The New Pensions Realities
Our pension system in the UK has been relatively stable for over half a century, but all that is about to change. It already has changed in fact, the twin legislative volcanic eruptions in 2006 (the Finance Act) and 2008 (the Pensions Act) have already been heard across the industry; it is now inevitable the seismic shift in our pensions landscape will happen, in apparent slo-mo to observers, in the years between now and 2012. Our pension world will be completely changed by then.
The system that is being replaced by all this was essentially put in place in 1956 and gave us the modern pension mix of occupational and individual pension schemes favoured by the tax system and all aimed at the magic two-thirds of final income as a desired income replacement rate for those entering retirement. There have been many changes over the years, but that structure has, until now, remained largely intact. A big part of that structure has to do with the way that private pensions interact with both state pensions and other means-tested state support for the elderly. That too is changing fundamentally from 2012.
The fifty year experiment with the state providing a pay-as-you-go, earnings-related second pension for employees who were not contracted-out into private occupational pension schemes is over. The state second pension will begin to change to a redistributive, flat-rate top-up to the Basic State Pension after 2012. That redistribution will help reduce the number of pensioners reliant on means-tested handouts from the middle of this century, but will also reduce the support the second pension provided to millions of others at the same time.
In the new world from 2012 there will be a requirement that all employers must, for the first time ever in this country, have a private-sector workplace pension scheme in place for their employees. They will also be responsible for auto-enrolling their employees into those private-sector schemes. Employers, whether they understand this now or not, will also be required by law to contribute to their employees’ pensions if those employees choose to remain in the schemes once auto-enrolled. That is a major change that will bring all kinds of opportunities and threats to the current pension status quo.
Over the last year I’ve written a number of BeeLines on what these changes are all about and what the world might look like from 2012. Looking back I can see that some of them, although written months apart and in isolation, form some kind of a ‘set’. It’s a set I’ll be adding to in the coming months as more detail emerges on these impending changes, but you might like to look over those old BeeLines at some time before I do that. The ones I think I’m talking about are these:
Oh, and by the way you can follow the BeeHive these days on www.twitter.com/PensionsGuru too.
24 February 2009
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.