Labour's pension plans may forge new political consensus

A new White Paper proposes compulsory employer pension contributions, provided employees contribute 4%, and auto-enrolment. It also sets out the government's plans to increase the basic state pension in line with earnings, reduce means-testing and state pension age to 68 in stages. The proposals have been well received, but the key question is, will it all be reversed when labour are not in power?

Summary of key points

  • The government has published a White Paper setting out its legislative plans in the wake of the Pensions Commission's report.
  • The National Pensions Saving Scheme has been renamed "personal accounts" but closely follows the commission's proposals, except that an alternative administration model is being considered.
  • Auto-enrolment will be from age 22 for those earning over the earnings threshold, and the auto-enrolment process will be repeated at three-yearly intervals for non-joiners.
  • The minimum contributions will be phased in over three years, at the end of which employees will pay 4% of their earnings between the earnings threshold and the NI upper earnings limit. The exchequer will add tax relief at the basic rate and employers will be required to make a contribution equal to 3% of the same band of pay.
  • Existing work-based provision will exempt the employer from auto-enrolling employees into the personal accounts scheme provided its own scheme also auto-enrols those employees and is at least as good as the personal accounts.
  • Contracting out on a money-purchase basis will end in about 2013.
  • Radical deregulatory changes may remove the requirement for DB schemes to apply limited price indexation to pensions.
  • The basic state pension will be increased in line with national average earnings, possibly from 2013.
  • S2P will remain price-indexed in payment and will evolve to become flat rate soon after 2030.
  • State pension age will rise to 68 by 2046.
  • State pension entitlement conditions will be eased to enable more individuals to obtain a full-rate basic state pension.
  • The calculation of the savings credit will be changed to restrict the growth of means-tested benefits.

The Government White Paper Security in Retirement: Towards a New Pensions System1 may be the first step towards forging a new political consensus on pensions. The government clearly hopes so. In the final two lines of his foreword to the White Paper, Secretary of State for Work and Pensions John Hutton states: "We can now lay the foundation on which this generation and the next can work and save for a long and healthy retirement. And they can do so in confidence that the reforms we are proposing will last between the generations."

The typical knock-about political jousting that characterised the House of Commons debate on the White Paper may cause some to doubt this assertion. But it may have been no more than that. There were encouraging signs in the response by Phillip Hammond for the Conservative opposition, who said: "Whatever our separate party political motivations, it is now our duty as elected representatives - all of us here - to do what is right for the long-term interests of Britain."

Below, we examine the new personal accounts to which employers must contribute and in which employees must be enrolled, unless the employer is exempt, the consequent impact on existing work-based pensions and the changes being proposed to state pensions. We also look at immediate reactions to the White Paper (see box 1), and at the government's plans, also included in the White Paper, to enhance the financial assistance scheme (see box 2).

Personal accounts

The White Paper has re-dubbed the Pensions Commission's proposed National Pension Savings Scheme (NPSS) (See Plan is to raise state pension age and encourage saving ) as "personal accounts". The change of name no doubt indicates a desire on the part of the government to avoid giving the impression that the investment performance of members' individual accounts in the new scheme is in any way underwritten by the state (and so, to that extent, the personal accounts mirror the situation with personal pension schemes).

Personal accounts otherwise generally follow the NPSS outline as put forward by the Pensions Commission in that they are money-purchase accounts based on the auto-enrolment of employees with a compulsory minimum level of contributions from employee and employer, provided that each employee concerned has not exercised the right to opt out of the scheme.

Auto-enrolment

Auto-enrolment into the personal account scheme is intended to work as follows:

(a) all existing and new employees aged 22 or over who have earnings above the primary earnings threshold (£5,035 in 2006/07) must be automatically enrolled unless they are already members of suitable alternative work-based pension provision (see below);

(b) all employees who choose not to be auto-enrolled must subsequently, at three-yearly intervals following their last decision not to join, be once again auto-enrolled into the personal accounts scheme or a suitable alternative work-based provision if they have remained with the same employer; and

(c) all employees who had earnings below the primary earnings threshold must be auto-enrolled once their earnings rise above that level.

