20th January 2013
The reform is not due for implementation until 2017 well after the next election and it is already facing quite formidable opposition. We have already seen the hugely influential Institute for Fiscal Studies questioning whether it will really make people better off. Now it has a new critic, if not quite opponent, in the person of Sage director general Ros Altmann, a formidable campaigner for the rights of older people. Altmann supports the move away from means-testing in general as can be seen from this video featured on the the Telegraph a couple of weeks ago. But now she is questioning the detail as can be seen from this article in the Actuarial Post.
This is the key passage – “Unfortunately, the new system proposed in the White Paper is substantially less generous than the proposals in the original Green Paper. Indeed, the proposed flat-rate state pension is 11.8% less than was suggested in 2010. The £144 a week after 35 years contributions (instead of £140 a week in 2010 terms after 30 years contributions) is worth £4.11 a year for each full contribution year, as opposed to the £4.66 a year which the Green Paper put forward. In addition, the new scheme will not start before April 2017, which is a year later than originally intended and this means many people will be left out who would have hoped to be included.”
We think the temptation for the Labour opposition to propose a more generous settlement probably by proposing amendments to the legislation will be almost irresistible. They may also make it a key theme for the general election campaign though of course ultimately any proposal must be costed. At the moment, over the long term, the Treasury will benefit. It may also be significant that the reform is being proposed by a Liberal Democrat pension minister Steve Webb thus minimising the chance that Labour could actually win a vote in the House of Commons with the help of some Lib Dem rebels. But the next government depending on its make-up could alter things.
However, while we think it is very important for individuals approaching retirement to think long and hard about what the reform will mean for them based on the current proposals, we also believe there is still a significant chance that things could change. You might even think about writing to your MP if you believe you are adversely affected and don't want to be.