During its first few days in government the Conservative / Liberal Democrat coalition has made many policy announcements, we thought we would take a look at what has been announced about your pension, the changes proposed and how they will affect you.

The main three areas that have been focused on by the coalition when it comes to pensions are the removal of compulsory annuitisation, the State Pension and finally the removal of the default retirement age.

Removal of compulsory annuitisation

The government has signaled that they intent to remove the need to purchase an Annuity at age 75.

The purists will point out that an individual does not have to purchase an Annuity at 75 under current rules and could move into ASP (Alternatively Secured Pension). However as rules around ASP are complex and it is generally only suitable for larger funds an Annuity is often the only choice.

The government has claimed removing compulsory annuitisation at 75 would allow them to simplify some of the rules and regulations around pensions.

No further details of this policy have yet been confirmed and it will be interesting to see exactly what is proposed.

Whilst many people have an inbred dislike of annuities, seeing them as inflexible and offering a poor deal, for many with pension savings of less that say £100,000, they currently offer the only viable option. Indeed for many the rate of return on an annuity, in a period of low interest rates and rising inflation, is actually very attractive.

It will be interesting to see the new proposals and whether they address the issues that many have with annuities.

State Pensions & State Retirement Age

During the election all parties agreed that the link between earnings and the State Pension should be restored and the government have announced that this will indeed happen.

From April 2011 the state pension will rise either in line with inflation or earnings, whichever is higher, furthermore it will be subject to a minimum increase of 2.5% each year in the event that earnings or inflation is below this figure.

Over the past 20 years wages have risen faster than inflation therefore restoring the link between the state pension and earnings has to be welcomed, however the price that we pay for this is a raising of the state retirement age.

In a speech yesterday the new Secretary of State for Work and Pensions Iain Duncan Smith said “One of the big issues we have to face up to as a society is that we are all living longer and healthier lives. That has huge implications for the pensions regime.”

He went on to say that the government therefore had no choice but to increase the pension age.

The age at which the state pension becomes payable was already scheduled to rise to 68. The planned rise would have taken place in stages between 2024 and 2046; however the government has signaled that it plans to speed up the time it takes to raise the age to 68 and has announced a review that will look into exactly how quickly the change should take place.

Removal of default retirement age

Currently employers have the right to dismiss an employee when the reach the state retirement age, many including the government, believe this is wrong. Mr Duncan Smith used his speech yesterday to address this, saying “we are phasing out the default retirement age so that we are not penalising perfectly healthy people who want to keep working and keep contributing. The idea of someone being fired just because they turned 65 is nonsense. People who are good at their job and want to work for longer should be able to do so.”

The government seem to be moving fast on pension reform with the direction that they are taking with pensions seemingly clear for all to see, as usual with policy announcements the devil will be in the detail which will be eagerly anticipated by all those affected.

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