 for women.
Liberal Democrats
Supportive of the Government's current plans.
How fast will the state pension increase?
Despite the fact we save very little for our retirements, we also have one of the least generous state pensions. It's even less generous since we stopped increasing it in line with average earnings. What might the future hold?
Current Government policy and Labour proposals
Restore the link between the basic pension and the rise in average earnings by 2012.
Restore the link within the next Parliament.
Liberal Democrats
Immediately re-link the basic pension to the rise in average earnings.
Our state pension is largely based on National Insurance contributions. However, the Lib Dems eventually want a state pension to be based on citizenship instead.
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Early access to our pensions
Related how-to guide
Get ready to retire
There are a lot of things to think about as you get closer to your retirement. But the early you start to prepare, the better.
See the guideCombined with the risks of government tinkering making our pensions even worse, the fact that we can't remove our funds from pensions is a serious problem.
Current Government policy and Labour proposals
Haven't stated an intention to change the system.
Conservatives
Say they'll look at options for granting earlier access.
Liberal Democrats
Want to allow us earlier access to part of our pension savings as lump sums.
Retirement income flexibility
Currently, we're severely restricted on how we take an income when we retire. Most of us cash in our retirement savings for an annuity, which is an agreed income for the rest of our lives, but when we die our entire pots go to the financial company supplying the income.
There are other ways to take an income from our pensions that offers more flexibility and the possibility of passing a small portion of the pot to our children. But that flexibility is limited and these products are difficult for retirees to understand, and they're riskier. What's more, at the age of 75 the flexibility ends and we must take an annuity.
So what are the political parties going to do about it?
Current Government policy and Labour proposals
No statement on making pensions more flexible.
Say they would remove the requirement to buy an annuity at age 75, except for people with low incomes.
Liberal Democrats
Say they would remove the requirement to buy an annuity at age 75, except for people with low incomes.
Recent question on this topic
- Peter Cook asks:
Why do Pension companies get to keep the fund after you die. Surely the fund belongs to the policy holder.
- iPension answered "Hi Peter This is a standard basis for occupational pension schemes although there are variations...."
- SoftwareBear answered "Welcome to the big scam that is the world of Pensions. You need a personal pension for a start..."
- Read more answers
Tax relief
When we pay into pensions the Government contributes, too, with tax relief. In return, we pay taxes on our pension income when we retire. The idea is to prevent us from being taxed twice. Many higher earners have been using this to reduce their tax bill: they've been getting 40% tax relief, and expect to pay just 20% when they retire.
Current Government policy and Labour proposals
Labour has already restricted tax relief. It is now tapering tax relief on higher earners, so that the more they earn, the less tax relief they get. Those earning £180,000 or more will get tax relief at the basic tax rate only.
Conservatives
Have stated no intention to change the status quo.
Liberal Democrats
The Liberal Democrats would limit all tax relief to the basic rate of tax only, currently 20%.
Defined benefit schemes
Defined benefit schemes are the generous, old-style pensions where employers typically promised to pay a percentage of your final salary when you retire. The death knell was sounded when the Government abolished tax relief on them. Now they're dwindling, as they've become too expensive for employers to fund them. What will the parties do about it?
Nothing as yet. None of the parties have stated a commitment to saving these schemes. Instead, they're all looking at transferring some of the risk from the employer to the employee, which might mean relying somewhat on the stock market - like the new-style pensions.
Public sector pensions
The massive public sector pension burden is difficult to tackle. With millions of people paid by the state, the Government doesn't want to upset them by telling them the nation can't afford their pensions. It's a difficult one for all but the bravest of parties, so what do they say they're willing to do?
Current Government policy and Labour proposals
Has already announced reforms by increasing the normal pension age for new state workers, increasing employee contributions and changing the accrual rates.
The blues say they'll cap pensions above £50,000, review public sector pensions, and close the MPs defined benefit scheme - moving MPs to the new-style, defined-contribution pensions, which rely on such things as the stock market and bonds.
Liberal Democrats
Will set up a commission on public sector pensions, raise the public sector retirement age, and consider capping top pension payouts.
The default retirement age
Forcing people to retire because of age is proving too controversial for parties to ignore. Here's what the parties say about the current 65-year default age:
Current Government policy and Labour proposals
They want to review the default retirement age with the idea to abolish it.
Conservatives
Support the idea of abolishing the default retirement age in principle, but want to review practical problems first.
Liberal Democrats
Say they'll abolish the default retirement age.
My view is that manifesto promises are frequently dropped. Considering how weak many of the proposals are, it might not make a great deal of difference to our problems ahead if they are.
More: Boost your pension income by 20% |
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Comments
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None of those interviewed in 'My Two Pence" realised that as it is impossible to live on the state Retirement Pension of around £97 a week, all those with no other assets have to have it topped up to a still miserable minimum through means testing to around £130 a week. At this level pensioners also have access to a range of means tested benefits such as housing benefit, the cost of renewing or installing central heating and others. lovcal autjorities often offer useful sums for a limited tome as well. Those who have modest occupational pensions are often taken just above the threshold for these benefits and actually lose out, often substantially. The only older lady interviewed is still working part time to make ends meet. At 73, I am still casting around all the time to find some paid work as my physical stamina falls off eg I have just negotiated a loan to pave and landscape most of my garden, which I can no longer manage, but need to find some work to service the payments for the next seven years. Really poor pensioners are often living in Council housing or Housing Trust housing and do not have to meet ongoing expenses for repairs and maintenance. Again, the person owning a modest home is losing out. Incidentally the European Poverty level is around £165 a week - over £30 above even the topped up state pensions in Britain. The incredibly mean pension here dates from the time of Thatcher when it was uncoupled from the average wage index. Had the link been retained, the state pension would be around that poverty level by now.
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Something clearly has to be done about public sector pensions. Public sector workers already have much greater job flexibility and job security - just try firing someone in the NHS for incompetence or slack working, all you can do is more them or promote them to somewhere they will do less damage - and many have guaranteed annual income increments. The average public sector salary is now substantially higher than in the private sector, and over 50% of the economy is now run by the state. The Labour Party seems to see no problem with this - witness its ludicrous claim that cancelling their increase in National Insurance will cause a loss of jobs and "remove money from the economy". Duh, no it won't, it will leave the money in the hands of the people who earnt the money, who spend it on something much more productive than yet more public sector jobsworths. Public sector pensions are completely unfunded and far more generous than in the private sector. This situation cannot continue. The income- and tax-generating part of our economy (the private sector) has been treated as a cash cow for too long, and it's time the public sector shared in the economic pain the rest of us have already endured since 2007.
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eftpotrm claims that 'those with the broadest shoulders to bear the largest burden'. Does he realise that you do not have to earn £150k to feel the effect of losing 40% pension contribution relief. I am a 40% tax payer, but earning nowhere near that amount. I choose to invest heavily (£1500 per month) into my pension to, hopefully, have more personal comfort, less reliance on the state and so be less of a burden to taxpayers later in life. This change will hit me by £300 pm!
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06 May 2010