What next for pensions in 2011?

By DAN HYDE
Updated:

 

After a blockbuster year for pensions in 2010, what should we expect in the coming twelve months and will it improve your pension?

A displeased woman

Looking ahead: What lies in store for pensions in 2011?

Sure, 2011 can't possibly be as action-packed as 2010 for pensions, but plenty of loose ends need tying.

And some big reforms await a spot in the limelight.

Most notably, a 'universal' state pension for all Britons is on the cards.

This could provide a single £140-a-week payment for all retired Britons. It would help beat off the confusion caused by means-tested pension credits.

The Treasury has been very quiet since details of the plans were leaked in Autumn 2010, but something momentous is most likely brewing in Whitehall.

Elsewhere, a few of pensions minister Steve Webb's fiddly reforms will need wrapping up.

Public pensions are under the microscope after being accused of being 'unaffordable' by the Government.

A final verdict from the Hutton Report is due before the Budget next March. This will lay out a programme for reform and is likely to be adopted 'in full', the Government has said.

For a taster of what to expect, read our Q&A on what next for public pensions. The main changes will mostly likely be higher contribution levels for employees, a move to calculations based on average pay over an entire career (rather than final salary) and an increased retirement age to match the private sector.

A byproduct to watch out for is union action. Angered firemen, teachers and nurses across the country could strike if their entitlements are downgraded dramatically.

Elsewhere, final salary schemes' yearly tumble towards grizzly death will continue. New EU rules announced in December added another nail to the coffin (how many 'final' nails do we need?). Hundreds of employers may be forced to abandon their schemes if Brussels regulations push up the cost of administering funds by an expected 90%.

Many will be hoping that the Government then decides to stop tinkering with its reforms and let us get on with the very urgent job of saving for retirement. Expect more reports of how little most Britons are stashing away.

Those approaching retirement – the so-called 'babyboomer' generation – could be in for a tough year. That's because annuity rates will come under new pressures.

Although fresh rules will allow some people to opt out, annuities are the products that will convert pension pots into retirement incomes for most people.

At the moment a £100,000 pension pot buys a pension of around £6,000 a year. Rates have drifted steadily downwards over the last 20 years as yields on Government bonds, which back up annuities, have fallen.

In late 2010, bond yields rose. So did annuity rates. But in 2011 an EU-wide ruling will require insurers – providers of annuities – to hold more capital in reserve. Called Solvency II, this could act as a downward pressure on rates.

Follow Billy Burrows' monthly annuity update to find out the prospects for your retirement income.

Watch out for new rules that allow early access to pension pots. A consultation has been launched already. It is something Steve Webb holds close to his heart - he reckons it'll boost pension saving and help stave of a crisis. a

Saga director-general and pensions expert Ros Altmann agrees. She says: 'The pensions 'locked box' is so old-fashioned. It's great for the pensions industry of course, but puts many basic rate taxpayers off the whole idea, so they miss out on their employer's contribution.'

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