The majority of people retiring under the new state pension, which starts from 6 April, will not be eligible for the full rate of £155.65 a week, a group of MPs has warned.
According to the Work and Pensions Committee, in the first year of the new state pension, 55% of claimants will get less than the headline rate – either because they have not paid enough national insurance or because they have contracted out of the additional state pension.
The new scheme pays a headline rate of £155.65 a week to people with 35 years of national insurance contributions (or credits), those with between 10 and 34 year’s contributions get a proportionate amount.
However, as the new deal combines the basic and additional state pensions, those workers that contracted out of the additional state pension at any point during their working lives (and paid less national insurance as a result) will face reductions.
Also, for the first time, everyone will have their own entitlement to the state pension meaning that you can no longer benefit from contributions made by your spouse, or receive special treatment if you are widowed or divorced.
There is some protection for people who will be worse off under the new scheme. Those that would have received more than £155.65 a week because of payments made into the additional state pension will have that entitlement protected, however they will not be able to accrue any further benefits from the additional state pension after 6 April.
‘Too few understand the new system’
With just days to go before the new state pension is introduced, the committee claims the government has failed to adequately explain the changes to those who are approaching retirement.
Frank Field, MP and chair of the committee says: "The New State Pension will ultimately be a welcome simplification of an over complicated system.
“The problem is that failures of communication mean that too few people understand it. The government seems to have managed to muddle its communications to the point where neither the winners nor losers yet know who they are.”
The committee also claims that the government cannot rely on people requesting state pension statements to fully communicate the changes. “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,” the report says.
See Time’s not on women’s side for information on changes to the state pension age.
‘Government should write to those most adversely affected’
As such it is now calling on the government to write to those who will be most adversely effected, in particular people with less than 10 years worth of contributions and those who will receive less than they would have done under the current system because they no longer get the benefit of a spouse’s contributions.
It also recommends that the government sends out state pension statements to everyone aged over 50 each year, detailing what they can expect.
Commenting on the report, Paul Green, director for communications at Saga says the government has let people down.
He says: “It is simply untenable that those approaching retirement can be treated with such disregard when it comes to their pension income. Most people make significant financial plans about their future based on what they believe they will get from their state pension and if inaccurate or outdated could leave them with little to no time to make up for this government information error.”