- January 14, 2013
- Posted by: Owen Smith MP
- Category: Latest News
A radical shake-up of state pensions unveiled today will bring “clarity and stability” to the system – but could leave up to half of pensioners worse off by 2060.
High earners and recent immigrants will be among those hit by the government’s plans to reform the pensions system.
Ministers said their proposals would simplify the current complicated system and particularly benefit women, low earners and the self-employed, with a single flat rate state pension, equivalent to around £144 a week in today’s money, introduced for new pensioners from 2017.
But the Government’s White Paper revealed that a number of people will lose out.
Under the new system, around one in five people reaching state pension age after 2017 will be better off, less than one in 10 will be worse off and the others will see no difference.
But the proportion who will be worse off will rise rapidly, with more than half of people reaching state pension age after 2060 left worse off. The majority of these will be worse off by more than £2.
The sweeping reforms won a guarded welcome yesterday from groups who hope that years of confusion will come to an end.
A leading think tank warned that women who take time off to care for children could end up worse off and Labour and the TUC had concerns about the plan to establish a “single tier” pension worth £144 a week.
However, Age Cymru said it was an opportunity to lift up to 100,000 people out of poverty.
Graeme Francis, the charity’s head of policy, said: “The UK Government’s proposals for a single tier state pension could help transform retirement for future pensioners, bringing clarity and stability to a system which is complicated and unfair. Paying the state pension at a flat-rate should help people to plan for their retirement and the new proposals will also provide people who have gaps in their working lives – often women who have taken time away from work to raise children, with a fairer income.
“Age Cymru feels this is also an opportunity to lift up to 100,000 older people in Wales out of poverty by paying them a reasonable income, without them having to apply for additional means-tested top-ups such as pension credit.”
To qualify for the flat-rate pension, due to be introduced in April 2017, people must make 35 years worth of National Insurance (NI) contributions.
The changes are intended to help the 4.2 million self-employed people who do not qualify for a full state pension.
But Shadow Welsh Secretary Owen Smith said he was concerned for the welfare of the 84,000 people in Wales he said received a pension higher than the level proposed by the Government.
Arguing that they could lose at least £10 a week, he said: “We will need look very carefully at these proposals as there is a risk that thousands of hardworking people across Wales who have paid contributions throughout their life will lose out.
The highly respected Institute for Fiscal Studies also acknowledged there will be winners and losers, noting that “in the long run, the reform will not increase pension accrual for part time workers and women who take time out to care for children.
“In fact, in common with almost everyone else, these groups would end up with a lower pension at the state pension age under the new system than they would do under the current system.”
It concluded: “Overall, the proposals expected in today’s White Paper look like they will bring about a welcome simplification.
“However, it is important to be clear that – while there will be a fairly complex pattern of winners and losers from the reform in the short-term – the main effect in the long run will be to reduce pensions for the vast majority of people, while increasing rights for some particular groups (most notably the self-employed).”
However, Conservative Welsh Secretary David Jones said: “Today’s announcement will create a state pension system in Britain that it is fit for the 21st century. By the mid-2030s, over 80% of people reaching State Pension age will receive the full amount of single-tier pension.
“Those set to benefit from the changes include women and carers who, to date, have been penalised under the existing system for taking time out to bring up a family, or to care for a family member. Self-employed people are also set to benefit from the new single tier system which will now properly recognise their National Insurance contributions.
“It is clear that people are now living much longer. The changes announced today reflect the lives and contributions of today’s workers and will allow people in Britain to better prepare for their retirements.”
Sarah Rochira, Older People’s Commissioner for Wales, also welcomed the changes, which she said would protect the interests of carers.
“Overall this reform will result in a system which is simpler, fairer, and gives people an incentive to save for their retirement,” she said.
“The current system is amongst the most complicated in the world, and even many pensions experts will tell you they don’t know what their income will be on retirement.
“Older people don’t want that uncertainty.
“It will be fairer, particularly for women who have historically missed out on receiving the maximum state pension because of breaks in their career to raise children and care for family members.
“Now no-one should be penalised for being a carer, or putting others first. However, current pensioners may be left feeling that these reforms leave them behind, still struggling with the complexities and unfairness of the present system.
“Even people facing retirement shortly after the reforms begin in 2017 cannot be guaranteed the full flat rate state pension if they have not made the required contributions. “The Secretary of State for Work and Pensions has said he believes future generations of pensioners should receive the flat-rate pension but not need any additional benefits.
“A world where the state pension is so generous that older people need no additional help is a long way from being a reality for the 110,000 older people in Wales who live in poverty, and the over half of older people in Wales for whom the state pension is their main source of income.”
“The director of the Institute for Fiscal Studies has said that most people will actually be worse off under the new system by the time it has bedded in. VAT increases, inflation, and low interest rates, mean older people today are already finding that the money in their pockets doesn’t go as far as it used to…
“So in the long term it’s far from clear that this reform means future older people will be better off. Nor will it mean the end of those hard decisions about how to make ends meet, like whether to heat your home or eat.”
Liberal Democrat Cardiff Central MP Jenny Willott welcomed the reforms, saying: “People who have contributed, either through paid work or caring or in some other way, should be guaranteed a pension clear of the basic means-test, and one that gives them security in retirement. That is what Liberal Democrats have been campaigning for decades to deliver, and in coalition we are delivering these radical plans so today’s workers can retire on a single, simple, decent pension.”
Ceredigion Lib Dem MP Mark Williams said: “It will value unpaid caring work as much as a high-flying job, and for the first time will bring those who are self-employed into the state pension system.”
Plaid Cymru Arfon MP Hywel Williams MP said: “I welcome the Government’s intention to abandon the complexity of the current system and the over-use of means-testing. It is particularly good news that women who have taken career breaks to have children and the self-employed are set to benefit.
“The Welsh economy is made-up of small and local business run by hard-working entrepreneurs and any move to offer them greater security is a positive step. Pensions offer security and stability for people as they approach later life and often face vulnerability in one form or another…
“Unfortunately these plans won’t help those who are already pensioners and particularly those who already find themselves in poverty. Also, many of those who will be covered by the scheme will have to pay higher National Insurance Contributions, for longer, before they collect their pension, so may not benefit from these plans as they should.
“I am also concerned that the proposed £144 a week will be far too low given the soaring costs of daily essentials such as food and fuel, and especially given the Government’s decision to cut the Winter Fuel Allowance by £100.”
Frances O’Grady, the TUC general secretary, said: “[We] are extremely concerned at the impact on both public and private sector employers who will face a big 3.4% increase in national insurance contributions. Unless public sector employers are compensated for this, it will lead to big cuts across public services and, in particular, could derail the local government scheme proposals where councils are already under extreme financial pressure.
“In the private sector the government needs to ensure that this does not lead to further scheme closures.”
Neil Carberry, CBI director of employment and skills policy, also had concerns.
He said: “The changes will only be acceptable if employers with defined benefit schemes are not left worse off.”
Prime Minister David Cameron insisted the reforms were “fair”.
He said: “This will help a lot of women and a lot of lower paid workers who otherwise wouldn’t get a decent state pension… I think it’s fair to ask people to work a bit longer as we are all living longer.”
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