After months of speculation about a shake-up of the nation’s pensions system, today’s government spending review delivered the biggest reforms to Britain’s welfare state since the Second World War.
Here’s a rundown of the main points affecting pensioners.
State Pension Age to rise to 66
Millions of Brits will have to wait longer to receive their retirement income from the State after it was announced that the State Pension Age will eventually rise to 66 for both men and women.
When will it rise?
The current State Pension Age is 60 for women and 65 for men. To make men and women both equal, there had already been a plan in place to raise the threshold for women to 65 by 2020. Under the new plans, this will happen sooner.
Now, by 2018, the State Pension Age for a woman will rise to 65 - matching that of men. Then, by 2020, the State Pension Age for both men and women will rise to age 66.
How will it affect you?
If you were over the age of 57 on April 6 2010, then you can breathe a sigh of relief, you can still claim your pension at 65. However, if you’re below that age, you’ll have to wait until you’re 66 before you get your State Pension.
On the flip side, it could mean a better State Pension when you reach 66, as you’ll be working for longer.
In the spending review, Chancellor George Osborne said that “raising the State Pension Age is what many countries are now doing. It will save over £5 billion a year”.
Public sector pensions to face 1.8 billion cut
The proposals to alter the way public sector workers receive pensions have been a cause for debate ever since the Budget in June.
Public sector pensions have been criticised for being unaffordable and for leaving a funding gap that is bridged by the taxpayer.
The chancellor confirmed: “When these public service pension schemes were established in the 1950s, taxpayers made half the contributions.
“Today they make up two-thirds of contributions, and the unfunded bill is set to rise to £33 billion by 2015-16.”
So what is changing?
In short, employees will have to contribute more to bridge the shortfall.
How much?
We don’t know yet, but there is an agreement that it will be staggered to protect the lower paid and those in the armed forces. The highest paid public servants, who get the largest benefits, will pay the highest contributions. The full plans will be announced next spring.
Pensions auto-enrolment to go ahead
The National Employment Savings Trust – an auto enrolment pension scheme for workers not enrolled on to a company pension, will be kept by the coalition. There were rumours that it would be scrapped but the spending review has agreed funding for the introduction of auto-enrolment from 2012.
What else for pensioners?
Universal benefits for pensioners will stay. The chancellor said this was “in recognition of the fact many have worked hard and saved all their lives”.
So, this includes:
- Free eye tests
- Free prescription charges
- Free bus passes
- Free TV licenses for the over 75s
- Winter Fuel Payments
All will remain exactly as budgeted for by the previous government.
The temporary rise in Cold Weather Payments - will also stay as a permanent increase.
