Summing up: Failure to explain could spark revolution

Steve Webb, pensions minister in the coalition government, admitted to communication problems, but those problems are still ongoing. Picture: Getty
Steve Webb, pensions minister in the coalition government, admitted to communication problems, but those problems are still ongoing. Picture: Getty
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THE great pension “freedoms” revolution began just over five months ago – and has already clocked up almost as many inquiries.

The inevitable chaos that followed April’s rule changes has sparked a Work & Pensions Select Committee inquiry on pensions guidance, a Treasury consultation on exit fees and barriers to access, and a regulatory request for more data from pension firms.

The shake-up has also prompted a consultation on the tax relief system and a review of financial advice.

It’s a lot of paperwork all right. But it might well just be a warm-up for the inquest that could follow the introduction of the new flat rate pension next April.

Thousands of people are going to get a nasty shock next year when they discover that the apparently “universal” flat rate pension is anything but. It’s not the actual changes that will cause the problem, but the government’s utterly shambolic attempts to communicate them.

That’s why information is still leaking out through Freedom of Information requests. The latest found that of the women among the first 1.2 million people to claim the new flat rate state pension, just 80,000 will get the full amount.

While 130,000 men claiming the new pension in the first year will get the full payment, just 20,000 women will receive it. The gender disparity won’t level out until 2020.

The reasons for this can be explained. For instance, the number of qualifying years of national insurance contributions (NICs) that women need for a full state pension was lowered a few years ago from 39 to 30, to help those who took time out of work to raise a family. Under the single tier state pension the minimum qualifying years for the full amount rises to 35, offsetting some of the benefits to women of the state second pension being scrapped.

The low number of women claiming the full rate in the early years of the single tier system is also due to the acceleration in the rate at which the women’s retirement age has increased, as fewer women are retiring over the next three years than would otherwise have been the case.

There are also transitional arrangements in place to protect entitlements built up under the current system, which take contracted-out periods into account. However their “mind-blowing” complexity means they will be “barely intelligible” to those affected, according to Malcolm McLean of financial adviser Barnett Waddingham.

There are several reasons why many people won’t be getting the full single tier pension, most of which are valid. The point, however, is that with less than eight months before the new state pension comes into effect those reasons still haven’t been set out properly.

Steve Webb, pensions minister in the coalition government, admitted in June that “we probably should have given more thought to communications.” And yet we’re still waiting.

Research suggests that most people retiring under the new state pension expect to receive at least £150 a week. Almost seven in ten new claimants in the first four years will in fact get less, the Institute for Fiscal Studies estimates. They will feel angry, confused, upset, misled and even ripped-off, and it could all be so easily avoided if the Department for Works & Pensions just got a grip.