Government unveils new plans for state pensions
A radical shake-up of state pensions unveiled by the Government will leave up to half of pensioners worse off by 2060, it was revealed yesterday.
High earners and recent immigrants will be among those hit by the Government’s plans to reform pensions.
Ministers said their proposals in the White Paper would simplify the system and particularly benefit women, low earners and the self-employed, with a single flat-rate state pension, equivalent to around £144 a week in today’s money, introduced for new pensioners from 2017.
Under the new system, around one in five people reaching state pension age after 2017 will be better off, less than one in ten will be worse off and the others will see no difference. But the proportion who will be worse off will rise rapidly, with more than half of people reaching state pension age after 2060 left worse off, most by more than £2.
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The Institute for Fiscal Studies (IFS) said the proposals implied a cut in pension entitlements for most people in the long run.
Pensions Minister Steve Webb, who is MP for Thornbury and Yate near Bristol, said high earners will be among those whose pensions will be affected by the changes, adding there were “far more winners”.
Anyone recently arrived in this country who is not able to build up ten years’ worth of National Insurance contributions before state retirement age will not get a state pension.
The minister said: “Our simple, single-tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save.”
Mr Webb said there would be no impact on public-sector pension schemes despite union warnings that a deal to finalise the Local Government Scheme could be hit.
The Treasury will receive billions of pounds from the extra contributions, described as a “windfall” by unions.
The IFS said that while the announcement looked like a “welcome simplification”, it warned: “While there will be a fairly complex pattern of winners and losers from the reform in the short-term, the main effect in the long run will be to reduce pensions for the vast majority of people, while increasing rights for some particular groups, most notably the self-employed.”
Brian Strutton, national officer of the GMB union, said: “With some exceptions, it’s clear that in terms of winners and losers, the Treasury gains and the people lose.”
Neil Carberry of the CBI said: “The current state pension is confusing and complex. Big rises in life expectancy and long-term pressure on public finances mean we must get more people saving for old age. These reforms will give real clarity and certainty about how much retirement income people will get from the state and how much they need to save privately through auto-enrolment schemes.”