Potentially, some 10.8 million employees could be automatically enrolled into personal pension accounts - ie those not in a work-based scheme, or in such a scheme into which the employer pays less than a 3% contribution, but who are aged 22 or over and earn more than the earnings threshold. For modelling purposes, the Department for Work and Pensions (DWP) assumes one-third of all eligible employees will choose to opt out.

Contribution levels

The White Paper reports that the government's own analysis backs up the Pensions Commission proposals on the minimum rate of contributions that should be paid, subject to a proposal that the introduction of these compulsory employer and employee contributions should be phased in over a period of three years.

The overall minimum contribution after these three years is confirmed at equal to around 8% of the employee's earnings between the primary threshold (£5,035 in 2006/07) and the upper earnings limit (£33,540 in 2006/07). The employee will contribute 4% of their earnings in this band and the exchequer will add basic rate tax relief on this amount2. The employer must contribute as a minimum an amount equal to 3% of the employee's earnings in this band. The overall tax and national insurance treatment of the contributions will follow the present practice.

The White Paper argues that contributions of 8%, combined with a reformed state pension, should be enough on average to deliver a replacement income at a rate of around 45% for lifetime median earners who start saving at around age 30, and higher amounts for those starting to save at a younger age. Employees and employers will be free to contribute more than these minimum amounts.

Administration of personal accounts

The Pensions Commission proposed an approach whereby the members' individual accounts would be administered by a single organisation but that the day-to-day running of the scheme would be outsourced to a number of pension administrators. Everyone would deal directly with the single organisation administering the scheme. Individuals would be able to make decisions about whether to opt out of the scheme, whether to contribute above the minimum, and about their preferred approach to investment by choosing the investment fund or funds in which their contributions would be invested from among the limited number of fund managers selected by the administrator.

The government favours this approach but nevertheless it has also put forward an alternative model which is based on the use of "branded providers". Under this approach, consumers would face two choices. The first would be to choose between the branded pension providers to administer their personal accounts, and the second would be a choice between investments offered by that provider. Under either approach, in the absence of the individual making a choice, a default allocation would be made.

The White Paper freely admits that a model in which individuals have a choice of provider is likely to be more expensive to administer. It further points out that consideration would then also need to be given as to whether or not introducing additional choice for the consumer would add risks that may require regulatory intervention with consequential costs that might impact on the final individual fund size. The only advantage cited by the White Paper for this approach is that "it would rely to a greater extent on the existing infrastructure and could therefore have advantages when coming to implementation".

Broadly speaking, fund managers and consumer groups favour the first approach, originally proposed by the Pensions Commission, and the second approach is favoured by the insurance companies and financial advisers. The DWP plans to bring forward further proposals on which approach to take to administration later this year.

It is difficult to overstate the importance of the government making the right decision in this matter, especially in ensuring that the level of management charges borne by members' personal accounts is reduced well below the level currently applied to many personal pensions. The Pensions Commission suggested that the annual management charge (AMC) for the new scheme could be as low as 0.3% in relation to an indexed fund - this is one-fifth of the AMC now permitted in relation to stakeholder pensions during their first 10 years.

Work-based pensions

The White Paper states: "Personal accounts are intended to complement, and not replace, existing pension provision from employers. If an employer already offers a suitable alternative scheme, they will be able to seek exemption from the personal accounts scheme and automatically enrol their employees into their existing scheme instead." In granting an exemption, the DWP would want to ensure that the following conditions are met:

  • for defined-contribution (DC) schemes, the contribution levels into the scheme are at least equal to the minimum contribution levels for personal accounts;
  • for defined-benefit (DB) schemes, the total benefits accrued by members are at least equal to those estimated to accrue from minimum contributions into personal accounts; and
  • automatic enrolment procedures are in place to allow employees in employers' schemes the same opportunity to overcome inertia and save as personal accounts will offer.

