Alarm bells have begun ringing since the Conservative Party released the first official Coalition Agreement on policy matters last week. The pensions press in general welcomed the little this document had to say about pensions, chiefly because it dealt with two cause celebres:

"We agree to end the rules requiring compulsory annuitisation at 75."

"We agree to implement the Parliamentary and Health Ombudsman's recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure."

In addition, the parties 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, although it will not be sooner than 2016 for men and 2020 for women. They also agreed that from April next year the state pension will rise in line with the higher of earnings, prices or 2.5% a year; and for good measure agreed to substantially increase the personal allowance, ultimately to £10,000.

The problem of course with introducing this largesse and at the same time asserting deficit reduction is the new Government's number one objective is that it only exacerbates the fears about what will be jettisoned instead. Though no clear decisions have been made yet, today the Chancellor announced a review of all spending approvals since 1 January and all pilot schemes. Immediate cuts of £6 billion are expected, targeting

• discretionary areas like consultancy and travel costs;
• IT spending (including NEST);
• cost reductions from the 70 major suppliers to government;
• property costs;
• recruitment; and
• "wasteful projects like ID cards".

Decisions on the cuts will be factored into the emergency Budget set for 22 June. A new independent Office for Budget Responsibility is to produce forecasts for the economy and the public finances: the fiscal numbers that underpin government policy in the Budget.

Aries comment

£6 billion is just for starters - three-quarters of that that might be needed for Equitable Life victims alone, if it were decided to offer full compensation. Instead of deliriously celebrating the sideshow represented by the promise of an alternative to the choice at age 75 between ASP and annuity purchase, the UK pensions industry should be focusing on the risk to higher-rate tax relief on pension contributions. Worryingly, the new Lib Dem Pensions Minister, Steve Webb, reportedly thinks it is an unnecessary incentive. For the rapidly-increasing number of higher-rate taxpayers who cannot hope to be more than basic rate taxpayers in retirement*, withdrawal of higher-rate tax relief would remove at a stroke the only remaining incentive to save via a pension scheme, apart from the tax-free lump sum which is also perennially threatened.

* Those reliant on saving for retirement via DC pensions face an almost impossible challenge. A 65-year-old male might need a fund of £575,000 today to purchase an annuity valued at over the higher-rate tax threshold. According to ABI figures, 95% of annuities purchased in 2007 were with pension pots of less than £80,000, and 85% were with pots of less than £40,000.