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Emergency Budget 2010: pensions to be subject of reviews

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Several aspects of the pensions system are to come under review as a result of announcements made in the Budget.

A consultation on speeding up a planned increase of the state pension age to 66 is to be launched soon.

Another consultation will be held on phasing out the default retirement age of 65.

Former Labour minister, John Hutton is to conduct a review of the current cost of public sector pensions, with his interim report due in September and a fuller document to be prepared for next year’s Budget.

On the question of reducing pension tax relief for high earners, a policy introduced by the previous government, the Chancellor admitted there were concerns about the complexity of the plans.

But he also insisted that the revenues such a move would generate should be protected. So he promised to examine alternative ways of producing the same amount of revenue (£3.5 billion).

The government will look at restricting pensions tax relief from 6 April 2011 through a reform of the existing pension savings allowances, possibly by reducing the annual allowance.

Any proposed changes will be the subject of a consultation, but one outcome could see a reduced annual allowance in the region of £30,000 to £45,000.

One definite measure is that, from April next year, the state pension will be linked to earnings, not inflation, and will rise by earnings, inflation or 2.5 per cent, whichever is greater.