Women approaching retirement and the self-employed are set to gain from the government's introduction of a flat-rate state pension from 2016, a new report shows.
But employees aged 30 and above will lose out to the tune of £1,000 a year and therefore have a greater need to save privately for their retirement.
From 2016 the basic state pension and second state pension will be replaced by a flat-rate state pension worth around £144 a week, based on how many years worth of National Insurance contributions have been made by an individual.
But analysis by the Institute for Fiscal Studies (IFS) indicates that in the four years following the introduction of the proposed reforms on 6 April 2016, very few people will get the exact single-tier amount. It says 23% would be entitled to a state pension worth more than that, while 61% would receive less than the flat rate.
Of those close to state pension age, the average change in state pension income would be an increase of £2.74 a week, with 13% seeing an increase of £10 a week or more.
The biggest gainers
The biggest gainers on average are those who have spent long periods out of work or doing low paid work – namely, women and the long-term self-employed. Women will gain an average of £5.23 a week, compared to £1.62 for men. Those with more than 10 years in self-employment will gain £7.51 a week on average, compared to £2.19 among those who have never been self-employed.
But the IFS said that "almost everyone" born after the mid-1980s will see a reduction in state pension income when they retire. "Someone who was born in 1986 who spends 35 years as a low earner would receive nearly £1,000 per year less under the proposed new system than under the current system," the IFS report states.
"This figure could be nearly £2,300 per year for a high earner of the same age. These groups will therefore have a greater need to save privately for their retirement."
Soumaya Keynes, an economist at the IFS and one of the authors of the report, added: "The single-tier pension proposals will boost the state pension entitlements of some of those who are close to state pension age, particularly those who have spent time caring for children or who had long periods of self-employment.
"However, for most of those now in their twenties and thirties, although these reforms should make it easier for people to predict how much state pension income they will get, the reforms will also reduce the state pension income that they can expect to get. They will need to save more privately for their retirement to make up for this."