The Coalition’s Pension Plan

Introduction

The recent General Election has resulted in the first full Coalition Government since 1945. The Queen’s Speech at the State Opening of Parliament on 25 May 2010 outlined the legislative programme set by the Conservative / Liberal Democrat Coalition.1

Given the Queen’s Speech confirmed there will be a five year fixed term Parliament, we look forward to the Coalition’s “five-year plan” for pension reforms.2

Summary

The Queen’s Speech included:

a Pensions and Savings Bill which will implement previously announced changes relating to the state pension; and
legislative plans to back the promise to pay “fair and transparent” payments to the Equitable Life policyholders.

The five-year plan will also encompass the planned 2012 workplace pension reforms and a public sector pensions shake-up.

Review of SPA

Under plans laid down by the previous Labour administration, SPA was scheduled to rise to age 66 by 2026, with two further increases at 10-year intervals eventually taking it to 68 by 2046. This planned increase in SPA will now be reviewed. The Coalition has previously said it will look at accelerating the rise in SPA but that it will not increase to 66 before 2016 for men and 2020 for women. It remains to be seen whether the review will also address whether the SPA should be linked to longevity, potentially increasing it beyond 68.3

Pensions and Savings Bill

There will be a new Pensions and Savings Bill which will include a number of commitments already included in the Coalition Agreement.

The Bill will:

reflect the outcome of the review of SPA;
restore the link between earnings and state pension from April 2012, with a triple guarantee that pensions are “raised by the higher of earnings, prices or 2.5%”; and
phase out the default retirement age under age discrimination legislation.4

Equitable Life Payments Scheme Bill

This Bill will secure compensation for nearly a million Equitable Life policyholders, a measure previously recommended by the July 2008 Report of the Parliamentary Ombudsman.

2012 Workplace Reforms

The 2012 workplace pension reforms, set in motion by the outgoing Labour Government, still look to be on track.

The current proposals are that, in future, employers will be required to automatically enrol their eligible jobholders into a qualifying pension scheme. An employer may choose to use either their own designated qualifying scheme or the Government established savings scheme, the National Employment Savings Trust (called NEST).5 This requirement will be phased in, starting in 2012 for larger employers – with smaller employers bringing up the rear.

The Coalition Government has said it is “committed to working with business and the industry to support auto enrolment”. In addition, the Treasury has already announced a review of the administration contract for NEST awarded to Tata Consultancy Services shortly before the Election (although they were the only bidder left in the race).

Public Sector Pensions

There is a commitment in the Coalition Agreement to establish an independent commission to review the “long-term affordability” of public sector pensions, whilst protecting accrued rights.

The Chancellor, George Osborne, has also announced the creation of an independent Office for Budget Responsibility (OBR). The OBR has been established on an interim basis to make an “independent assessment of the public sector balance sheet” (including public service pensions).

1 Details of the policies of the Coalition can be found in the Coalition Agreement
2 For details of other planned reform, please see our Alert dated 14 May 2010
3 As hinted at by the Secretary of State for Work and Pensions, Iain Duncan Smith, in a speechon 27 May 2010
4 Unsurprisingly, given the judge’s comments in Heyday
5 Previously referred to as the Personal Accounts scheme