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You can find the current article at its original source at http://www.theguardian.com/money/2015/oct/26/most-workers-worse-off-retirement-new-universal-state-pension
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| Most workers 'will be worse off at retirement' under new universal state pension | Most workers 'will be worse off at retirement' under new universal state pension |
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| Most workers reaching retirement will be worse off under the new universal state pension, expected to be set at £155 a week, according to a highly critical analysis of secretary of state Iain Duncan Smith’s flagship policy. | Most workers reaching retirement will be worse off under the new universal state pension, expected to be set at £155 a week, according to a highly critical analysis of secretary of state Iain Duncan Smith’s flagship policy. |
| On paper, the new state pension, starting on 6 April next year, will be much higher than the current maximum £115.95 a week basic state pension. The exact figure has not yet been set, but it is expected to be around £155. | On paper, the new state pension, starting on 6 April next year, will be much higher than the current maximum £115.95 a week basic state pension. The exact figure has not yet been set, but it is expected to be around £155. |
| But according to Hymans Robertson, a major actuarial firm, less than half of people retiring next year will pick up the full new state pension, while the majority will lose out over the long term. | But according to Hymans Robertson, a major actuarial firm, less than half of people retiring next year will pick up the full new state pension, while the majority will lose out over the long term. |
| Some workers could be as much as £20,000 worse off, it said. This is because many will not be able to build up additional state pension (previously called state second pension or state earnings related pension) in the same way they have in the past. | |
| The government has hailed the new single tier universal pension as a dramatic simplification of current arrangements, but Sue Waites, partner at Hymans Robertson, said: “It’s not ‘simple’ at all, but fraught with complexity.” | The government has hailed the new single tier universal pension as a dramatic simplification of current arrangements, but Sue Waites, partner at Hymans Robertson, said: “It’s not ‘simple’ at all, but fraught with complexity.” |
| She added: “There’s a widespread expectation that everyone who reaches state pension age from April 2016 will move from a basic state pension of £115 to a new flat rate of £155 per week. The reality is quite different. The transition to the new state pension brings many complications, particularly for those approaching state pension age . Some will be very surprised at how much they actually get.” | She added: “There’s a widespread expectation that everyone who reaches state pension age from April 2016 will move from a basic state pension of £115 to a new flat rate of £155 per week. The reality is quite different. The transition to the new state pension brings many complications, particularly for those approaching state pension age . Some will be very surprised at how much they actually get.” |
| Earlier this year, a freedom of information request by financial advisers Hargreaves Lansdown found that 1.1 million of the 2 million people retiring between 2016 and 2020 would receive the full flat-rate state pension. | |
| Worst off will be those who “contracted out” for short periods during the 1980s and 1990s, and saw part of their savings diverted into private schemes. “A relatively short period of contracted out service can result in a far bigger deduction from the amount than the individual may be expecting. Some people in this category could be as much as £20,000 worse off over the course of their retirement,” said Hymans Robertson. | Worst off will be those who “contracted out” for short periods during the 1980s and 1990s, and saw part of their savings diverted into private schemes. “A relatively short period of contracted out service can result in a far bigger deduction from the amount than the individual may be expecting. Some people in this category could be as much as £20,000 worse off over the course of their retirement,” said Hymans Robertson. |
| But there would be winners as well as losers, said Hymans Robertson. The winners will be the long term self-employed and those who have had spells of unemployment, who will generally be around £2,000 a year better off because currently they can only obtain the basic £115 state pension. Under the new system they may be able to pick up as much as £155 a week. | |
| The main reason why most people will lose out is that they will have less scope to build up additional entitlements, due to a cap of 35 years on accruing benefit. | The main reason why most people will lose out is that they will have less scope to build up additional entitlements, due to a cap of 35 years on accruing benefit. |
| Those who have already accrued more than £155 a week in state pension will not be able to accrue any more state pension after April 2016, but may have to continue paying higher national insurance contributions, for no benefit. | Those who have already accrued more than £155 a week in state pension will not be able to accrue any more state pension after April 2016, but may have to continue paying higher national insurance contributions, for no benefit. |
| “Over the long-term, broadly speaking, the majority will lose under the new state pension. Under the current regime, although basic state pension accrual is limited to 30 years, additional state pension can be accrued over an entire working life (potentially up to 50 years). Under the new system it will be capped at 35 years with no additional state pension so there will be less scope to build up a more generous entitlement,” said Waites. | “Over the long-term, broadly speaking, the majority will lose under the new state pension. Under the current regime, although basic state pension accrual is limited to 30 years, additional state pension can be accrued over an entire working life (potentially up to 50 years). Under the new system it will be capped at 35 years with no additional state pension so there will be less scope to build up a more generous entitlement,” said Waites. |
| “However, the biggest issues lie with those approaching retirement. The picture here is incredibly complicated due to the way in which your entitlement is worked out in April and then beyond.” | “However, the biggest issues lie with those approaching retirement. The picture here is incredibly complicated due to the way in which your entitlement is worked out in April and then beyond.” |
| The Department for Work and Pensions said that talk about most people losing out was misleading and many women, carers, lower earners and the self-employed stood to gain the most. It said savers would get at least what they would have got for their NI contributions paid in the current system, and that many people would get more. |