Post-election politics of employee benefits

Welcome to Mercer Foresight. This issue of Foresight appears after one of the most tightly fought general elections in a generation. As political leaders wrestle with the implications of the UK’s inconclusive election results, key issues affecting employee benefits await decision and action. Whilst the Conservative/Liberal Democrat coalition is initially focusing on deficit reduction, it is clear that there are some areas of detail that need to be agreed.

On defined benefit schemes, Rosie Kwok, Mercer Principal, explains that it is likely that there will be pressure on generous public sector schemes and a need to redress the balance between public and private sector pensions.

A rise is also inevitable for the state pension age – it’s just a question of timing. The Conservatives would raise the qualifying age to 66 for men in 2016 and for women in 2020. Like Labour, the Liberal Democrats would raise the age to 68 by 2046.

Rosie adds: “There’s all-party support to link the basic State Pension either to indices of earnings or prices – legislation will see this happen in 2012.” Fortunately, there is also all-party support for the default retirement age: “All parties agree with its removal. Over-60s will be able to claim working tax credit if they work at least 16 hours a week, rather than the current 30 hours”, Rosie explains.

Whilst the Conservatives have been silent about wider reform of State Pensions, the Liberal Democrats want a “Citizen’s Pension” which would reduce the number of those at pensionable age facing retirement means testing from 50 percent to less than 10 percent.

The NHS will continue to be a priority for the new government, but any reduction in its funding is likely to lead to increases in waiting times. Employers will therefore need to consider potentially higher absence costs and are well advised to optimise their existing arrangements, or establish new arrangements to reduce the impact of absence and offer a competitive benefits programme.

One certainty is that the onset of personal accounts is still high on the government’s agenda. Auto enrolment will need to be a priority for the new government, with an improvement on pensions access for low- to middle-income earners. “The Conservatives favour accelerating Labour’s 2012-16 staged auto enrolment timetable”, Rosie says. This issue of Foresight highlights recent developments in relation to personal accounts and their implications for employers.

If you’d like to explore any of the issues raised in this issue of Foresight, please contact your Mercer consultant or E-mail Foresight.