In addition, the granting of an exemption will also need to take account of other factors such as the level of charges and waiting periods. The DWP is planning to consult on detailed proposals for how this would work later this year. This may consider the value of ancillary benefits (eg ill-health pension cover included with existing DC schemes). It is unknown if funding issues will play any role in deciding whether a DB scheme could exempt an employer, but it seems unlikely that they would do so.

Levelling down

The fear, of course, is that employers providing work-based pensions that are superior to the minimum contributions payable into personal accounts will "level down" their existing provision, at least in relation to new employees or for future accrual.

The White Paper cites evidence3 indicating that employers that contribute more than 3% view their pension scheme as an important recruitment and retention tool that they want to keep. Furthermore, among such employers contributing at this level which report that the introduction of personal accounts coupled to auto-enrolment would mean an increase in total pension contributions (presumably because they expect take-up to rise), only just over 1% said they would level down. Of those that claim they would level down, a substantial majority reported that they would level down to a contribution level above 3% of pay. However, 2% of all responding employers, where the introduction of personal accounts and auto-enrolment would mean an increase in total pension contributions, reported that they might close their scheme.

Regulatory reform

The White Paper also sets out certain key changes affecting current pension provision. From the same date as the basic state pension starts to be uprated in line with earnings (see below), no further accrual of protected rights will occur with the ending of contracting out on a money-purchase basis. This will apply to both occupational and personal pension schemes. The DWP will undertake further consultation on whether the current restrictions placed on the kind of annuities or pensions that must be secured by protected rights should be reformed or removed. There are no immediate plans to end or change the basis on which occupational pension schemes can contract out on the reference-scheme test basis: DB contracting out is said to be the subject of "ongoing review".

The White Paper also confirms that the government will progress its plans to allow trustees to convert guaranteed minimum pension (GMP) rights built up between 1978 and 1997 into an actuarially equivalent benefit. Legislation to do so will be introduced "as soon as a suitable opportunity arises". The White Paper does not discuss any particular legal problems that might need to be overcome.

It also follows from the introduction of personal accounts that it may well no longer be necessary for employers to designate a stakeholder pension scheme. The government will undertake a review of this requirement. However, given that in order for an employer to be exempt from having to auto-enrol employees into the personal account scheme, it must not only instead make equivalent contributions to a stakeholder plan, personal pension or DC occupational scheme, but also, in doing so, take into account that scheme's charging structure, all "empty shell" stakeholder pension schemes that receive no employer contribution would fall by the wayside in any case.

The DWP is also planning a rolling deregulatory review of pensions regulation that involves re-examining the following provisions:

  • mandatory indexation of pensions in payment;
  • member-nominated trustees;
  • administrative and internal control requirements;
  • restrictions on changes to accrued rights;
  • payments to employers where surplus funds exist;
  • deemed buy-back (an option open to scheme members in relation to scheme wind ups begun after 6 April 1997 to have their contracted-out rights bought back into the state second pension); and
  • internal dispute resolution.

The White Paper makes the observation that "reforms in some of these areas (for example, further reform of the requirement to apply price indexation to pensions in payment) could have the scope to make a significant difference to the costs of running an occupational pension scheme." Removing the legislative requirement for DB schemes to provide statutory indexation to pensions in payment, even if this were restricted just to future service, would undoubtedly reduce current deficits. This could also be so if, in practice, increases continued to be payable but on a discretionary basis. Such a decision, however, might also be likely to provoke great hostility among scheme members.

The DWP is also considering launching a "pensions law rewrite project", similar to the now well-advanced tax law rewrite, so that pensions legislation could be made simpler and easier to understand.

State pension reform

The changes proposed relating to state pension reform are probably the most important elements in the White Paper, although this evaluation is not intended to underestimate the potential impact of the other measures explained above. The thrust of the state pension reforms is to increase the value of the basic state pension and thereby control the extent of means-testing, while offsetting the increased cost of doing so by raising the state pension age (SPA).

