WITH the new state pension less than three months away, there are some things about it that are finally becoming widely understood.
That the coalition government was less than honest about the implications of the changes when it unveiled them is one. That a lot of people are consequently in line for a nasty shock is another.
It’s becoming clearer too that some of the biggest losers from the overhaul will be today’s younger generations. It’s also obvious that the Department of Work & Pensions (DWP) has failed miserably in communicating the changes to those who need to know about them.
So, with just weeks before the biggest state pensions shake-up in decades, the pensions minister is being hauled before the Work & Pensions Committee tomorrow to give her views. I have sympathy for Baroness Altmann on this one. The flaws were deeply embedded in the overhaul long before she became pensions minister last May. Altmann has admitted that the new state pension, set out by her predecessor Steve Webb, had been mis-sold. Eager to promote the new deal as simplifying state pensions and giving people a better idea of what to expect, the coalition government created high expectations and encouraged misconceptions.
The myth of the universal pension has been debunked since then by various research organisations ranging from Hargreaves Lansdown to the Institute for Fiscal Studies. The latter estimated that nearly 70 per cent of new claimants over the first four years of the flat rate pension would get less than the flat rate.
It’s been confirmed that the new pension will start at £155.65 a week, and DWP figures show that by 2050 nearly 70 per cent of people – rising to 75 per cent of women – will be worse off under the single-tier pension than they would have been under the current system.
The 75 per cent that will be better off in the first 15 years of the new pensions account for about a fifth of the UK workforce, consultants Hymans Robertson notes. “What about the other 80 per cent who will generally be significantly worse off?” it asks.
Hit hardest will be those currently in their teens, 20s and 30s, a generation already bearing the brunt of coalition and Tory policies around education, housing and welfare.
The Work & Pensions committee last week warned that state pension forecasts and statements were confusing and often contradictory. Many women nearing retirement have been “grotesquely disadvantaged” by the handling of changes to the state pension age and the new flat rate, it added.
There are flaws in the legislation, but the problem has been compounded by the government’s communication failures. Even now it’s struggling to get new state pension statements to a point where they help more than hinder. The irony is that, unusually, the actual policies are sound and well-intentioned.
In 2013 the DWP said the reforms would deliver “a simple and fair state pension that provides clarity and confidence to better support saving for retirement”. It has turned that on its head spectacularly, and all because it couldn’t explain to those who matter what would actually happen.
The backlash could be equally spectacular, and rightly so.