1 Introduction
1.The state pension is a regular payment from the Government to people over state pension age. Many people also have occupational or personal pensions. State pension age is currently rising for some people; it will be 66 by 2020 and 67 by 2028 for both men and women.1 In parallel, the state pension system is being reformed through the introduction of the new state pension.
2.The new state pension was created by the Pensions Act 2014. For people reaching state pension age on or after 6 April 20162 it will replace the existing two-tier system of a basic flat-rate pension based on National Insurance (NI) records and an additional state pension which is partly earnings-related. To qualify for the full new state pension, which will be £155.65 per week in 2016–17, 35 qualifying years of NI contributions or credits will be required. Those with fewer than 35 qualifying years will receive a proportionately lower amount, provided they have at least ten qualifying years.
3.The new state pension is designed to reduce complexity and inequality.3 It will end the system of “contracting out” whereby certain employees (and their employers) paid lower NI contributions in return for forgoing entitlement to the additional state pension. Instead, those employees built up a private pension. People will qualify for the new state pension on the basis of their individual NI contribution record, so special rules for marriage, divorce or bereavement will end with transitional protection for some. As the level of the full new state pension is set just above the basic level of guaranteed support, means-testing will be reduced, improving incentives to save privately.4 The new state pension will in time be a radical simplification and has been broadly welcomed. Concerns have been expressed, however, that the complex transition is poorly understood and that certain groups will be unfairly disadvantaged.
4.We launched this inquiry amid concerns about Government communications regarding the new state pension. In part, our work follows up on a 2013 inquiry by our predecessor Committee.5 Drawing on that valuable work, we were particularly interested in the steps the Department for Work and Pensions (the Department, DWP) had taken to communicate with groups of people most affected by the reforms.
5.In the course of our work our attention was particularly drawn to the adequacy of DWP communication to women born in the 1950s who were affected by increases in state pension age being implemented concurrently with the new state pension reforms. We considered those concerns separately in a Report on Communication of state pension age changes,6 which followed an earlier Interim report on state pension statements.7 Though we will continue to monitor state pension developments closely, this will be the final Report of this particular inquiry. We are grateful to everyone who participated, especially the ordinary members of the public who have shared their experiences and views.
2 This means that it applies to men born on for after 6 April 1951 and women born on or after 6 April 1953. We return to consequences of different arrangements for men and women in para 19 below.
3 DWP, The single-tier pension: a simple foundation for saving, Cm 8528, January 2013
4 The Standard Minimum Guarantee will be £155.60 per week in 2016–17
5 Work and Pensions Committee, Fifth Report of Session 2012–13, The Single-tier State Pension: Part 1 of the draft Pensions Bill, HC 1000, March 2013
6 Work and Pensions Committee, Seventh Report of Session 2015–16, Communication of state pension age changes, HC 899, March 2016
7 Work and Pensions Committee, Sixth Report of Session 2015–16, Understanding the new state pension - interim report on pension statements, HC 550, January 2016
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Prepared 24 March 2016