Earnings link

Currently, the state retirement pension, provided jointly by both the basic state pension and the additional pension from the state second pension (S2P), is increased each April in line with the year-on-year increase in the retail prices index (RPI) as measured in the previous September, but subject currently to a minimum annual increase of 2.5%. From a date to be announced, but probably in 2012 or 2013, the annual increase in the pension provided by the basic state pension will be linked to the annual increase in the national average earnings index.

What is not known for certain at this stage is whether the legislation will be amended so that the increase is in fact linked to the greater of the increase in the RPI and the national average earnings index, and whether the current 2.5% minimum increase will then be abandoned. It is likely, however, that the eventual legislation will be framed in this way.

The change will only apply to the basic state retirement pension, and not to S2P. Increases in S2P will not be linked to earnings growth.

The earnings-linked increase will apply to all existing and future entitlements to basic state pension from the date of the change. The government estimates that, on its own, linking the basic state pension to rises in earnings from April 2012 would lead to an increase in spending on pensioners of £46 billion in current terms (or 1.4% of GDP) by 2050. Yet this increase will be offset by savings of around £30 billion (or 0.9% of GDP) by 2050 from raising the SPA.

Increasing state pension age

The White Paper adopts a different approach in its proposed method of increasing the SPA from that adopted by the Pensions Act 1995 to raise women's SPA from 60 to 65. The approach of the 1995 Act was a smooth increase from April 2010 to April 2020 for women born from 6 April 1950 to 5 April 1955.

The White Paper proposes to increase the SPA for both sexes from 65 to 68 in three two-year periods interspersed with two 10-year gaps when the SPA remains unchanged. The move to age 68 will be completed by 2046. The details are set out in box 4.

Entitlement conditions

An important decision taken by the government in its response to the proposals made by the Pensions Commission is that the basis of an individual's claim for state retirement pension would remain based on the contributory principle rather than on some form of residential test. Nevertheless, in rejecting some form of "citizen's pension" in favour of one based on the individual's contributions, the White Paper emphasises that entitlement should effectively arise from contributions gained either from paid work or from caring for a young child or a disabled person.

John Hutton explained to the House of Commons that the government did not believe that a residency test, as proposed by the Pensions Commission with the intention of producing fairer outcomes, in particular for women and carers, would be the right way forward. He said: "It would offer no immediate help to a group of women aged 45 and above who have poor contribution records and, quite literally, no time now to put it right."4 As a result, the White Paper proposes the following changes to the entitlement conditions for state retirement pension:

  • reducing the number of qualifying years needed for a full basic state pension to 30, from the current 44 for men and 39 for women;
  • converting home responsibilities protection (HRP) into a positive weekly credit for the basic state pension5, and aligning the rules for when the credit is available between the basic state pension and the additional pension from S2P so that those caring for children aged under 12 are eligible6;
  • aligning credits for foster carers across the basic state pension and S2P;
  • moving from a system of annual credits under S2P to weekly credits so that individuals can combine credited and paid contributions to accrue a year of additional pension entitlement;
  • establishing a new carer's credit for the basic state pension and S2P for those undertaking care for the sick and severely disabled people for 20 hours or more a week; and
  • abolishing the current condition that an individual must have at least 25% of the required number of qualifying years to be entitled to the basic state pension and also abolishing the condition that an individual who is long-term sick or disabled must have paid, or be treated as having paid, Class 1 national insurance contributions for at least one-tenth of his or her working life since 1978 to ensure that the contributions or credits count for the purposes of entitlement to additional pension; but
  • aged 60 and 65 who are not in employment will, however, no longer be awarded "autocredits" to build up entitlement to the basic state pension.

The secretary of state said: "As a result, by 2010, 70% of women reaching the state pension age will receive a full basic state pension, compared with 30% today. By 2020, up to 270,000 more women will get a full basic state pension - approximately three times the number under a residency-based approach."7

S2P becomes flat rate

The White Paper states that the government should move away from the direct provision of an earnings-related pension and concentrate instead on flat-rate provision in the future, especially in the light of the need to avoid duplication of such provision following the introduction of the new personal accounts scheme. Instead the government's policy towards S2P is to reinforce and speed up its change in focus to "a flat-rate top-up benefit for years spent working, caring or parenting".

