The main proposals in the White Paper are:

• all employees between 22 and 65 will automatically be enrolled into a new low cost pensions savings scheme, or an existing occupational system;
• a higher state pension, with an annual increase linked to increases in earning;
• continuing to increasing the pension guarantee in line with earnings;
• to help pay for the increased pension by gradually raising the state retirement age in line with life expectancy, from 65 to 66 in 2024, and then by one further year each decade until it reaches 68 by 2050;
• proposals to give women and carers improved pension rights.

Why is reform of the pensions system needed?

According to estimates there are up to 12 million people not saving enough for their retirement. Increasing life expectancy will mean a 50% increase in the number of pensioners by 2050. The present system is complex, and there are many people – particularly women – unable to retire with a full basic state pension.

National pensions saving scheme: savings made easier

At the heart of the new proposals is a new low-cost savings scheme. From 2012, all employees will automatically be enrolled into the scheme, or an existing occupational scheme, although they will have the right to opt-out. Contributions will be made from employees, employers, and government. The minimum overall contribution will be set at 8%. Employees will contribute 4% of their salary on earnings between around £5,000 and £33,000; employers will contribute a sum equal to 3% of the employee’s salary on the same band of earnings; a further 1% will come from the government in the form of tax relief.

To minimise the costs for business, employer contributions will be phased in over at least 3 years. There will be additional transitional support in order to minimise the burden on the smallest businesses.

Non-employees will be able to join the scheme on a voluntary basis.

Changes to the state pension scheme

The state pension will be re-linked to earnings; this means that the least well off will continue to share in the growing wealth of society. The state pension will not only be higher but fairer, too. The date by which this re-linking has not yet been decided, but the most  probably it will be by 2012.

The guarantee credit part of Pension Credit will also continue to rise in line with earnings. The Second State Pension will be reformed so it becomes a simple flat-rate weekly top-up to the basic state pension.

The state retirement age will gradually rise, from 65 to 66 in 2024, and then by a further year each decade up to a maximum of 68.

A fairer system for women and carers

Social contributions will be rewarded equally as paid contributions – this will improve the pension provision for those who care for children, often women, as well as disabled people. The unfairness in the present system will be addressed by cutting the number of years needed to receive a full basic state pension will be cut to 30, and by introducing weekly credits for mothers and carers that will count towards people’s pension entitlements in the same way as national insurance contributions.

The Financial Assistance Scheme to help some of those who lost occupational pensions when private schemes wound up is to be extended.