Beware: latest pensions changes

Paul Gerrard

The coalition government has confirmed its intention to introduce a new flat rate state pension from 2017.

From that year the basic state pension and the second state pension (formerly the state earnings-related pension) will be amalgamated.

It is claimed that the new flat-rate pension will be worth £144 a week at current prices.

The changes are being presented as a step forward for working women, whose pension entitlement under the present system is often reduced by time spent at home looking after children.

But the 2011 census showed that nowadays the proportion of mothers in employment is less than 1% different to that for non-mothers who go out to work.

The National Pensioners’ Convention has cut through the government hype. In their analysis, “the current rules allow men and women to pay 30 years’ worth of National Insurance contributions in order to get a full basic and second state pension of around £150 a week. The White Paper calls for them to pay for 35 years and get £144 a week.”

Even according to the Daily Telegraph, “most workers will find they have to pay more National Insurance contributions and for longer before receiving any benefit under changes long trumpeted by the government as the greatest reform of state pensions in a century’.

No benefit for majority

The Institute for Fiscal Studies (IFS) estimates that while some groups such as the self-employed will benefit in the short term, “the main effect in the long run will be to reduce pensions for the vast majority of people.”

They also dispute the claim that low-paid workers will benefit. In 2017-18, most low earners (who haven’t yet worked 30 years) would under the current system accrue £5.05 of additional weekly state pension rights for ‘contributing’ for one extra year.

In the proposed new system, these same people would accrue £4.11 of additional weekly state pension”. As the IFS put it: “the key point is that £4.11 is less than £5.05.”

So it’s no surprise that the government is delaying the introduction of these long-promised plans until after the next general election.

Recently some commentators have expressed the view that this government is clamping down on benefits, public sector workers, etc, but somehow ‘looking after the pensioners’. After these proposals that particular myth can be laid to rest.