The design of S2P has always meant that it would move towards providing a flat-rate pension (and the legislation already enacted in the Child Support, Pensions and Social Security Act 2000 would have allowed the government to stop additional pension accrual in bands 2 and 3 in any case, allowing S2P to immediately become a second flat-rate pension; see New Act introduces S2P and strengthens role of Ombudsman ). In the event, however, accruals will now begin to become flat rate more quickly from the same time as the basic state pension is uprated in line with earnings rather than prices. The government estimates that S2P will become completely flat rate in around 2030, or shortly afterwards.

Accrued rights to additional pension will continue to be uprated in line with average earnings prior to SPA, and the pension - once in payment - will be increased in line with prices. Also, coverage of S2P will be extended by changes to the entitlement conditions explained above. The White Paper reports that in future, after 40 years of work or credits, low earners can expect to build up an additional pension of around £60 a week. Coupled with their basic state pension entitlement, this will give a total state pension at retirement of around £135 a week in today's earnings terms.

Pension credit changes

The White Paper announces two policies for the future development of the pension credit. The first concerns the guarantee credit, which the government had already committed itself to uprating in line with earnings until 2008. The White Paper states that the government's intention is to continue the earnings uprating strategy for the guarantee credit over the long term.

The second policy, however, is intended to limit the further overall spread of means testing and involves a change to the way the savings credit is calculated. At present, the calculation of the maximum savings credit means that this amount is proportionate to the difference between two amounts, one that increases in line with earnings and the other that increases in line with prices. Over time, therefore, because earnings generally increase faster than prices, the actual difference between the two amounts has increased faster than earnings, as shown in box 5.

The White Paper comments that if the current uprating policies were pursued indefinitely, an increasing proportion of the pensioner population would be entitled to the savings credit. It adds: "It has never been the government's intention that a significant majority of the pensioner population would, in the long term, be eligible for pension credit. Our reforms confirm this." As a result, from April 2008 the government will uprate the lower threshold of the savings credit in line with earnings, and from 2015 the maximum savings credit will be frozen in real terms. Under current policies, about 70% of pensioner households might have been entitled to some pension credit by 2050, but, under these reforms, this proportion will be reduced to about one-third.

1 "Security in Retirement: Towards a New Pensions System", Cm 6841, available, together with supporting documents, from the Department for Work and Pensions website (at www.dwp.gov.uk/pensionsreform), printed copies available from the Stationery Office, tel: 0870 600 5522, price £27 + £3.75 p&p, and printed summary version available from tel: 0845 604 0210, free.

2 Basic tax relief on a 4% contribution, assuming a basic rate of tax at 22%, amounts to a 1.128% contribution - the White Paper, for convenience, uses 1% since future rates of tax are unknown.

3 BMRB research for DWP (Marshal H and Thomas A, forthcoming in 2006, "Employer attitudes to personal accounts: Report of a qualitative study") and BMRB research for DWP (Bolling K, Grant C and Fitzpatrick A, forthcoming in 2006, "Employer attitudes to personal accounts: Report of a quantitative survey").

4 Hansard (HC), 25.5.06, col. 1650.

5 Currently, HRP reduces the number of years that an individual needs to qualify for a pension rather than providing for a year to be credited to the individual's record.

6 Currently, credits are awarded for the basic state pension to those looking after children under 16 and for additional pension to those looking after children aged under six - the new rule for both pensions for caring for children under 12 will be subject to transitional protection so that any rights to HRP already gained will be preserved.

7 See footnote 4.


Our research

Our research is based primarily on a reading of the White Paper itself, but also on the Pensions Commission's report and commentaries issued by actuarial consultancies Lane Clark & Peacock, and Watson Wyatt.


