DWP pension changes that could mean people retire later

North Wales Live

2 days ago

Sweeping changes to both state and private pensions, overseen by the Department for Work and Pensions (DWP), have been announced. The modifications form part of extensive reforms to the pensions sector by the Labour government.
Among the most significant alterations is the prospect of a substantial rise in the state pension age, which could force people to postpone their retirement. Last week, the government revealed a wide-ranging review of the UK pensions system.
An independent commission has been formed to examine a series of controversial matters and put forward recommendations for reform.
The Government plans to increase the State Pension age from 66 to 67 between 2026 and 2028, affecting those born on or after 6 April 1960. For money-saving tips, sign up to our Money newsletter here.
There are proposals for a further rise, lifting the State Pension age from 67 to 68 between 2044 and 2046, though this timeline could be brought forward, reports Birmingham Live.
"A faster increase is definitely on the cards," says Rachel Vahey, the head of public policy at investment platform AJ Bell.
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The Institute for Fiscal Studies thinktank caused a stir when it suggested that the State Pension Age may need to climb to 69 by 2049 and 74 by 2069 if the triple lock safeguarding its value remains in place. Australian employers are presently obliged to pay 11.5% of workers' salaries into their pensions, with this figure set to rise to 12% in 2025.
In comparison, whilst the overall minimum contribution in the UK sits at 8%, employers need only provide 3%.
Pension firms and sector specialists have repeatedly lobbied for this amount to be raised to 12%.
Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association, has continually maintained the minimum pension contribution should rise from the current 8% of earnings to 12%.
He said: "To minimise the impact on savers and employers, the increases should happen gradually, as they did in Australia, with employers paying more so that, by about 10 years from now, both employers and employees would pay the same.
"This approach of a 50/50 split between employers and employees would strike a fair balance; it would involve higher contributions for employers compared to the current UK rules but much lower ones than traditional UK pensions in which the employer usually paid around two thirds of the cost."
One concept attracting attention is the "sidecar savings" method. There are different ways to structure a "sidecar account".
Two proposed models are the dual account and integrated plan frameworks. Within the dual account structure, the worker keeps a workplace pension whilst simultaneously joining a separate savings account via a savings provider.
The saver sets a savings ceiling for the sidecar account, and the savings provider directs the employer to contribute to this sidecar until the limit is reached.
Once the threshold is achieved, any extra funds are channelled into the pension alongside the standard pension contributions.
Should funds be withdrawn from the sidecar, the individual recommences saving into it until the cap is attained once more. In the in-plan model, employees opt to save via their employer.
Employers then remit the total sum contributed by an employee to both a workplace pension and an emergency savings account to a pension provider.
The pension provider allocates the contribution between the pension pot and the emergency savings account.
Nikhil Rathi, chief executive of the UK's Financial Conduct Authority, remarked: "Australia, New Zealand, the US, Singapore and South Africa all permit citizens to leverage their pension savings to buy a first home.
"Some have suggested we consider, carefully, similar approaches in some circumstances here in the UK."
This week, the government announced its dedication to "committed to both monitoring and narrowing" the gender pensions gap.
Recent Department for Work and Pensions (DWP) figures have revealed that the gender pension gap has escalated to a "stark" 48%.
The figures, unveiled as the government declared a 'revival' of the Pensions Commission amid concerns about undersaving, showed that in 2020 to 2022, women aged 55 to 59 had a median wealth of £81,000 compared to £156,000 for men.
Approximately 20% of self-employed individuals are contributing to a private pension, with many pointing to the Lifetime ISA as a potential solution.
There's talk that ministers may tweak the rules to let over-40s open a Lifetime ISA and boost its appeal by cutting the 25% withdrawal charge.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, commented: "The 25% government bonus acts in the same way as basic-rate tax relief, and any income can be taken tax-free."
She added, "There is also the ability to access money early if needed, subject to a 25% exit charge."