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Pensions - Spending Review

  • Published: Wednesday, 20 October 2010

A number of announcements were made in the Spending Review that will affect state and private pensions.

Pensions uprating

As announced in the Budget, the government will restore the earnings link for the basic State Pension from 2011. The triple guarantee will guarantee that from April 2011 pensions will rise each year by earnings, inflation or 2.5 per cent – whichever is the higher.

Pension age

Before the summer, the government launched a review on increasing the State Pension age. As a result, the Chancellor announced that the state pension age for men and women will reach 66 by the year 2020.

This will involve a gradual increase in the State Pension Age from 65 to 66, starting in 2018. It will mean an acceleration of the increase in the female pension age already underway since this April. From 2016 the rate of increase will be three months in every four rather than the current plan of one month in every two.

Read more about these proposed changes to State Pension age by following the link below.

Hutton Report on public sector pensions

The Chancellor welcomed the findings of the interim report from John Hutton’s Public Service Pension Commission.

The Chancellor said that the public service pensions should continue to provide a form of defined benefit pension. He also stated that there should be an increase in employee contributions and that this should be staggered and progressive.

The government will wait for the full report from the Commission next spring before coming to any conclusion on the exact nature of the defined benefit and progressive contribution rise.

Pensions for MPs

The government said that the current final-salary pension terms for MPs are not sustainable and that the current scheme will have to end.

Equitable Life compensation

The Chancellor confirmed that he accepted the findings of the Parliamentary Ombudsman in full.

He also said, however, that he does not agree with the level of compensation suggested in the analysis contained in advice from Sir John Chadwick. Rather, the Chancellor said that he agreed with the Parliamentary Ombudsman that the relative loss suffered is the difference between what policyholders actually received from their policies and what they would have received elsewhere.

He therefore announced that the government has decided that the fair amount to pay out in total is in the region of £1.5 billion.

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