You might think that Government plans to raise Britain’s meagre basic state pension from £102.15 a week to a new flat rate of £140 would be a thoroughly good thing but new calculations by the Pensions Policy Institute (PPI) show that millions of men will be worse off when pensions are made fairer for women.
According to the PPI, about 5.2m people will be an average of £18 a week worse off because they will have paid more than 30 years’ National Insurance Contributions (NICs) but will not receive any State Second Pension (S2P) – formerly known as the State Earnings Relate Pensions Scheme (SERPS) – if this is replaced by the new flat rate scheme for those retiring after 2016.
That is one option being considered by the Government, which would also have the effect of increasing 6.8m pensioners’ income by an average of £23 a week. According to the PPI’s analysis – commissioned by the National Association of Pension Funds (NAPF) – the winners will mostly be women and people who have interrupted work histories; perhaps to care for others or simply through unemployment.
However, the other option being considered – to switch S2P to a flat rate as part of two tier State pensions by 2020 – would mean no older people would be better off than they are now and 5m would be worse off. Niki Cleal, a director of the PPI said: “Those individuals who would have qualified for large amounts of state pension in the current system could lose out the most under a single-tier pension – often moderate to higher earners with an expected full career and NICs record.
“A single-tier pension could also significantly reduce the percentage of pensioner households eligible for Pension Credit from 35pc under the current system, to around 5pc of pensioner households by 2055.
“The single-tier pension could also place additional burdens on employers and employees in defined benefit schemes in both the public and private sectors as NICs would increase.”
For example, employers’ and employees’ NICs increased by one percentage point last April – to 12pc and 13.8pc respectively – and NIC rebates or refunds for final salary or defined benefit schemes that opt out of S2P will be cut from from 5.3pc to 4.8pc next April. This will help the Government fund higher flat rate basic state pensions but make it more expensive for the minority of private sector employers who still offer final salary schemes to do so.
Zoe Lynch, a partner in pensions lawyers Sackers, said: “The headlines on the Government’s Green Paper on the changes to the state pension have been stolen by the good news story that everyone may receive a flat rate basic state pension of £140 per week.
“But the knock-on effects of this piece of good news have been tempered by the possibility of the closure of yet more defined benefit schemes following the potential withdrawal of the ability to contract-out of S2P.”
However, Joanne Segars, chief executive at the NAPF, said: “The UK has one of the meanest, most convoluted state pensions in Europe, and a radical overhaul is long overdue.
“A simpler, more generous state pension is a win-win that could lift millions out of poverty without hitting the taxpayer’s pocket. Those who are disadvantaged by the current system, like women and the self-employed, will be better off.”
Similarly, Dr Ros Altmann, director general of Saga, said: “All the evidence suggests that creating a flat rate, single tier state pension – above the Pension Credit level – is the only realistic choice.
“It will mean that our state pension system in future would finally be understandable and ensure that for younger generations, the threat of means-testing penalties to their private pensions on retirement will be almost completely lifted.”
It’s hard to argue against that. Unless, of course, you are one of the hard-working men who paid NICs for 30 years and now look set to get less pension.
SOURCE: telegraph.co.uk
