British Proposal Encourages Workers to Retire Later
January 14, 2003
Nearly 13 million people in the United Kingdom (U.K.) need to either save more, work longer, or do both to enjoy a comfortable old age, according to a British government green paper on that country's looming pension crisis. The proposal suggests making occupational pensions less generous but much simpler for employers to provide.
The green paper's key proposals include what Andrew Smith, the work and pensions secretary, described as "the biggest-ever tax reform of pensions."
- Individuals will be allowed a lifetime tax-privileged savings pot of 1.4 million pounds, into which they can put up to 200,000 pounds a year (1 pound = $1.60).
- The tax-free lump sum will be 25 per cent -- more generous than for most people at present, with estimates that only a few thousand people will lose out under the change.
- To encourage working longer, the green paper repeats the government's pledge to introduce age discrimination legislation by 2006, saying that is likely to make compulsory company retirement ages unlawful, unless employers can show they are objectively justified.
- The state pension will pay more to those who work on past normal pension age than it currently does, and the option may be offered of taking that as a lump sum -- about 20,000 pounds for someone who works on for an extra five years.
- The pension age is to be raised to 65 for public servants who currently retire at 60, "initially for new members."
- From 2010 on, people with private pensions will be allowed to draw them only from age 55 rather than from 50.
There will be consultation on letting people draw a part-pension and carry on working for the same company, and the government will consider allowing employers, once again, to make joining the pension scheme a condition of employment.
Source: Nicholas Timmins, "The Future of Pensions: Last Chance for Voluntary System of Private Provision," Financial Times, December 18, 2002.
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