Summary
The new state pension, which will be introduced for people reaching state pension age on or after 6 April 2016, is a welcome simplification of an over complicated system. Over time, more and more pensioners will receive a single flat rate. During transition, however, the majority will not. This has not been made sufficiently clear in Government communications that have focused on the full flat rate of £155.65, contributing to confusion about the new system. Many people who will not lose out from the new state pension, including most people who have had periods of contracting out and many women born between 6 April 1951 and 5 April 1953, wrongly believe they will.
Three groups in particular stand to receive less in the early years of the new state pension than they would notionally have received under the current system:
- people with fewer than 10 years of qualifying contributions;
- people, largely women, who would currently derive rights to a pension based on their spouse’s contributions and are not covered by transitional protection; and
- people who built up large guaranteed minimum pensions during the period from 1978 to 1988 and will reach state pension age during the early years of the new state pension.
The losses are largely products of the simplification of an outdated and extraordinarily complex system. It is those complexities, however, that make explaining the consequences to those affected imperative. The Government should not rely on general awareness campaigns. We recommend the DWP directly contact those affected, and others with gaps in their contribution records, explaining their personal circumstances and offering a telephone hotline to discuss with an expert the most appropriate strategy for increasing state pension entitlement.
The Department has rightly upped its efforts to explain the more complex elements of the reforms and made clear recent headway in establishing an online system for state pension statements. In order to best plan for retirement, however, individuals need to see a complete picture of their state, workplace and personal pensions in one place. We welcome the Government’s commitment to the creation of a pensions dashboard by 2019, in line with our previous recommendation, and will follow progress with interest.
We are concerned by the Government’s reliance on individuals requesting a state pension statement or generating one on a website. This risks missing those who most need to plan financially for retirement. We recommend that people aged 50 or over, unless they opt out on the digital system, should be sent annual state pension statements.
© Parliamentary copyright 2015
Prepared 24 March 2016