1st November 2015 by John Lappin
The row over the ‘flattening’ of the state pension is only going to get worse in the five or six month run up to launch. Some excellent research, published last week by actuaries Hymans Robertson, shows that there will be more losers than winners from the reform which comes into force in April 2016. It all suggests that the system faces a very inauspicious birth.
There is good news for carers and the self employed but many other groups including what you might call those in the mainstream workforce, especially those who didn’t contract out long term, will lose out. What we will have is a much simpler system that puts paid to SERPS and the State Second Pension and, to an extent, offers a better state pension. It is simpler certainly and better for some, but it will cause a lot of anger as many people nearing retirement realise they will do less well from the state pension system than they thought.
One argument made by some reformers and at least two and arguably three of the last pension ministers is that the new state pension will help diminish means-testing and encourage savings particularly through the new system of auto-enrolled pensions. But that will hold no water for individuals who believe they have lost out.
The state pension and its top up system is far from perfect but it is a fundamental part of the bargain between the state and the retired and soon to be retired. It is not looked upon as another benefit but as one that has been earned and deserved through NI contributions.
A perception, whether right or wrong, that people will lose out could prove to be political dynamite.
Ironically for those already in receipt of the state pension, it is proving to be very generous in terms of upgrades from what is known as the triple lock. This lock is pretty much guaranteed to get a little more generous each year for those in receipt of it and has been credited with making pensioners generally better off.
But it is those coming up to retirement whose ire may well be provoked. So where will their anger focus first? At Mindful Money, we suspect people will be concerned that different groups will be treated very differently. It is an old adage in politics that you need to consider who the losers are, and try to explain why they are losing out. This usually assumes the losers to be mostly in a minority. Hymans Robertson suggests that it may be a majority in this case, or at least a majority of the yet to retire and they may well be in the ‘hard-working’ cohort of people the Government is so fond of targeting its messages and campaigning at.
Second, we think people will be furious that they have not been told about this sooner. It may be difficult for ministers to engage a wide population when they propose and debate a policy. But this has been an established plan since the May 2014 Pensions Act. It also rather awkwardly comes around a year after the freedom and choice reforms. People who cashed in and will now receive less state pension than they thought, could develop a serious sense of grievance.
Third, we think people will want time to be able to address the issue. But the concern especially for those near retirement is that they do not have time to adjust. The pension minister and former consumer advocate Ros Altmann have been embroiled in some arguments with the actuaries who issued the analysis and indeed her opposite number Nick Thomas Symonds. But we wonder if a row isn’t brewing with some even more important people – a large number of the general public.