This IFS election briefing note reviews the policies that the three main UK political parties have announced in their manifestos that relate to state pensions, private pension saving, public sector pensions, and employment at older ages.
Summary
- All three main UK parties have promised to increase the Basic State Pension (BSP) at least in line with earnings. The Liberal Democrats have said they would do this from April 2011, Labour from April 2012 and the Conservatives at some point in the next Parliament.
- Labour and the Liberal Democrats plan to start increasing the State Pension Age (SPA) to 66 for men and women from 2024. The Conservatives have said they might bring this forward to 2016 for men and 2020 for women. If implemented, this would adversely affect men born between 1951 and 1959 and women born between 1955 and 1959.
- All would restrict the tax relief received by some on their pension contributions. Labour and the Conservatives would do this for 300,000 individuals with incomes above £130,000, while the Liberal Democrats propose doing this for all 3.1 million higher rate taxpayers. It is unfair to restrict tax relief on pension contributions without similarly restricting the tax paid on pension income. Such policies introduce considerable complexity and compliance costs.
- The Conservatives and the Liberal Democrats have both pledged to get rid of the requirement to annuitise all private pension pots before the age of 75. This reform risks worsening the operation of the annuities market and higher prices for some. The current system does not actually force individuals to annuitise retirement savings, as they are free to save for retirement in non-pension products.
- The Conservatives and the Liberal Democrats have both said they would review the current pension arrangements for public sector workers. Public sector pensions are more generous on average than private sector ones, but this is not itself a justification for cuts. Any future review should consider whether the remuneration packages being offered provide the appropriate incentives to recruit and retain staff at the lowest cost to taxpayers. The Conservative proposal to cap public sector pensions at £50,000 a year would not be a sensible reform.
- All three parties want to remove employers' right to make individuals retire at age 65. Employment legislation should contain provisions for employers to be able to assess their employees' abilities to carry out their roles and terminate their employment if they cannot perform their duties even with reasonable adjustments. But allowing age as a proxy for physical and mental capability does not seem desirable.
This is the last IFS election briefing note in this series. A summary of all election briefing notes can be found here.
Carl Emmerson is deputy director of the Institute for Fiscal Studies and programme director of their work on pensions, saving and public finances. He is an editor of the annual IFS Green Budget. His recent research includes analysis of the UK public finances and public spending, and also the effect of UK pension reform on inequality, retirement behaviour, labour market mobility and incentives to save. He is also a specialist advisor to the House of Commons Work and Pensions Select Committee.
Comments