MPs to investigate state pension fiasco
A group of MPs has launched an enquiry into the state pension reforms, following concerns that the government has failed to adequately communicate what benefits retirees will receive when the new state pension is introduced in April 2016.
In a statement the DWP Select Committee said: “Concerns are raised especially for people who are close to retirement now and may have done most or all of their retirement planning and saving under the ‘old’ system.”
The new ‘single-tier’ pension will pay a flat rate of around £155 a week to everyone with 35 years National Insurance Contributions. Those with less than 10 years contributions will not get any state pension while those with between 10 and 34 years will receive a proportional sum. It will replace the current basic state pension and the additional pension (state second pension or S2P), which enables lower earners as well as carers and those on certain benefits to top up their retirement income.
Critically, everyone has their own entitlement, so for the first time you will no longer be able to rely on contributions made by your spouse and there will be no special treatment for those who have been widowed or are divorced.
Andrew Tully, pensions technical director at Retirement Advantage, said certain groups would benefit from the new system. “Generally women will be winners, even though they may have had a broken work history, this will be reflected in the new single rate system,” he explained.
“The self-employed should also be winners as they couldn’t previously get the state second pension, now they will get the [higher] flat rate.”
However some people will inevitably lose out under the new system. The committee added: “While many people are expected to be better off, people with for example less than 10 years of National Insurance contributions will no longer receive any State Pension, and people will no longer be able to count on a percentage of their spouse’s pension after their death.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown was baffled as to why the government has failed to make people aware of the changes. “The state pension reforms will ultimately lead to a simpler, more equal system and no one disputes that the transition from the current system to the new one will involve complex adjustments. What is incomprehensible though is that until recently the DWP seems not to have made any meaningful plans to communicate these changes to the people who are actually affected by them.”
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.