Govt will scrap compulsory annuitisation at 75; Retirement age review

The new coalition government has agreed to scrap compulsory annuitisation at 75 and hold a review to decide when the state pension age will rise to 66.

The parties have agreed to phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66. This will not be before 2016 for men and 2020 for women.

However, the future of Gordon Brown's planned tapering of tax relief on pensions for high earners was omitted from the document.

The formal agreement, released today, also promised to address the spiralling cost of public sector pensions and an independent commission investigating the long-term affordability of the schemes will be set up.

The Conservative manifesto had pledged to cap public sector pensions above £50,000 while the Liberal Democrats' manifesto promised to reform public sector pensions to ensure they were sustainable and affordable for the long term.

No mention of MPs' "generous" final salary scheme was made in the agreement.

The new Government has also pledged to implement the parliamentary ombudsman's Equitable Life recommendation to create a fair and transparent independent payment scheme to policyholders who lost out in the scandal. Both parties had pledged to do this in their respective manifestos.

The statement also confirmed the earnings link for the basic state pension would be restored from April next year with a "triple guarantee" pensions are raised by the higher of earnings, prices or 2.5%, as proposed by the Liberal Democrats.

Elsewhere, the new Government will enact sweeping reforms of the banking system, including a possible major loan guarantee system and the net use of lending targets for the nationalised banks Lloyds and RBS.

The parties said they agreed ensuring the flow of credit to "viable SMEs is essential for supporting growth" and should be a "core priority" for the new Government.

A banking levy will also be introduced, though the coalition have yet to reach a detailed agreement on how it will be implemented.

The new Government has also said it will begin a "significantly accelerated reduction in the deficit", a key pillar of the Tory party manifesto.

However, the £6bn in immediate cuts will only start once the Treasury and the Bank of England gives the go ahead, and will come mainly from scaling back public spending, not tax rises.

One casualty will be the child trust fund which will face cuts, alongside tax credits for the wealthy.

A comprehensive spending review will be announced in the autumn, but the coalition Government has already agreed a Tory pledge for a real terms increase in the NHS budget each year has survived.

There will also be moves from April 2011 towards raising the income tax threshold to £10,000.

One new tax will be an environmental levy on planes, though not individual passengers.