George Osborne’s decision to boost the state pension by £3.35 a week to £119.30 a week and set the new single tier pension at £155.65 a week generated relief among providers still struggling to cope with the implications of last year’s Budget.
As well as boosting the state pension, the chancellor added that the triple lock on the value of state pensions is to be maintained and that the savings credit is to be frozen at its previous level.
Richard Priestley, executive director of retirement income at Canada Life, said the increases were essential, as in the last 20 years, retired households have seen their incomes climb to record highs; up by 77 per cent in real terms.
“This has far outstripped growth seen by the rest of the population. The state pension alone makes up two fifths of a typical household’s income, so this latest move is a boost pensioners will certainly enjoy.
“For those generations coming along behind, the picture may not be so rosy as they face more of an uphill battle to fund retirement. Defined benefit pension schemes, which provided a guaranteed income linked to salary, will gradually disappear altogether.”
For Jason Whyte, director at Ernst and Young’s insurance practice, the rate of £155.65 for the new flat rate state pension means someone working full time today will receive roughly 60 per cent of the living wage.
“So for the lowest earners, the step down in income at retirement will not be too bad by international standards. But for most people it will probably leave a sizeable gap to what they would call a comfortable retirement income.”
In the absence of further change to private pensions, he added that in private pensions, no news is good new for the life and pensions industry.
Mr Whyte added that for the first time in this parliament, Mr Osborne has not announced radical change to the private pensions system.
David Brooks, technical director at Broadstone, agreed that it was a relatively quiet Autumn Statement, with good news for some employers that would prefer to pay the absolute minimum contributions for their employees with the delay to auto-escalation rules.
“However, many employers will still need to engage with members to advise them of the change, if they have already confirmed the auto-escalation will happen.”
Malcolm McLean, senior consultant at Barnett Waddingham, pointed out that we are still no further forward on the “looming time bomb” of the potential tax relief changes which the chancellor indicated will be announced in next year’s budget.
“This uncertainty is causing a degree of planning blight for many schemes who are looking to update their systems to give full effect to the pension freedoms and other changes that the chancellor has brought in.”
Finally, the former pensions minister and now director of policy at Royal London Steve Webb, said that it was good news that rumours of a halt to automatic enrolment have proved unfounded.
“A six month delay, so that contributions rise in April 2018 and April 2019 may be a good thing. If people get pay rises and income tax cuts in April this will mean that the impact of higher pension contributions on their take-home pay will be reduced.”
ruth.gillbe@ft.com
