Page last updated at 11:26 GMT, Monday, 17 August 2009 12:26 UK

Q&A: The Pensions White paper and you

Now that the Pensions White Paper has been published, what does it mean for your personal finances and your retirement ambitions?

What is in the White Paper?

The main measures are as follows:

  • The state pension age for men and women will rise to 66 in 2024, to 67 in 2034 and 68 in 2044 each rise will be phased-in over two years
  • The state pension will become more generous and future increases will be linked to earnings rather than prices
  • The number of years it takes for people to qualify for a full basic state pension will be cut to just 30
  • From 2012, people will automatically be enrolled into a new, low-cost national savings scheme, although they have the chance to opt out if it is not suitable for them.

The White Paper sets out the future of the state pension far into the twenty-first century.

There is a trade-off going on. People will collect their state pension later - but it will be more generous.

Put simply, restoring the earnings link means the state pension will go up in line with salaries, rather than prices - meaning bigger annual rises in the state pension than at present.

However, if you want a comfortable retirement you are still going to have to save for it.

Is this the end of my dream of retiring early?

It depends.

The idea is that you wait longer for your state pension, not that you absolutely have to continue work.

PENSIONS WHITE PAPER
An elderly worker


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You will still be free to retire early as long as your employer agrees - but under the proviso that you will have to support yourself until whenever the state pension kicks in.

In short, your ambitions will continue to depend on whether you can afford to give up work early.

What about people who have lost their pensions?

Many of the estimated 85,000 people who have lost their pensions when their company scheme collapsed received an unexpected boost.

Mr Hutton announced that the Financial Assistance Scheme (FAS), set up to help people in acute distress following scheme collapse, will be expanded so that it encompasses more people.

The Community trade union has calculated that this means the total government help for people who have lost their pensions will increase from £400m to £2.3bn.

Why am I being asked to wait longer to collect my state pension?

Ultimately, the reason is that the UK's population is ageing.

An ageing population means that, in future, there will be fewer workers to pay the pensions of a greater number of older people.

The government Pensions Commission, headed by Lord Turner, was asked to find a way that the country could defuse what has been called the "demographic time-bomb."

The Commission recommended a course of action which puts as little strain as possible on the public finances while at the same time boosting the state pension.

According to Lord Turner the White Paper contained about "90-95%" of the Commission's recommendations.

I am a mum, staying at home to look after my child. Will there be extra pension help for me?

Delivering a boost to women's pensions has been a big theme - both for the Commission in its three reports and now in the government's White Paper.

At present, fewer than half of all women pay enough National Insurance Contributions (NICs) to earn the right to a full basic state pension.

This is because many women take time out of the workforce to look after children and elderly relatives.

Adair Turner
Lord Turner set about reviewing the pensions system

The White Paper proposes to lower the number of years it takes to earn a basic state pension to 30.

At present, women have to work 39 years to earn a basic state pension and men 44.

John Hutton, Work and Pensions Secretary, said the reform would boost the percentage of women retiring with a full state pension from 30% today to 70% in 2010.

In addition, Home Responsibility Protection (HRP) will be radically overhauled.

HRP pays NICs for people who stay at home to look after children and elderly relatives but has been criticised as too complex and inflexible.

Am I going to be forced to save for my retirement?

The government has gone for a system of soft compulsion.

If you are an employee, you will be automatically enrolled into the low-cost national savings scheme from 2012.

Employers can opt their employees out of the saving scheme - so long as they offer their own scheme on an auto-enrolment basis and are making contributions at a higher level than would be the case under the savings scheme.

Employers contributions will be phased in over three years.

Employees are themselves allowed to choose to opt out of the savings scheme.

And there are lots of reasons why someone might choose to do so.

They may be happy with the amount of money they have put aside for their old age, or have other pressing financial commitments.

Ultimately, though, the idea behind automatic enrolment is that savings rates will increase because people will think it is too much bother to opt out.

But the savings scheme has been criticised by some pension experts. They suggest that it could lead to a "levelling-down" of existing workplace pensions.

The fear is that employers with more lucrative pensions schemes could take advantage of the changes to shut their own schemes down - and pay the 3% to the savings scheme instead.

For this reason, Alan Pickering, a former government pension adviser, has branded the savings scheme "pie in the sky".

Membership of the savings scheme will not bar people from a full basic state pension.

When will all these reforms happen?

GUIDE TO UK PENSIONS
Facts and figures outlining the depth of the UK pensions crisis

The plan is to introduce most of the reforms over the next decade and beyond. For example, the earnings link is to be restored in the next parliament and NPSS is to be introduced in 2012.

The rise in the state pension age will be phased in from the 2020s onwards.

That seems like a long time. Will a change of government or prime minister scupper all this?

Lord Turner has said the White Paper has "cross-party support".

Indeed, the main opposition parties support re-establishing the earnings link to the state pension.

But there remains potential for disagreement.

The Conservative party has expressed alarm at the spread of means-testing in the pensions system.

Some analysts have suggested that the proportion of people who could be claiming Pension Credit in future could rise to more than half, despite Pensions Secretary John Hutton's contention that the reforms mean it will fall to just a third.

Mark Oakshott, the Lib Dems Pensions Spokesman, branded the White Paper "mean and timid", saying it ignores the divide between generous public sector pensions and those having to rely on Pensions Credit.

Gordon Brown
What would happen under a Gordon Brown administration?

What is more, when the Commission's recommendations were published last November they were lambasted by Treasury insiders.

As for what will happen to the consensus within the government if Gordon Brown moves from number 11 to number 10 Downing Street, no-one is quite sure.

Is this the end of the pensions crisis?

It is far too early to call time on the pensions crisis.

The White Paper certainly represent the biggest overhaul of the state pension system in 50 years.

But some experts suggest that more needs to be done.

The decision has yet to be made who gets to run the new national savings scheme: the government or the insurance industry.

And some critics warn that the White Paper does not do enough to boost workplace pensions.

After all, only a successful system of workplace pensions will ensure people get to retire on more than the bare minimum offered by the state pension.

Anything else?

The state second pension (S2P) is to be reformed.

The S2P provides a top-up to the basic state pension.

It will evolve into a flat rate system by about 2030.

Experts have said that this will mean that high earners will have to pay more into the S2P.

In addition, the option to contract-out of the S2P will be abolished for members of defined contribution pension schemes.



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