From raising women’s state pension age to auto-enrollment: Why the government is overhauling the UK’s pension system
Over the past few years the government has embarked on a radical, root and branch overhaul of the UK’s pensions system. Whatever your circumstances this will affect you, either as an individual or as an employer.
As pensions minister I need to help everyone know about and understand these changes.
Our reforms are all about ensuring that people are saving enough to afford the retirement they want, with a sustainable and simple to understand state pension serving as solid basis from which to save.
From 6 April we will be introducing the new state pension which will give millions of people higher pensions, including women and the self-employed who so often lost out in the past.
Read more: What will Osborne do to pensions next?
The new state pension will form a clear base on which private pension savings can be built. It will no longer be linked to earnings. It is vital that the state pension remains sustainable so that generations to come will also benefit from it.
For many years most women have received state pension for much longer than men due to women both living longer, and reaching state pension age earlier. In 1995, the government legislated to remove the inequality in the state pension age.
The new law was to increase women’s state pension age from 60 to 65 gradually between 2010 and 2020. However, as life expectancy continued to rise, parliament decided further change was needed.
In 2010, women reaching state pension age would spend on average 41 per cent of their adult lives in receipt of the state pension, while men would spend only 31 per cent.
So in 2011, the equalisation was brought forward to 2018. The state pension age for both men and women will now rise from 65 to 66 by 2020.
To supplement the new state pension, it is also important to have some earnings-related private pensions too.
Many people are not saving enough for their retirement, which is why the policy of automatically enrolling people into workplace pensions can make such a positive difference.
Read more: Government must revisit changes to state pension age
Employers will help to increase your savings by also contributing to your workplace pension, effectively offering you free money to boost your own savings.
Thanks to auto-enrolment we expect nine million people to be newly saving or saving more, generating between £14-16 billion a year more in workplace pension saving by 2020. So far, most people are choosing to stay opted in but there is still more work to do.
Under five per cent of all employers have so far started automatic enrolment and contribution levels are very low. By 2018/19 1.8m smaller employers will set up pensions for their staff and minimum levels are set to quadruple.
That is a major challenge ahead. Our pension reforms have sought to make pensions clearer and to give people both choice and control over their savings.
I hope CityAM readers take full advantage of this so you’re in the best financial position for your retirement.