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John Lawson: Has the Govt stopped tinkering with pensions?

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Changes to pensions tax and withdrawal rules have become something of the norm for Autumn Statements, so it was a surprise that this one contained next to nothing.

The headline on pensions was reserved for planned increases to state pension age, which will go up to 68 in the mid-2030s and 69 in the late 2040s. This rise is supposed to be commensurate with changes in life expectancy.

But, according to the Office for National Statistics, life expectancy at age 65 is rising at an average – between men and women –  nearer one year in every five whereas SPA looks to rise only one year every ten.

Removing the reference to a fixed retirement age is a good thing. The fixation with looking at the number of people under 65 compared to the number over 65 is not meaningful or helpful.

This has now been recast as an “aim to spend one-third or less of adult life in retirement”, which is a better way of maintaining a healthy balance between those in work who pay the taxes and those in retirement who, in general, consume the taxes.

A minor change will allow those reaching state pension age before 2016 to buy extra additional pension – state second pension – using new voluntary Class 3A national insurance contributions.

Those who have a combined basic and additional pension which is more than the new single state pension will be allowed to keep the combined amount if that is higher.

Whether this will be value for money is another matter, and that detail is still awaited. However, the cost of buying extra state pension has generally worked out well for those in a good state of health.

There is to be no change to the GAD drawdown limit which remains at 120 per cent of the basis amount. The GAD has concluded that current rates are broadly fair compared to annuity rates.

That is probably pretty close to the truth today, so there is no obvious advantage in adding complexity to the GAD limit by trying to calculate it according to a mix of long corporate and government bond data to mimic annuities.

With an election due in 2015, it looks like this government has already accepted it has run out of time on pensions and savings policy to announce any further big changes. We could be in for another 18 months of peace and quiet.

John Lawson is head of policy at Aviva

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