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Queen’s Speech confirms state pension reform plans

The Queen has confirmed that the government will legislate over the coming year to introduce a new single-tier state pension.


08 MAY 2013 | THE ACTUARY NEWSDESK: NICK MANN

In her speech marking the annual state opening of parliament today, the Queen said the government’s legislative programme for the next 12 months would ‘promote a fairer society that rewards people who work hard’. It would also work to ‘strengthen Britain’s economic competitiveness’, she said.

Referring specifically to the state pension plans, she said: ‘My government will bring forward legislation to create a simpler state pension system that encourages saving and provides more help to those who have spent years caring for children.’

The government has already published a draft Pensions Bill setting out the detail of the reform plans. These involve simplifying the state pension to a single payment of £144 a week – bringing to an end the current situation where the basic state pension can be topped up with means-tested pensions credit or the second state pension.

The abolition of the second state pension will also end the process of contracting-out, where employees can choose receive this section of their state pension via their workplace pension provider.

Andrew Vaughan, chair of the Association of Consulting Actuaries, welcomed confirmation that the state pension reforms were being introduced, but reiterated concerns over the decision to make the changes in April 2016, and not April 2017 as previous planned.

‘We are concerned that moving the date forward for its implementation to 2016 at short notice will cause those remaining open defined benefit schemes to begin work from now onwards to review their schemes for the accompanying end of DB contracting-out. This will accelerate DB scheme closures,’ he warned.

‘As a result, we think it is absolutely essential that the government progresses its “defined ambition” plans during 2014 so new pension design options are available to employers ahead of 2016. This will involve legislative reforms.’ 

He added: ‘As an early initiative, we have called upon the government to make Limited Price Indexation optional for future DB accrual, ideally as soon as is possible, so sponsors can see the government is committed to timely, meaningful reforms.  This will help to control scheme costs, whilst continuing to offer employees greater pension certainty than is offered by the present alternatives to defined benefit.’   

In her speech, the Queen also confirmed legislation would be introduced during the next year to reform how long-term care is paid for. This will ‘ensure the elderly do not have to sell their homes to meet their care bills,’ she said.

In February, the government set out plans to cap the amount older people have to contribute towards their care costs at £75,000, while the means-tested threshold for paying towards care will be increased so anyone with an estate worth less than £123,000 does not have to pay.

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