TUC: Pension changes will make millions worse off

 
money in hands State pension changes will leave some people with less money in their hands, and some with more

Millions of people currently entitled to the state second pension will be worse off as a result of the government's pension changes, the TUC has claimed.

The report says that anyone with a long working history is likely to lose out, by as much as £2,000 a year.

The second state pension will be abolished when the new single-tier pension begins in April 2016.

But the government said the changes will make most people better off.

Around 20 million Britons are currently part of the state second pension scheme, introduced 10 years ago to boost pension levels for low earners.

The TUC report suggests that the "vast majority" of them will get less money when they retire.

"Many low and middle-income private sector workers, particularly those several decades away from retirement, could be thousands of pounds a year worse off in retirement," said Frances O'Grady, the TUC general secretary.

The Trade Unions support the principle of the single-tier pension, but want it to be raised from the current notional level of £144 a week.

'Better off'

However, the government said that most people retiring after 2040 would be better off with the new pension over the course of their retirement.

"The flat rate will provide a fair base, set above the basic level of means test, helping people to know how much they need to save for the kind of retirement they want," said a spokesman for the Department for Work and Pensions (DWP).

A report by MPs on the Work and Pensions Committee in April 2013 supported the idea of the new single-tier pension, but said the government needed to be clearer when explaining it to the public.

The MPs concluded: "It will mean more state pension for many people, particularly low-earners, in the short to medium term."

But a previous report from the Institute for Fiscal Studies (IFS) found that people born later than the mid-1980s would be worse off when the single-tier pension was introduced.

It said that low earners could be £1,000 a year poorer, while high earners could lose £2,300 a year.

New State Pension

  • Begins April 2016
  • Paid at a flat rate
  • Replaces second state pension
  • Worth £144 a week
  • Needs 35 years of contributions

But on average, it concluded that women would be about £270 a year better off and men would be £81 better off.

Low earners

The TUC study claims that anyone on a median income of £26,000 a year, and who has a full employment record, will be worse off as soon as the new pension is introduced.

Such a person retiring in 2030 would receive £1,500 a year less than under the current system.

Someone retiring 10 years after that would be £2,000 a year worse off.

Low earners, on an income of £10,000 a year, will be better off if they plan to retire soon after the changes are introduced.

But such people retiring in the 2040s will be up to £1,700 a year worse off.

Pensions expert Malcolm McLean, of consultants Barnett Waddingham, said the TUC report was broadly correct.

"It was always the case that there would be both winners and losers from the new scheme which the Treasury had dictated had to be introduced at no overall extra cost," he said.

"The real message for young people in particular is to try to build up for themselves a private pension to supplement the state pension," he added.

And the government argues that it is doing a lot to help people save through private-sector pensions.

Under its auto-enrolment programme, employers have to sign people up to their pension schemes, unless they choose to opt out.

In the last year, it says that 1.4 million people have been signed up to workplace pensions as a result.

 

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  • rate this
    +3

    Comment number 444.

    @ Parallel 431
    If you can listen to the radio 4 programme 'who pays for the city?' from last week you may perhaps accept that any tax Gordon Brown introduced has had minimal effect compared to the effect of fees and churning. Also when GB introduced the tax many priv sector employers were on 'contribution holiday' ie they were not paying in as they believed the funds were in surplus.

  • rate this
    +2

    Comment number 443.

    for 430. JasonEssex

    You know that putting money aside for a pension in an approved scheme run by a clown in a suite if tax free. (comes off of you income before you pay tax.)

    Whereas saving yourself from your after tax income for the same thing and you land up paying up to 50% tax + NI. This huge advantage the pension firms get is UNFAIR!

    ALL savings should receive the same treatment!

  • rate this
    +1

    Comment number 442.

    My father told me over 60 years ago not to trust any government & don't bother voting because nothing changes. The only people who can alter things for the better is we ourselves through hard work & a bit of practical intelligence. It remains as true now as back then. I don't want anything from anyone. Much simpler & more reliable to take charge of your own life and either prosper or fail.

  • rate this
    +1

    Comment number 441.

    405 Alasdair - the value of your state pension benefits already accrued under the current rules will be compared to the new flat rate. If you would be made worse off, you will be given a higher "foundation amount" at the time of the change in 2016, so you will get more than the basic flat rate when you retire - I recommend "The single-tier pension: a simple foundation for saving" (DWP).

  • rate this
    +2

    Comment number 440.

