The State Pension is facing a dramatic overhaul under a Government shake-up of retirement rules. The changes could see millions of future retirees having to wait longer to claim and receiving different levels of payment.
Ministers have launched a wide-ranging review of the entire pension framework – looking at when people should be entitled to receive the state pension, how much they should get, and whether the current system is financially sustainable for the long term.
The Department for Work and Pensions (DWP) confirmed that the second phase of its Pensions Review will examine “the balance of all three pillars of the UK system – state, occupational and personal wealth”.
It is expected to ask fundamental questions about how these components should work together to ensure a financially secure retirement for everyone. Full details and the panel leading the review are yet to be published. The review comes at a time of growing concern that the triple-lock guarantee – which ensures the state pension rises every year in line with wages, inflation or 2.5%, whichever is highest – is pushing up pension payments at an unsustainable rate.
Rachel Vahey, head of public policy at AJ Bell, said: “Pensions minister Torsten Bell recently ruled out scrapping the triple-lock guarantee, but as the state pension grows ever closer to the frozen personal allowance threshold it could be that the Government is finally forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year.”
The announcement comes hot on the heels of a new Pension Schemes Bill, which lays the groundwork for major changes, including the creation of massive collective investment funds – dubbed ‘megafunds’ – to deliver better returns for savers.
Ms Vahey said the review could be the most significant shake-up since the Turner Review 20 years ago, which brought in automatic workplace pension enrolment and transformed saving habits in the UK.
“It’s now 20 years since the Turner Review was published,” she said. “That comprehensive look at the UK’s retirement system ushered in a new regime for pensions, resulting in the introduction of landmark automatic enrolment reforms which changed pension saving in the UK forever.”
Those reforms have seen more than 11 million people newly enrolled in workplace pensions since 2012, bringing the total number of active savers to around 20 million. But experts warn that while the number of savers has surged, many still aren’t putting enough aside for a comfortable retirement.
Ms Vahey said: “Not enough people are saving enough money for their later life, and although automatic enrolment has gone a long way to create millions of new pension savers, instead of resting on our laurels we now need to take a good look at whether they are saving a sufficient amount of money to realise their retirement ambitions.”
The review is also expected to probe the interaction between the state pension and private savings – including personal assets – raising questions about whether those with higher wealth might ultimately be expected to rely less on the state.
Ms Vahey added: “While details of this new Pension Review are thin on the ground at this stage, it has the potential to be as significant and could have far-reaching implications for people saving for their retirement.”
Campaigners are urging the Government to set out full terms of the review as soon as possible to give millions of savers clarity on what’s coming. Ms Vahey said: “The Government now needs to clearly set out the terms of this review as soon as possible to give savers and the industry certainty over its plans.”