Conclusions and recommendations
Understanding the new state pension
1.The new state pension is a welcome simplification of an overcomplicated 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. (Paragraph 25)
2.People with periods of contracting out typically gain from the new state pension. That many such people believe wrongly that they are disadvantaged is in part a failure of Government communication. (Paragraph 26)
3.Women born between 6 April 1951 and 5 April 1953 will not be eligible for the new state pension in April 2016, whereas men born on the same dates will. This is the consequence of introducing the new state pension during state pension age equalisation. The complaints of the 1951–53 cohort are founded on the misconception that they would get the full flat rate of £155.65 if they were given access to the new state pension. That is simply not the case. The majority of women in this cohort will receive more in state pension payments across their lifetimes within the existing system than men of the same age in the new one. In addition, the existing generous deferral scheme would enable many such women, if they chose, to take a state pension at age 65 higher than that received by their male contemporaries. These realities should have been better communicated to this group, as was recommended by our predecessor Committee. (Paragraph 27)
4.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. (Paragraph 47)
5.The losses are largely products of the simplification of an outdated and extraordinarily complex system.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. People who understand their individual circumstances are better placed to adapt their plans in their best interest. Government should not rely on general awareness campaigns or happenchance in promoting that understanding. It should focus on identifying the individuals affected, assessing their potential losses, and communicating with them. (Paragraph 48)
Improving communication
6.The Department has rightly upped its efforts to explain the more complex elements of the reforms and made clear headway in establishing an online system for state pension statements. The Pensions Minister should take credit for this progress. Though the Government will need to ensure that those without access to the internet, or who are uncomfortable using it, are adequately informed, online provision of personalised pension information will clearly become increasingly important. (Paragraph 62)
7.The Government aspires to promote greater private pension saving. In order to best plan for retirement, individuals need to see a complete picture of their state, workplace and personal pensions in one place. We therefore welcome the Government’s commitment to ensuring the creation of a pensions dashboard by 2019. This is in line with our previous recommendation. Achieving it will be challenging and we will continue to monitor progress closely. (Paragraph 63)
8.We recommend that, as a matter of urgency, the Department write to people it projects will reach pension age with:
- fewer than 10 qualifying years; or
- lower state pensions than they would have derived from a spouse’s contributions under the existing system; or
- gaps in their contribution record.
These letters should clearly explain the person’s circumstances and set out both projected entitlements and means of improving them. Though some letters will go astray, the benefits of this approach exceed any risks. We further recommend the Department work with pension providers to write similarly to individuals who built up a guaranteed minimum pension during the period 1978 to 1988. If the Department has any doubts regarding the lawfulness of such letters under the Data Protection Act 1998 it should seek the advance approval of the Information Commissioner. (Paragraph 73)
9.We recommend the Government provide a new state pension telephone hotline service for the recipients of these letters. This service should enable claimants to discuss with an expert a strategy for increasing state pension entitlement that is most appropriate for their individual circumstances. This service might be provided by an existing pensions guidance service. (Paragraph 74)
10.The Government’s pensions strategy is predicated on people engaging more with their pension savings and better planning for retirement. By relying on individuals requesting a state pension statement or generating one on a website, the Government risks missing those it most needs to reach. (Paragraph 84)
11.We recommend the Government sends automatic state pension statements to all people aged 50 and over. These should be issued annually, in line with the private sector. Individuals should be able to choose to receive their statement by email or opt out on the digital statement system. Such individuals should still be informed by post of any major policy changes that affect them. (Paragraph 85)
© Parliamentary copyright 2015
Prepared 24 March 2016