Website of the UK government

Please note that this website has a UK government accesskeys system.

Public services all in one place

Main menu

Budget June 2010 - pensions and savings

  • Published: Wednesday, 27 October 2010

From April 2011 the basic State Pension will rise each year by either earnings, prices or 2.5 per cent. There are also changes to Pension Credits and how yearly increases to pension payments are worked out.  

State Pension

From April 2011, there will be a ‘triple guarantee’ so the basic State Pension will rise by either:

  • earnings – the average increase in UK wages that year
  • prices – how much the cost of living increases that year
  • 2.5 per cent

The basic State Pension will rise each year by whichever gives the highest amount. Additional elements of the State Pension will continue to rise in line with prices.

Saving Gateway

The government announced that the Saving Gateway is not affordable, given the need to reduce the deficit. It will therefore not be introduced in July 2010.

Pension increases and prices

From April 2011 the government will use the Consumer Price Index (CPI) as the measure of prices.

This will change how much public sector pensions and benefits like the basic State Pension will increase each year.

The CPI and the Retail Price Index (RPI) are used by government and economists to work out how much prices increase each year. The CPI is usually lower than RPI.

The basic State Pension will increase by at least the equivalent of RPI in April 2011 to make sure its value is at least as generous as under previous rules.

State Pension age

The government wants to review when the State Pension age will rise to 66 years. This change was set to be introduced between April 2024 and April 2026.

It will launch a call for evidence later this week to see if this change can be started sooner.

Pension Credit

In April 2011 Pension Credit will increase by the cash rise in the full basic State Pension.

If you qualify for the State Pension, Pension Credit is a benefit that can top up your weekly income to a guaranteed minimum. You can use the link below to find out its current level.

Retirement and working age

The government is going to consult on how quickly it can phase out the default retirement age from April 2011.

The default retirement age gives employers the right to make people retire at 65.

Scrapping the default retirement age would allow people to work for longer if they wished.

Individual Savings Accounts (ISAs)

The government confirmed in the Budget that it will index link the annual ISA subscription limit from 2011-12.

It is estimated that over 20 million people currently hold an ISA.

Annuities

The government will end the rule that means you have to buy an annuity with your pension savings when you reach the age of 75.

An annuity is an insurance policy that pays you a regular income for life.

This change will be introduced from April 2011.

The government will also introduce measures for people who will turn 75 before April 2011 who haven’t yet bought an annuity.

Pensions tax relief

From April 2011 the government plans to reduce the annual allowance for tax relief on pension contributions.

There are already plans in place to reduce tax relief on that date for people who earn more than £130,000.

The government is going to look at these plans in detail. Instead one option would be to reduce the amount people can save into a pension to between £30,000 and £45,000 each year.

Other benefits for pensioners

The government has committed to protect key benefits for older people, including:

  • Winter Fuel Payments
  • free television licences for those aged over 75
  • free off-peak local bus travel, eye tests and prescriptions for men and women aged over the female State Pension age

The female State Pension age is 60 for women born on or before 5 April 1950. For women born on or after 6 April 1950 this will increase to 65 between 2010 and 2020.

Public sector pensions

The government will set up a commission to investigate the cost of public sector pensions. Its early findings will contribute to the Spending Review on 20 October 2010, with a full report in time for next year’s Budget. As previously announced, the commission will be headed by former Labour cabinet minister John Hutton.

Was this information useful?

How useful did you find this information?

500 character limit
Your Privacy Opens new window

Why are we asking for this information?

  • we want to hear what you think about the quality and usefulness of our pages
  • your comments will help us improve our pages
  • your comments will also help with the future development of Directgov
  • telling us what you think will help make sure we give you the very best service

Additional links

Budget Day 2011

Budget 2011 on Directgov

Budget June 2010

Full coverage of the new government's first Budget

Online benefits advice

If you need advice on benefits, pensions and credits, see what you might get by using the online calculator

Access keys