Spending Review 2010 Pensions

Published / Last Updated on 20/10/2010

The June Budget contained major tax proposals on the pension front, which are now working their way through the legislative system. The CSR contained several important, non-tax announcements:

In late June, the DWP issued 'a call for evidence' on when the State Pension Age (SPA) should be raised to 66. The schedule inherited from the previous government (in the Pensions Act 2007) was that an SPA of 66 would be phased in between April 2024 and April 2026. The Government has now decided that SPA will be 66 from April 2020. This shortened timescale introduces new complexities, because at present women's SPA is being gradually increased to 65 by April 2020, courtesy of the Pensions Act 1995. The result is two new sets of phasing:
o Between April 2016 and November 2018, the rate of phasing-in of the higher women's SPA will be increased so that in the space of 19 months women's SPA will rise to match the male's SPA of 65.
o With male and female SPA's equal at 65 in November 2018, from the following month a new phasing in will begin to raise the single SPA to 66 by April 2020.
The Savings Credit Element of Pension Credit (worth a maximum of £20.52 a week for a single person and £27.09 for a couple) will be frozen in cash terms for four years from 2011/12. The June Budget also made a real terms cut to the Guarantee element of Pension Credit by limiting its 2011/12 increase to the cash rise in the basic state pension.
Universal benefits for pensioners, such as free bus passes, will be preserved. The Cold Weather Payment, which was increased temporarily from £8.50 to £25 two winters ago, will now be fixed at £25. While the Winter Fuel Allowance is 'preserved', it is unclear whether the £50 and over-80 £100 top-ups, which have applied in recent years, will continue.
Members of unfunded public sector pension schemes, other than the Armed Forces Pension Scheme, will see their personal contributions increase from 2012/13. Details will have to await the outcome of Lord Hutton's report, which is due in time for the 2011 Budget. However, it is already clear that increases will be 'progressive', ie weighted towards the higher earners. The Treasury projects additional contributions of £1.8bn by 2014/15, equivalent to an average 3% rise in contributions. This comes on top of a two year public sector wage freeze from 2011/12 for those earning £21,000 or more, announced in the June Budget.
Equitable Life policyholders are to receive total compensation of around £1.5bn, based on relative loss, ie the difference between what policyholders actually received from their policies, and what they would have received had they invested elsewhere. For Equitable's 37,000 with profit annuity policyholders the Government 'will cover the cost of the total relative loss suffered', which it puts at £620m, to be paid in instalments.
There has been an indirect confirmation that NEST and auto enrolment will go ahead. The DWP's settlement includes 'funding for the introduction of auto enrolment from 2012 and the establishment of the National Employment Savings Trust'.

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Spending Review 2010 HMRC