Now that the new government has been confirmed as a Conservative / LibDem coalition, there are several key implications for the Basic State Pension and the whole pensions area.
Assuming that we will be served some kind of pensions cocktail based on the pre-election pledges of both Con and LibDem, there are several areas where the parties bring the same views to the table, with regard to pensions and the Basic State Pension in particular.
The Conservative Party has been talking about an emergency budget within 50 days of forming a new government, which would imply before the start of July. If the LibDems agree to this, then here are the changes for pension savings, and the Basic State Pension, that the budget is likely to contain.
Link Basic State Pension to earnings: Both David Cameron and Nick Clegg are united on re-linking the Basic State Pension to earnings. This is a ‘stop the rot’ measure designed to halt the gradual decline in the buying power of the Basic State Pension, since it was linked to the Retail Price Index by Mrs. Thatcher in 1979. The link to earnings should keep the Basic State Pension ahead of inflation, as earnings tend to increase faster than prices. The deadline for achieving this link is a little vague, however. The Conservatives have said only that it should be done during the lifetime of this parliament.
Cancel compulsory annuity purchase by age 75: Pension savers are currently required to use their pension savings to purchase a pensions annuity when they retire. They do not need to do this immediately, but it must be done before they turn 75. Both parties in government have been in agreement that this requirement should go, opening the way for pension savers to avail for longer of such options as income drawdown, where they can leave their pension pot invested in the stock markets, taking income only when they need it. A key advantage of income drawdown is that you remain the owner of your cash, rather than spending it on a pensions annuity. This opens the door for pension savers to retain their pension savings beyond their 75th year, and leave their pension savings to their loved ones, in their will.
Changing the minimum retirement age: Both parties seem to agree that the state pension age should be changed to reflect increasing longevity in society. Conservative thinking would raise the state pension age to 66 for both genders, first for men in 2016, and in 2020 for women.
