Pension Notes
ALTHOUGH 2007 SAW THE FIRST STEPS TOWARDS THE INTRODUCTION OF PERSONAL ACCOUNTS, THE PRINCIPAL LEGISLATIVE CHANGE WAS THE REFORM OF STATE PENSIONS
The reforms being introduced by the Pensions Act 2007 and the Pensions Bill recently presented to parliament represent the biggest transformation in UK pension provision since 1988, at the very least, and possibly since 1978. The new Act addresses both the increasing cost and the declining value of state pensions. It also prepares the ground for the introduction of personal accounts by the current Bill, which will require compulsory employer contributions and auto-enrolment. These changes overshadowed all other regulatory developments in 2007.
State pensions addressed
The Pensions Act provides that the basic state pension will once again increase in line with national average earnings, probably from April 2012, rather than in line with retail prices as now. In addition, the number of qualifying years needed to gain a full state pension is being reduced to 30, for both men and women.
The government was concerned at the spiralling costs of state pensions as a result of greater longevity, and the Act raises state pension age (SPA) in a series of short phased steps, finally to 68 in 2044–46. In addition, the Act changes the state second pension (S2P) from an earnings-related pension into flat-rate provision.
The Act ends contracting out on a protected rights basis, which is linked to the change to S2P and will also probably be implemented in 2012. The government has said that contracting out on the basis of the reference scheme test will be reviewed five years later.
The Act established the Personal Accounts Delivery Authority and provided for enhancements to the financial assistance scheme. In addition, a programme of reform to public sector schemes was completed last year. Regulations established a new-look local government scheme (OP, August 2007), a career-average scheme was introduced for civil servants (OP,
The reforms being introduced by the Pensions Act 2007 and the Pensions Bill recently presented to parliament represent the biggest transformation in UK pension provision since 1988, at the very least, and possibly since 1978. The new Act addresses both the increasing cost and the declining value of state pensions. It also prepares the ground for the introduction of personal accounts by the current Bill, which will require compulsory employer contributions and auto-enrolment. These changes overshadowed all other regulatory developments in 2007.
State pensions addressed
The Pensions Act provides that the basic state pension will once again increase in line with national average earnings, probably from April 2012, rather than in line with retail prices as now. In addition, the number of qualifying years needed to gain a full state pension is being reduced to 30, for both men and women.
The government was concerned at the spiralling costs of state pensions as a result of greater longevity, and the Act raises state pension age (SPA) in a series of short phased steps, finally to 68 in 2044–46. In addition, the Act changes the state second pension (S2P) from an earnings-related pension into flat-rate provision.
The Act ends contracting out on a protected rights basis, which is linked to the change to S2P and will also probably be implemented in 2012. The government has said that contracting out on the basis of the reference scheme test will be reviewed five years later.
The Act established the Personal Accounts Delivery Authority and provided for enhancements to the financial assistance scheme. In addition, a programme of reform to public sector schemes was completed last year. Regulations established a new-look local government scheme (OP, August 2007), a career-average scheme was introduced for civil servants (OP,