Pension reforms ‘will leave most worse off in the long-term’

Groups set to lose out over the reforms have not been alerted directly
Groups set to lose out over the reforms have not been alerted directly

Pension reforms introduced this year will leave most people worse off in the long-term, according to the public spending watchdog.

The new system, which was introduced in April, does away with pension top ups in favour of a flat rate.

But the reforms mean that in 2060 three quarters of claimants will receive £15 a week less on average, the National Audit Office said.

Groups that lose out from the reforms have not been contacted directly to alert them to the financial hit they will take, its report warned.

Despite hopes that the new system will allow people to plan more for their retirement by giving them certainty about their support from the state, the Department for Work and Pensions has had “limited success” in improving understanding and there is no evidence that it has encouraged extra savings, according to the NAO.

When the changes came in, just 25% of working age people knew how they would be affected and just 18% knew what their state pension was likely to be, it added.

Meg Hillier, who chairs the Public Accounts Committee, said: “The success of the new pension depends on people being clear about how much they should expect when they stop working, so they can plan properly for retirement.

“Yet in spite of the department’s communication campaign, over half of people who will be pensioners in the next 10 years don’t know how much their state pension is likely to be.

“Some of these people are going to be surprised to find they do not qualify for the full flat rate.”

The new state pension covers men born on or after April 6 1951 and women born on or after April 6 1953. The previous system has been made up of two parts - the basic state pension as well as the additional state pension, which is extra money on top of the basic state pension.

It has a single-tier rate, of £155.65 a week. Usually people will need at least 10 years of qualifying National Insurance (NI) contributions to get any state pension - and 35 years of contributions to get the full amount.