Today’s big story of course is the Government green paper on the future of the basic state pension. Currently one of the lowest in the developed world it stands at a paltry £97.65 a week (assuming you have a full National Insurance record) rising to a minimum income guraranteed top up figure of £132.60 if you have no other income from other sources such as a company pension scheme.

But this minimum figure top up is means tested and it led to some of the neediest of our society failing to claim what they were entitled to. Many older people especially older women with incomplete NI records due to home care breaks, were of a generation too proud to go cap in hand as they saw it to some bureaucrat in the social security office asking intrusive and personal questions.

What is now being proposed is a flat rate simple £155 per week basic state pension, available to all new pensioners from 2015 irrespective of child care breaks. (Of course, another proposal mentioned in the Budget was the merging of income tax and National Insurance too so that all dovetails nicely if they can ever get the system to work!!).

There will be additional positives for the Government too in a subtle boost to the NEST scheme. Why? Simply this. NEST, while giving a pretty minimal outcome for an inadequate 8% contribution overall, would have been sufficient to remove people from qualifying for the means tested M.I.G. Consequently the view went, why bother to save for one’s old age when the government would provide anyway. Some pundits were predicting a significant opt out from NEST as a result. Of course, the best answer is adequate work place pensions but that’s another story!!

This Green Paper for once seems a very sensible simplification and is to be welcomed by all (though no doubt some will not). Iain Duncan Smith conceded what those of us in the pension industry have been saying for years. That the State pension system (in fact ALL pension systems in the UK) are just far too complicated and frankly are a turn off to saving. Yes it is unfair to existing pensioners who will not benefit from the change but as we know, the coffers are not bottomless. As Steve Webb said on BBC Radio 4

“Tomorrow’s pensioners do face a very different world. They will, on average, be working for a lot longer, they will be retired for longer, they won’t on the whole have final salary guaranteed pensions in the way that perhaps their parents did. We therefore need a simpler, clearer foundation because more of them will now be asked to save for their retirement.”

A further reform announced today concerns linking the increase in State pension age to increasing longevity. We already know that State Pension Age is to rise to 65 by 2020 And then gradually to 68 by 2040.

By providing automatic rises this will depoliticise the argument as it’s pretty tough to argue with science and the science tells us we’re all living longer. It’s a price we have to pay…get over it.

Well, I really don’t know where to start this week. Retirement ages to go up to 66 from 2016 – an accelerated rate but perhaps not before time. Default retirement age is to go – this was well trailed and was a neccesity if State Pension Ages are rising. But there is a downside to this of course. And that is – just where are the jobs going to come a) for the over 50s who are already struggling to find jobs in the current market and b) for the younger generation who might find their job opportunties blocked by encumbent older workers who won’t (or can’t) retire?

There is no simple answer to this particular dilemma except perhaps to ensure that we all start saving earlier for our pensions which will allow us to take that ‘early retirement’ option. But it may not be possible for many. And then there’s the manual workforce who may well feel that working on beyond their bodily ‘use by’ date is problematical. Not easy is it?

Next a slightly sneaky announcement from the Government. Many of us are familiar with pensions in payment or in deferment rising each year by the Retail Price Index or RPI. Well, hidden in the small print is a change to State Pension increases  meaning that instead State pensions will rise by earnings or 2.5% or using the Consumer Price Index or CPI, whichever is the greater .  So what, you might think? Well simply this. CPI is usually a couple of percentage points lower than RPI. So by using this index the Government might save itself a bit. Employers and Trustees might wish to consider amending their schemes (which usually use the RPI measure) to take advantage of that soon.

Restoring the link to Earnings – another well trailed change – may sound good (and in times of wage inflation is very good) but two caveats here. First, earnings are not rising particularly fast at the moment and secondly, since the change is in no way going to be backdated, there will be a lot of catching up to do before we get back to where we should have been had the link not been broken in the first place!! Oh well, there’s always the World Cup to cheer us all up and at least we not striking over pensions like the French…yet!

I will not be the only one pleading for Alistair Darling today to simply leave pensions alone in his Budget. Untold damage has been done to the UK pension system by years and years of tinkering with, raiding from and knee jerk responses to occupational pension provision.

Enough is enough, the pips are sqeaking, we cannot take any more. But sadly much as we would like to see it, I suspect that our pleas will fall on deaf ears. There is very little possibility that the changes already announced for Higher Rate taxpayers will be reversed, even though it is likely that even modest earners could be affected by them. It is a rare policy that gets ‘U turned’ once announced.

The only real hope is that this Budget will to all intents and purposes be a sham in that within 2 months, we will have another administration in place with different ideas. Well, that’s the hope, but how many times have we seen bad policy continued even after a change in Government simply because it’s the ‘easy’ route and they’ve got at least 4 years to worry about it. By then, it’s embedded and too late to change. I’ll update this later once we know a bit more.

I used to believe in the Mother of Parliaments as essentially a place where on the whole good was done by well meaning people. Now, I really don’t think that at all…

LATER:

Well, the pensions announcements were pretty low key and in fact mainly turned up in the Budget Papers. More consultation on removing the default retirement age which comes as no great surprise. The Lifetime and Annual Allowances limits below which no additional tax charges attach are frozen for the next 5 years. Great if inflation doesn’t take off but not something to be overly happy about to be honest. Especially for young professionals and entrepreneurs whose income tend to rise rather quickly – and don’t we really want to encourage that sort of growth right now?

Some more tinkering with Trivial Commutation too. This could be a bit of good news in fact although we can only hope that any introduction is made rather more efficiently than the last set of regulations – I almost lost count of the number of amendments that needed to be made to the first effort!! HMRC are clearly still nervous that TC can be used as some sort of tax avoidance measure and have made it clear that they will not countenance any iffy transactions. They have though mentioned the possibility of ‘pooling’ the trivial pots of partners to allow the purchase of joint annuities. Interesting.

In last weeks’ posting, I said that I doubted the Chancellor would be able to keep his dirty mitts off pensions. I am sorry to report that I was right although even I didn’t appreciate just how underhanded he was going to be. Along with his annoucement that he was extending the restriction of tax relief to those earning effectively £130,000 (we already knew about the £150,000 limit) Mr Darling announced that he intended to raise the State Pension by 2.5%.

Much rejoicing in the Labour camp that at least pensioners – some of those most affected by rising prices and reducing benefits – would be winners in the budget merry go round.

But hang on a minute…what’s this…things not apparently what they seem?? Surely a Cabinet Minister would not be being economical avec la verite? Oh yes he was…
You see, what he omitted to mention was that the State Earnings Related part of the pension WOULD INDEED be frozen, as would the old graduated pension element which is paid to over 10 million of us.

And the lie doesn’t stop there. If you are one of the lucky male pensioners who happen to have wives under 60 don’t expect any windfall increase on your current additional pension either. All of these ’savings’ amount to approximately £350million. Hardly a drop in the ocean but not exactly significant when compared to the overall deficit of several billion that this country faces.

Hitting those who have worked all their lives and paid their taxes seems to this commentator a rather petty approach to a major problem.

Meanwhile, on the Regulatory front, the Pensions Regulator has announced that Trustees should adopt a stance that considers any inducement to transfer out liabilities from the final salary pension scheme to be suspect and not in the members’ best interest. While this may indeed be true for many average earners, it may not be true for all and perhaps demonstrates the fact that the Regulator has failed to grasp that DB schemes are in their death throes (contributed to by poor regulation by tPR) and issuing pronoucements making things even more difficult for Trustees is simply not helpful to those DB schemes that are struggling to survive.