Box
1: Initial reactions to White Paper proposals

  • "The White Paper commits British pension policy to the three key policies which were at the centre of our recommendations: first, state pension provision which increases over time in line with the nation's prosperity, limiting the extent of means-testing, and made affordable by a steady rise in the state pension age as people live longer. Second, a better deal for women. Third, automatic enrolment into a new system of low-cost personal pension savings accounts with provision for an employer contribution. We hope that this overall architecture can command support from all parties, whatever the debates about details."

    Lord Turner, the Pensions Commission

  • "This is a unique opportunity to make the UK's pensions system fit for the future. Provided we get the details right, today's proposals should give certainty and security to tomorrow's pensioners and promote a step change in savings behaviour."

    Christine Farnish, chief executive, National Association of Pension Funds

  • "We remain opposed to raising the state pension age. Real inequalities persist in life expectancy between rich and poor. Better pensions have to be paid for, but the billions spent on pensions tax relief for higher-rate taxpayers should also make a contribution. Today's pensioners will also feel excluded from today's announcement."

    Brendan Barber, general secretary, TUC

  • There will be anxiety amongst the business community that the government is forging ahead with compulsory employer pension contributions despite the potential damage it could inflict on firms, particularly smaller ones. Compulsion will cost employers £2.3 billion and they will need help in managing this burden. At the very least the government must commit to a package of financial support for small firms to help them adjust and absorb the additional costs."

    Sir Digby Jones, director-general, CBI

  • "Poor financial literacy among the general public means that bad employers have been able to get away with offering nothing for far too long. The proposed NPSS will level the playing field, but our research shatters the myth that the scheme will drag down the level of existing employer pension contributions. It would make no sense for employers competing to attract staff to cut pensions to minimum levels."

    Charles Cotton, pensions adviser, Chartered Institute of Personnel and Development

  • "we remain very concerned that the volatility in pension outcomes that will be delivered by NPSS may sour its progress, due to the 100% investment and longevity risk being taken on by members under such a scheme. This volatility is particularly dangerous for those approaching retirement on lower earnings."

    Adrian Waddingham, chair, Association of Consulting Actuaries

  • "We strongly welcome the White Paper's greater recognition of the contribution made by parents and carers and the new link to earnings. This will significantly increase the numbers of younger women qualifying for a full basic state pension, delivering more income in retirement, making it easier for them to plan ahead and save for themselves. The second state pension and the new National Pensions Savings Scheme will help too, particularly those who currently find it difficult to save, such as parents and carers, who are often on low, and sometimes no income ? But we are concerned that older women might still not qualify for a full basic state pension in their own right, making them dependent on pensions credit."

    Jenny Watson, chair, Equal Opportunities Commission

  • "The government is making the heroic assumption that recent improvements in life expectancy will dramatically slow down. Rather than fix the retirement age so far in advance, we instead favour a long-term approach that would tie the pension age to average longevity. This should ensure that any extra life expectancy should be spent 2/3 in work, 1/3 in retirement. This meets the government's self-imposed tests for reform as it is fair, affordable and sustainable. Most importantly, it is simple for people to understand."

    Michael Pomery, president, Institute of Actuaries

  • "Despite the planned increase in the state pension age, increased borrowing or taxation is expected to be required to finance these proposals ? The Pensions Commission proposed that the earnings link be restored in 2010/11, but the government has already decided that this would be too expensive and pushed it back for at least two years. Individuals planning ahead might be best advised to consider that there is no guarantee that the basic state pension will remain linked to earnings as envisaged in this White Paper."

    Matthew Wakefield, senior research economist, Institute for Fiscal Studies

  • "Which? is delighted that the government has taken a principled stance in support of the Turner NPSS proposals. It has resisted strong industry pressure in showing its commitment to a low-cost NPSS. It is going down the only path that will deliver a long-term solution to Britain's pensions crisis - putting the interest of consumers first."

    Peter Vicary-Smith, chief executive, Which?