    "Ackwern
    For every net exporter there must be a net importer, unless a perfect balance is acheived, so there are always winners and losers"

    Aha, the "zero sum game" version of economics. If that were true, we would not have the progress we see. Comparative advantage models instead result in countries exporting things they have an advantage in and importing things they don't in a virtuous circle.

  • rate this
    -3

    Comment number 439.

    People are rattling on about the future problems with the increased old age pensioners. They've forgotten that the birth control measures from the 60's actually mean that after peaking in the next few years the old age pensioners will actually be reducing in numbers to reflect more realistically in the proportions of the population.

  • rate this
    +3

    Comment number 438.

    If all the money I paid in had been invested properly I would now have real money to live on. As it is, because of an arbitrary cut-off date I will only get a pension of £114 a week.

    £144 a week.... Luxury!

  • rate this
    0

    Comment number 437.

    48.Paleo

    Please engage brain before posting, theres a good boy!

  • rate this
    +4

    Comment number 436.

    35 years for 144£/week?!!!!!!!!!!!!!!!!!! Time to leave this country and head home.....1st world country became 3rd world country....

  • rate this
    -3

    Comment number 435.

    The only true statement made by New Labour was Liam Byrne saying "there`s no money left". Public Sector and State Pension liabilities are not even included in the national debt figure. Demographics will aggravate the problem. My generation and younger generations are stuffed. There will be nothing left but political lies and debt..

  • rate this
    +10

    Comment number 434.

    I've written to FSA about why pension statements don't report annualised % fund performance. It's a huge misreporting scandal.

    We're quoted past/current value in absolute £, with future growth in relative % terms.

    If you do the sums & compare your fund's % performance to the LOWEST % growth forecast, you'll be shocked.

    SCANDALOUS to hide the truth from us, whose money it is.

    CHANGE needed.

  • rate this
    +2

    Comment number 433.

    Pay back student loans, save for a mortgage, pay for the mortage and now make your own pension arrangements.

  • rate this
    +4

    Comment number 432.

    I feel completely conned and ripped off, if i had taken the option that was available to opt out of SERPs i would of still had my money in another private pension fund. But now i have nothing, if anything, im now subsidizing those who opted out of SERPS and still have there private Pension. When are those who work all there lives taking nothing out the system going to be treated fairly?

  • rate this
    +3

    Comment number 431.

    417. RobinTheBoyWonder
    One of Gordon Brown's early moves when he became Chancellor in 1997 was to introduce the taxing of pension fund profits to raise £5bn per year of extra revenue for the government. That is £100 Million PER WEEK coming out of UK pension funds for the last 16 years.
    __
    And has been reversed recently?

  • rate this
    0

    Comment number 430.

    399.John_from_Hendon
    "have the same tax breaks when saving for a pension as those insides of the bankocracy?" Would you expand on that? I worked in the CoL for over 20 years,now work outside of it and I receive the same tax breaks. As far as I'm aware there are no extra tax breaks, unless you know differently?I suspect you are trying to deflect the fact Brown destroyed private pensions for many.

  • rate this
    +5

    Comment number 429.

    Visitor900 " labour who took £17,000 from every private pension by axing the relief paid on dividends?!"

    I doubt it was that much: it made a reduction of less than 1% in annual growth: significant, especially over a long period, but the pension "holidays" of the 1990s, the massive fall in annuity rates and the poor stock market growth since (FTSE still below 2000 peak) have had greater impact.

  • rate this
    +5

    Comment number 428.

    415. benkenta "save up your own pension and you have nothing to complain about"

    Well that could be true - if the idiots at the Bank of England raised interest rates to normal levels - then it would make sense.

    However, at present you need FOUR or FIVE TIMES as much to get a sensible pension as you have done at any time in the last 300 years, as the idiots at the BoE chose to bail out the banks!

  • rate this
    +3

    Comment number 427.

    @417.RobinTheBoyWonder
    One of Gordon Brown's early moves when he became Chancellor in 1997 was to introduce the taxing of pension fund profits to raise £5bn per year of extra revenue for the government.

    What effect has that had on annuity rates being offered to retirees?

    ---

    None. Annuities are tied to gilt rates.

  • rate this
    +1

    Comment number 426.

    Not everyone has in the course of their working lives, had the means to save for an uncertain future, so pundits using this as an hindsight argument are really missing the point! This is about what is happening now and in the future!
    Do we allow these incompetent government managers to carry on with this farce or do we use our vote?

  • rate this
    -3

    Comment number 425.

    They should have saved more from their earnings or took out a private policy. Why should I subsidise them?

 

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