A pension funds body has called for the creation of a universal Foundation Pension of £8,000 to offset the coalition government’s decision to increase the state pension age to 66 by 2020.
In his Comprehensive Spending Review announcement yesterday, chancellor George Osborne revealed that the state pension age for both men and women would rise from 65 to 66 in 10 year’s time, six years earlier than previously announced. The move will start to be phased in from 2018.
Osborne also confirmed that the government would increase the level of employee contributions in public sector defined-benefit schemes as outlined in Lord Hutton’s interim public sector pension review. The aim is to save £1.8bn per year by 2014/15, but the government will consult on the precise level of contributions after receiving Lord Hutton’s final recommendations in spring next year.
But Joanne Segars, chief executive of the National Association of Pension Funds, warned that, while pensions would play a part in plugging the state spending gap, the government "must strengthen its commitment to supporting good quality workplace pensions".
Increases in the state pension age must be handled "fairly" in order to give both employers and individuals time to plan and adapt. The changes would have a "particular impact" on female employees, especially those in their late 50s, who may have to review their retirement plans, she added.
"The trade-off for a later retirement must be a better state pension, particularly as the UK’s is the worst in Europe. The confirmation of the ‘triple-lock’ guarantee is welcome, but we need deeper reform, and a simpler and more generous foundation state pension," Segar said.
NAPF proposals for a new, universal Foundation Pension of £8,000 per year from 2017 were "affordable and fair" and must be introduced as swiftly as possible, she added.
But Segar also warned that, while there was a strong case for increasing staff contributions among public sector workers, "the lower paid must not be priced out of their pensions. This must not become a race to the bottom to see who can offer the worst pension. Any hike in contributions must be gradually phased in, with low income workers protected to minimise opt-out rates from pensions."
The FDA public sector trade union for senior managers and professionals, agreed. Jonathan Baume, its general secretary, said: "Pay is currently frozen and senior public servants are facing a long-term reduction in their living standards, with rises in taxation and the withdrawal of universal benefits."
As a result, there was a "real danger" that the overall renumeration package may be cut by changes made to pensions, which could mean that the civil service and wider public sector struggled in future to recruit and retain senior managers and professionals.