THE biggest overhaul of the state pension system in decades has been announced, offering major benefits to women and the self-employed but leaving up to half of pensioners worse off by 2060.
Radical proposals unveiled by the Government yesterday will see a new flat-rate pension worth £144 a week introduced for new pensioners from 2017, ending the complexity of the current two-tier and means-tested system.
Women who take time out to raise a family and the self-employed are likely to be among the big winners, because the two groups have long been handed smaller pensions owing to their lower National Insurance contributions. But many young people now entering the workplace are likely to see a smaller state pension by the time they retire as a result of the changes.
Respected think-tank the Institute for Fiscal Studies (IFS) said the proposals implied a cut in pension entitlements for most people in the long run.
“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,” the IFS said.
Business leaders and fund managers welcomed the announcement, but unions and pensioner groups warned that £144 a week will still not be enough to live on.
Karen Jennings, Unison’s assistant general secretary, said: “These changes are being lauded as a good deal for pensioners, but it is worth remembering that £144 is still well below the poverty line.
“More will need to be done to prevent workers finding themselves desperately poor in retirement.”
But speaking in the Commons, Liberal Democrat Pensions Minister Steve Webb said the new system would be simpler to understand and make it clearer for people to see how much extra they needed to save for a comfortable retirement.
“The current state pension system is too complicated, and leaves millions of people needing means-tested top-ups,” he 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.”
Greg Mulholland, the MP for Leeds North West and co-chair of the Lib Dems’ pensions committee, added: “The worrying fact is that for many, the state pension is often not enough to live on.
“It’s also so complicated people working today don’t know what they will get in retirement, and it discourages them from putting anything aside.
“Pension reform is vital if we are to build a stronger economy and a fairer society.”
Labour, however, warned of “heavy losers” and “cliff edges” within the policy, claiming 429,000 women now on the verge of retirement will miss out on the new flat-rate pension – while men of the same age benefit.
But business leaders made clear their approval, with Dr Adam Marshall, director of policy at the British Chambers of Commerce, saying: “This announcement will bring welcome simplification for pension savers, and parity for the self-employed, who were previously ineligible to top-up state pensions.”
Neil Carberry of the CBI added: “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.”