Pension changes will leave millions worse off

Last updated: Aug 21st, 2013
News by Mark King
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Millions of people will be worse off when the government tweaks the state pension system, according to the Trades Union Congress (TUC).

It says the vast majority of people currently entitled to the state second pension will get less when they retire as a result of the scheme being replaced by the new single tier pension.

The state second pension was introduced in 2003 as a way to help low earners and carers get more from the state pension. Around 20 million people - the vast majority of whom are private sector workers - are currently contracted into the scheme.

But the second state pension will be abolished as part of the single tier pension, which comes into effect in 2016. The government has said that most people will be better off under the new system, but the TUC's research contradicts this.

The TUC's research projected forward what people currently contracted into the second state pension will receive in pension income under the new single tier pension (set at £144 a week, currently). It shows that anyone with a long work history will lose out, with high earners losing the most.

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Low earners currently in their late-30s will get around £30 a week less than they would get under the current arrangements - £1,560 a year. Workers on a median income of £26,000 a year (and with a full employment record) retiring in 2030, will also lose out - to the tune of £29 per week or £1,508 a year.

The losses will increase over time, the TUC warned, with a median earner retiring in the late 2040s set to be around £40 a week (£2,080 a year) worse off than they would be under the current state pension arrangements.

Worse off in retirement

TUC General Secretary Frances O'Grady said: "The state second pension was designed to give low and middle income earners a much-needed top up to the basic state pension. Scrapping it as part of the new single tier pension will mean that many low and middle-income private sector workers, particularly those several decades away from retirement, could be thousands of pounds a year worse off in retirement.

"While the government is right to move towards a simple, single state pension, setting it at just £144 a week is far too low and will mean many future pensioners will be worse off. The government should raise the single tier pension rate."

However, the government told the BBC that most people retiring after 2040 would be better off under the new system.

"The flat rate will provide a fair base, set above the basic level of means test, helping people to know how much they need to save for the kind of retirement they want," said a spokesman for the Department for Work and Pensions (DWP).