How the PBR has made the pension crisis worse

on Dec 14 in Is it my crisis? , State pension tagged by Brian Wood

At probably their last opportunity to do anything substantial, the government have completely ignored the pensions crisis – and actually made it worse for many people by chipping away at existing pension rights.  We have written a longer ‘Opinion’ article about this – click here to read it .

All in all the real message, once again, is that it’s up to individuals to navigate their way out of the pensions crisis.

As usual, the Chancellor presented an upbeat speech but the full reality of what was being announced only became clear later from the detailed press releases.  In this update we will focus on the announcements that are likely to affect your pensions crisis.

First, the state pension will be increased by 2.5% from £95.25 to £97.65 per week for a single person in April 2010.  While this was paraded as a generous increase because inflation is lower, it was already established government practice to increase the basis state pension by a minimum of 2.5%.  And the sting in the tail is that earnings-related pensions (like SERPS) will not be increased by 2.5% – they will be frozen.

With immediate effect the threshold for tax relief on pension contributions for higher earners has been reduced from £150,000 to £130,000.  The threshold will now include employer pension contributions too – which means that a salary sacrifice in exchange for employer contributions, in order to stay below the threshold, will no longer work.

Public sector pensions received a warning shot when it was announced that government would no longer accept unlimited liability for the impact of the pensions crisis on the cost of funding them.  Full details have not yet been released, other than the fact that the government expects to save £1 billion next year.  If you are in a public sector pension scheme, this means that you can no longer bank on receiving the full (and generous) level of pension that you may have expected.

Finally, there were a number of small changes that will eventually reduce the amount of income you could use to invest in pensions.  If you are employed, Class 1 national insurance will rise from 11% to 12% in 2011 – and of course VAT, which affects everyone, will revert to 17.5% from the end of this year.

You can get more detail about all of these changes from the DWP website – and a useful summary of the whole of the PBR can be downloaded from Informed Choice

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