The Pension Policy Institute (PPI) has released research outlining the various political party agenda's to reform the UK pension system in the run up to the General Election next month.
Paramount to its findings is how various policies will tackle means-tested pensioners, which it says will increase by 650,000 people from a current 2.7 million people in the next five years under the current system.
The Conservative party's proposals over the same period would see an increase of 400,000. Its policies would seek to increase the Basic State Pension in line with earnings, taking people off means-testing only if the Pension Credit grows at a slower rate says the PPI.
The Tories would still increase Pension Credit in line with earnings during its first term, while longer term plans to index pension credit to prices would see the fewer pensioners left on Pension Credit become poorer.
The Liberal Democrat proposals would see the numebr of means-tested pensioners drop by 1.2 million, according to the PPI.
It argues current policy would set a state pensions bill for the next Parliament at £80bn, adding a better state pension will cost more, while Conservative proposals would increase this figure by around £1bn a year, financed by scrapping some New Deal programmes.
The Liberal Democrat's propose a bill of £3bn a year, financed by a package of savings in non-pension areas says the PPI.
Despite both the Tories and Lib Dems announcing diffeerent proposals for pension reform the Turner Commission is not due to publish its findings regarding the reform of state pensions until after the General Election.
This has led the PPI to assume current pension policy where Labour has not specifically issued new proposals, pointing out Labour intends to keep the Basic State Pension at its current level of £82.05 a week, increasing each year in line with inflation, while the Conservatives are in favour of the current level increasing with average earnings until 2008.
The Tories would also ensure those who have paid National Insurance contributions will be entitled to some Basic State Pension.
The Lib Dems would retain the basic state pension for people under 75 at its current level, increasing each year in line with price inflation. But people above 75 would receive a ‘Citizen’s Pension’ at £109.45 a week, increasing each year in line with average earnings.
Moreover, the Party wants to gradually extend the Citizen’s Pension until all people of pensionable age receive it and also enable married women to repay missed National Insurance Contributions.
On State Second Pensions, all three Parties are in favour of retaining the system's current form, while continuing to allow contracting-out.
The Conservatives, in the longer term would consider consolidating the State Second Pension into a higher Basic State Pension and consult on replacing contracting out with a new private pension incentive.
The Lib Dems say they would abolish the State Second Pension once the Citizen’s Pension was established for all those of pensionable age.
On the matter of Pension Credit, Labour says it will guarantee £109.45 a week for a single pensioner to 2008, and perhaps beyond, based on an earnings-index.
The same applies for the Tories, however the PPI says long term suggestions, post 2008, point to a Pension Credit linked to prices.
The Lib Dems says they will retain the current policy for people under 75, but phase it out in time as the Citizen’s Pension is extended to lower ages.
Regarding private pensions, both Labour and Conservatives are keen to encourage automatic enrolment to occupational pension schemes and continue with current tax incentives.
The Conservatives additionally stress the need to reduce pensions regulation. Theyu say they will also look to introduce additional tax relief for basic-rate and starting rate taxpayers of £10 for every £100 saved in a funded pension, while also abolishing a requirement to buy an annuity at age 75, which is also in line with the Lib Dem proposals.
If elected, the Lib Dems will look to adopt automatic enrolment to occupational pension schemes, while enabling employers to write membership schemes into employment contacts. The party is also keen to establish ‘a kitemark’ for occupational pension schemes and provide simple, safe and affordable pensions run by National Savings.
Moreover, Charles Kennedy will do away with all mandatory retirement ages.
Labour says it would also provide those people under age 65 with the right to work beyond theire retirement, to be reviewed in 2010.
The Conservatives would consider slowly extending abolition of mandatory retirement ages from below age 65 to below age 70.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Gareth Vorster on 020 7968 4554 or email [email protected].IFAonline
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