  • "The government has come a long way since November's Pensions Commission report in terms of accepting the need to finally put right our creaking pensions system. However, delaying the start of this urgent repair job for six years smacks of being on the right road, but in the wrong gear."

    Mervyn Kohler, head of public affairs, Help the Aged

  • "We must not make it too difficult for employers with good existing schemes to continue to operate their schemes outside the NPSS. If too many and too onerous conditions are required, then employers will be strongly tempted to cease to provide pensions through existing schemes and will instead opt to provide the minimum required by the NPSS. Employees could suffer seriously as a result."

    Mark Ashworth, president-elect, Society of Pension Consultants


Box
2: Improvements to the Financial Assistance Scheme

The White Paper contains the following short statement about enhancements to the financial assistance scheme (FAS) (see Rescue operation gives limited help to the chosen few for full details of the FAS):

"Following the prime minister's announcement to expedite the review of the FAS planned for [the 2007 comprehensive spending review] the government has decided to extend the FAS so that it will assist eligible people who were within 15 years of their scheme pension age on or before 14 May 2004. This should ensure that up to a further 30,000 people who lost significant amounts when their pension schemes were wound up will benefit from the new arrangements.

"Under this extension, scheme benefits will be tapered so that the government will pay the full 80% to those within seven years of scheme pension age, 65% to those within eight to 11 years of scheme pension age and 50% to the remainder."

Community, the trade union representing employees who worked for the failed steel company ASW, and which has taken their case to the European Court of Justice (ECJ), made the following comment on the White Paper announcement:

"Whilst we welcome the extra funding and recognise that this Labour government is attempting to clear up the mess caused by previous Conservative administrations, it does not go anywhere near to meeting the needs in retirement of our members formerly employed by the ASW steel company, who lost their expected occupational pensions due to the insolvency of the employer.We believe that if the then Conservative government had adequately implemented the European Insolvency Directive - as they should have done by 1983 - then our members' occupational pensions would have been protected. Therefore Community is continuing its legal action, for failure to implement the Insolvency Directive adequately, against the UK government."

The case was heard in the ECJ on 1 June 2006, but the judgment is unlikely to be given this year.

Box 3: proposed timetable for implementation of the pension reforms

2006/07

Conversion of GMPs into actuarial equivalent permitted.

2006/07

Deregulatory review of occupational pensions.

2006/07

Pilot for a pensions law rewrite project.

2008

Calculation of savings credit is modified (earnings link for guarantee credit continues).

2010

SPA begins to rise for women.

2010

Entitlement conditions for basic state pension are changed.

2010

Entitlement conditions for S2P are changed.

2010

Further auto-credits for unemployed persons aged 60-65 are abolished.

2012/13

Re-establishment of an earnings link for the annual uprating of the basic state pension once in payment.

2012/13

Personal accounts introduced - minimum level of employer and employee compulsory contributions to be increased in steps over following three years.

2012/13

Contracting out using protected rights test ended for future service.

2015

Maximum savings credit payable to be increased annually in line with RPI.

2020

SPA for all new pensioners is 65.

2024/25

SPA for all new pensioners rises in steps from 65 to 66.

2030

S2P essentially becomes flat rate.

2034/35

SPA for all new pensioners rises in steps from 66 to 67.

2044/45

SPA for all new pensioners rises in steps from 67 to 68.

Box 4: future eligibility for state pension

Age on 5 April 2006

Eligible for state pension from

Women

Men

 

56

-

60th birthday

51-55

-

between 60th and 65th birthday

47-50

47 or older

65th birthday

46

between 65th and 66th birthday

38-45

66th birthday

37

between 66th and 67th birthday

29-36

67th birthday

28

between 67th and 68th birthday

27 or younger

68th birthday

Note: Women's SPA is already due to gradually increase to 65 between 2010 and 2020, as reflected in the table.

Box 5: Increase in maximum savings credit

Year

Maximum savings credit (couple), £pw

Year-on-year increase

2003/04

19.20

-

2004/05

20.22

5.3%

2005/06

21.51

6.4%

2006/07

23.58

9.6%