Retirement Funds

The pre-budget had a time bomb for those saving for their pension, a £400bn a year stealth tax on middle-class retirement funds was hidden in the proposals.



This will be claimed back from the pension system by bringing forward the key changes date to the State Second Pension, this being a top up to the basic state pension.

This is being considered to be the Governments restricting amounts paid to pensioners whilst the politician pensions remain gold-plated. Around two million people play into the State Second Pension, originally known as Serps. The top up received at the moment is linked to earnings and number of years worked.

The Government is planning to freeze the upper limit in 2009 meaning that some will pay contributions but get no pension benefit in return. This will cost pension savers £290m in 2009 and £440m in 2010. It is the plan that by 2030 everyone will receive the same amount from State Second Pension. Middle class earners could be over £1,000 p.a. worse off.

A person with a full employment record and earning around £35,000 or more can at present earn £6,000p.a.in a State Second Pension by 2030 this will be worth £4,700 in real terms. The Government have introduced this as a way of fulfilling its pledge to re-link the State Pension to earning which stopped in 1980.

The Government estimates by 2050 a total state pension including State Second Pension will be £135 per week by today’s standards, would be worth £90 to £100 a week.

The Government hope to bring in the link to earnings in 2012 but this date may be pushed back to 2015 at the latest.