Reposted from Money Mail
New pension was unveiled as a way of ending unfairness and complexity,
But figures imply 100,000 fewer people than expected will get the maximum
30,000 who it was thought would qualify in the first year will get far less
Government figures imply 100,000 fewer people than expected will get the maximum state pension in the first ten years of the new deal
Just one in three workers will receive the full £148 flat-rate state pension next year — far fewer than first estimated, Money Mail can reveal.
Government figures imply 100,000 fewer than expected will get the maximum in the first ten years of the new deal.
This includes an estimated 30,000 people who it was thought would qualify in the first year but will now get far less.
In total, just 222,000 of the roughly 600,000 people who will hit state pension age in the 12 months from April 2016 can claim the full amount.
It is a new blow to a generation of savers who were told everyone would get the flat-rate pension if they had paid their National Insurance contributions.
Malcolm McLean, senior consultant at actuarial firm Barnett Waddingham, says: ‘Some politicians, who should have known better, said we would have a more generous and simpler flat-rate pension scheme,
‘Clearly, the new deal is neither of those things, at least not in the early years. It is unfortunate this has not been properly explained and expectations have been raised that can’t be fulfilled.
‘Many of the people affected will be extremely disappointed. The fact is it will take ten or maybe even 20 years for things to even out and for most pensioners to receive the full flat-rate pension.’
The new state pension was unveiled as a way of ending the unfairness and complexity of the current system.
The Government promised that anyone who had 35 years of National Insurance contributions would qualify for the full £148.
And in 2013, Work and Pensions Secretary Iain Duncan Smith said: ‘The single-tier pension will mean people have certainty in what they can expect from the State.
Thirty-five years’ worth of National Insurance contributions will mean a full basic state pension.’
However, Money Mail reported in May last year this would not be the case and hundreds of thousands would lose out.
The problem generally affects employees, who, at some point in their working life, opted out of receiving extra benefits such as the state second pension. In exchange, they were allowed to pay a reduced rate of National Insurance. This was called contracting out.
Typically, they had generous final salary pensions. However, some workers in stock market-linked company pensions were also encouraged to contract out.
Now the Government has decided because they paid lower NI contributions and are likely to have built up extra pension elsewhere, they should lose some of their new state pension.
Following the Money Mail probe, former pensions minister Steve Webb apologised and admitted only 42 pc of those retiring in the first year of the flat-rate pension would get the full payment.
This data given to us in June last year projected the number of pensioners who would qualify for the full amount every year until 2040.
It revealed that only from 2018 would more than half of new pensioners receive the full amount.
But current pensions minister Baroness Ros Altmann has revealed this estimate was too high.
We have seen Department for Work and Pensions figures which show just 37 per cent will be able to claim the full amount, meaning 30,000 more than first thought will not.
In the third year of the new state pension, the Government had estimated 52 pc of savers would qualify for £148 a week. Now it says the figure will be just 46 per cent, meaning an extra 36,000 who retire from April 2018 will not get the higher rate.
In total, between 2016 and 2026, 102,000 extra savers will miss out.
There is some good news for those in their 50s, however. Initial estimates of those who would claim the full amount are too low and 10,000-15,000 a year more may now qualify.
But by 2060, an estimated one in seven retiring that year still won’t qualify for the full amount.
Experts said the miscalculation may be due to the fiendish complexity involved in working out who is entitled. Initially, it was thought the deduction for contracted-out years would only equal those in which the reduced rate of NI had been paid.
So someone who worked 35 years but contracted out for five would be left with 30 years of full contributions.
And someone who had contracted out for five years, but had 40 years of full-rate contributions, could still claim the full amount.
But it has emerged this is not the case. Instead, the Government is assuming a certain amount of pension has been built up with the money that would have paid the extra NI contribution. It is then using a set of assumptions to deduct this from the full state pension.
The Government promised that anyone who had 35 years of National Insurance contributions would qualify for the full £148
Many in their early 60s have found they will get far less than expected.
Some have the 35 full years of NI contributions but face deductions to their state pension despite contracting out only briefly.
The DWP seems to be assuming that if someone contracted out, they did so for the rest of their career. It says those who contracted out benefited from lower NI payments and could make provision for their retirement elsewhere.
Tom McPhail, head of pensions research at investment firm Hargreaves Lansdown, says: ‘The link between the National Insurance contributions people pay into the system and their impact on the new flat-rate state pension entitlement appears to be very tenuous.’
A DWP spokesman says: ‘We revise these figures each year to reflect latest assumptions.
‘However, what people get from their state pension does not give the full picture.
‘People who spent time contracted-out either paid NI contributions at a lower rate, or some of the NI contributions they paid were used to contribute to a private pension, which they will also benefit from when they retire. Both state and private pensions need to be taken into account.’