Autumn Statement impact: 'We may never retire'

By  Richard Dyson

George Osborne laid down a stark warning to generations of younger workers on Thursday: the pension system as it stands is unaffordable. And because we are all living longer, we need to work for longer, too. 

This was the most dramatic message in an Autumn Statement that gave little away while at the same time urging individuals – as Mr Osborne claimed the Government was itself doing – to get a grip on their finances and “fix the roof while the sun is shining”. 

Current pensioners were granted an increase in the basic state pension – a £2.95 per week rise from April, taking their weekly payment from £110.15 to £113.10 – while the possibility of locking into valuable pension guarantees was also mooted. 

Rollover for sound

But for the majority the statement presented a grim message: the signs of improvement in the economy are growing stronger, but “nothing should be squandered”, Mr Osborne said. That meant, for now at least, no blatant giveaways. 

But buried in his rhetoric – and the hefty documents accompanying the statement – were a range of measures that will affect the nation’s personal finances. Some, as we explain here, will take effect immediately. Others will unfold over generations. 

Retirement age 

Plans to raise the state retirement age have been mapped out before, but those increases are being accelerated – again – in plans outlined in Thursday’s speech. 

It will mean workers under 50 will lose thousands of pounds worth of retirement income which they would otherwise have been able to claim earlier. Most people in their 40s will now be unable to take their state pension until 68. Those in their 20s can expect to work until they are 70, up from 68. 

And the age at which people can retire in future will be determined by regular references to longevity data, with the assumption that a third of one’s adult life could reasonably be spent in retirement. According to some experts, this could mean that children born in 2050 could reach state pension age at 84. But that is because they would be expected to live to an average 104. 

Income tax allowances 

From April 2014 the personal allowance – the amount you can earn before tax is applied – will rise from £9,440 to £10,000. That means a £112 boost for most taxpayers. But it was not greeted with much enthusiasm as it had already been announced as long ago as March. There had been speculation that the threshold would be raised to £10,500 from April 2015. Hopes for this were raised on the back of surprisingly strong economic performance, and the fact that the Government had brought forward its pledge to raise the allowance to £10,000 by a year. But Mr Osborne gave nothing away. 

Mike Warburton, of accountancy firm Grant Thornton, said: “Having reached the Coalition target early, we were hoping he might announce an increase. But as in other aspects, very little was offered of direct benefit to the mainstream of households, who everyone thought this Government was wanting to target.” 

Married couples allowance 

Here again Mr Osborne’s concession was derided as offering very little. In fairness, he said it was “just a start” on which the Government would hope to do more, suggesting the policy was paving the way for future perks in recognition of the status of married couples and civil partners. 

Announced at the Tory conference in October, and expected to become effective in 2015, there will be a £1,000-a-year tax-free allowance per married couple or civil partnership. The allowance could be transferred between the pair to maximise the benefit but would be available only when neither person paid the higher rate of tax. 

Crucially, the proposed married couple’s allowance is not in addition to the spouses’ existing personal allowances. It merely earmarks a £1,000 slice of existing tax-free earnings and enables it to be transferred between the couple to maximum advantage. Mr Warburton explained: “People have been confused because they recall the old married couples’ allowance, which was more generous in offering something in addition in the individuals’ own allowances.” 

Savings and investments 

Here there was cause for disappointment all round as Isas were left virtually untouched. Concessions, where granted by Mr Osborne, were highly targeted at specific types of investment such as Save as You Earn schemes. Other previously announced initiatives, relating to limits on how much wealthy individuals can invest in pensions, remain due to come into effect in April as planned. 

Mr Osborne’s failure to mention child trust funds – which were replaced by Junior Isas – was seen as his biggest failing. 

Stamp duty, property and mortgages 

There was disappointment here for would-be home buyers as Mr Osborne did not tweak the lower thresholds of stamp duty to help those at the bottom of the ladder. Instead, his speech was accompanied with statistical notes which spelt out expected stamp duty gains for the exchequer stretching to 2018. 

These indicated no let-up in the tax – in fact, the reverse; they suggested the Chancellor was hoping for a steady increase in stamp duty and other housing-related revenues. The tax take from stamp duty will rise from £7bn this year to nearly £17bn by 2018. This growth will stem not only from rising transaction volumes and increased prices, but also from the cliff-edge effect of the stamp duty regime. This means that as prices move into higher bands the tax-take leaps, as the higher rates of duty apply to the whole price paid and not just to the portion above the threshold. 

Again, calls to restructure the regime and eradicate this effect went unheeded. 

For property owners – rather than those hoping to buy – a rosy picture was painted of the housing market, with official forecasts predicting that prices will rise by 5.2pc next year and by 7.2pc in 2015. By 2018 prices will be up by well over a quarter. 

Other measures, including a reduction in reliefs commonly enjoyed by landlords, were also introduced. 

Borrowers were pleased, however, at Mr Osborne’s repeated hints that low mortgage rates would remain a priority. 

Other initiatives 

Long-suffering rail commuters were given a breather from fare increases. Mr Osborne said fares could rise by no more than inflation where previously train operators had the power to increase them by more. 

In another of Thursday’s few surprises, Mr Osborne put some money towards school meals. 

Dominique Crispin, 28, lives with her partner Nicky and their two children, Ethan, eight, and Alannah, three, in Wiltshire. The news from the Autumn Statement that all six- and seven-year-olds will get free school dinners went down well with Ms Crispin’s family, as Alannah will benefit from this change in a few years’ time. 

But Ms Crispin wondered why free school meals were being offered only to six- and seven-year-olds. “What is the Government hoping to achieve by doing this?” she said. “It will certainly be helpful, but I can’t see why the age group was so specific, and hadn’t been broadened to all primary school ages. 

“I am disappointed that my son, who will soon be turning eight, will miss out on the school dinners. 

“We are a packed-lunch household because we can’t afford for our children to eat school dinners. My son won’t benefit and he is likely to get jealous that his sister will get a hot school dinner while he has to make do with a packed lunch.” 

There was also confirmation that the Government would raise money by the sale of the old student loans book. This could raise fears that rates and terms of existing loans could be at the whim of the new, private-sector owners. 

'We will work to a ripe old age’ 

George Osborne confirmed in the Autumn Statement on Thursday that people now in their 40s would not get the state pension until 68 and those in their 30s would have to wait until 69. 

Mrs Dang, 31, works in marketing in London. She said: “I think most of our generation accept that we will have to work to a ripe old age. We know people are living longer. 

“I suppose the worry is that you will work all your life and then be too old to enjoy your retirement.” 

The couple are currently looking to buy a house, ideally on the outskirts of London. Because of high house prices, they are considering the first phase of Help to Buy, under which the Government offers a loan that is interest-free for five years. 

“I think it is really good the Government has been helping people to get on the ladder,” said Mrs Dang. “Otherwise, so many people might never have been able to buy.” She said it was disappointing that the Chancellor did not announce changes to stamp duty. “ It would have been great for first-time buyers to have a bit of leeway on that,” she said. 

Mr Osborne said the Government needed to “guarantee that the basic state pension is affordable in the future, even as people live longer and our society grows older. The only way to do that is to ensure the pension age keeps track with life expectancy.” 

He said people should expect to spend up to a third of their adult life in retirement. This would mean an increase in the state pension age to 68 in the mid-2030s and to 69 in the late 2040s. Exact dates will be set by future statutory reviews.