- 58% of workers retiring in 2016 will get less than the promised £155 a week
- Women will be worst affected and anyone who spent years saving into a final-salary pension
- Teachers, nurses, servicemen and civil servants could also be hit by the shortfall
Around six in ten workers will miss out on the full £155-a-week new flat-rate state pension when it is introduced in 2016, Money Mail can reveal. Despite Government promises that anyone who stayed in employment their whole working life would be able to get the full state payout, official figures show that just 250,000 men and women will receive the maximum weekly amount. In total, 58 per cent of workers retiring in 2016 will get less than £155. More than two decades after the scheme is introduced, one in five will still fail to qualify for the full weekly payout.
The revelation will be a blow to millions of people in their early 60s who have no time to build up extra qualifying years for the new pension.
The worst affected will be women, and anyone who spent years employed by a company that allowed them to save into a final-salary pension. They won’t get the full payout because they were allowed to pay reduced National Insurance contributions as they ‘contracted out’ of the second state pension.
It will also hit teachers, nurses, servicemen and civil servants.
Today, Money Mail can also reveal that every worker is to get a personalised statement showing precisely how much they will receive in the new pension.
The figures are now being calculated by the Department for Work and Pensions (DWP) and will be available in the autumn for the first 2.5million men and women who hit state retirement age after 2016. This will be the first time workers will see just how much they’ll get — but many will be sorely disappointed.
Pensions Minster Steve Webb told Money Mail: ‘I am sorry if the message people have been getting has not been clear enough. For the sake of simplicity and to help people get a grasp of the issue, I have been saying everyone will qualify for the full flat-rate state pension if they had paid 35 years of National Insurance contributions.
‘Perhaps what I should have made clear was that they should have paid 35 years of National Insurance contributions at the full rate.
‘We are going to attempt to make it absolutely clear to people what they will be entitled to, and what they can do about it. And we plan to make a priority for those people retiring in the first five years of the new pension coming in.’
Currently, anyone who has 30 years’ worth of National Insurance contributions qualifies for the basic pension of £113.10 a week. However, many don’t claim the full amount because they had gaps in their employment history.
Women, in particular, are left on far worse pensions. Under the existing system, there are also various top-ups and credits retired people can claim.
But from 2016, a new flat-rate pension will be introduced. You will need 35 years of National Insurance contributions to qualify for the full payout. Though the official figure has not been released, this is likely to be around £155 a week.
When it announced this policy two years ago, the Government said that anyone who had a full National Insurance record would be guaranteed to get the new higher deal. But a fortnight ago, a Money Mail investigation proved this wouldn’t be the case.
Under the current scheme, higher earners could add to their pension by accruing benefits in a top-up scheme, called the State Second Pension (previously known as Serps), which can boost the weekly payout by an extra £165 a week.
Historically, workers in final-salary schemes didn’t claim the State Second Pension because their company pension was so generous. This process is known as contracting out. In return for taking this burden off the state, employees and employers were allowed to pay a reduced amount of National Insurance contributions — most recently for workers, 10.4 per cent instead of 12 per cent.
Now, under the new flat-rate pension, anyone who paid this lower rate will have a deduction made for the years they were contracted out. A hideously complicated equation will be made which involves calculating a ‘Foundation’ amount of pension someone could claim, and then deducting contracted-out years from this sum.
Essentially, it could mean someone who worked for 35 years, but spent 20 years at a company that had a final-salary scheme, being left with just 15 years of qualifying National Insurance contributions for the new pension. How much this would reduce the full £155-a-week pension is not yet clear.
It will be a devastating blow for all those led to believe they would get £155 a week. Many workers also might not realise they were contracted out because this was often done automatically by employers.
In theory, the new pension is supposed to make it much easier for everyone to understand. But because of the complicated calculations over what they can claim, it is almost impossible for ordinary workers to understand what they will get.
Money Mail has been swamped with calls and letters from readers who are utterly baffled. The official figures from the Department for Work and Pensions show just how many will miss out. In 2016, just 42 per cent of pensioners will get the full £155-a-week payout.
The figure rises to 52 per cent in 2018 and 73 per cent in 2026. However, this still means that a decade after the new state pension is introduced more than one in four retired people will be claiming less than the full amount.
By 2040, 83 per cent of workers will claim the full amount. In a bid to end the confusion, the DWP is to give everyone the chance to have a personalised pension statement. They will be able to get this online or over the phone.
The DWP says that — except for very rare cases — even when people aren’t able to claim £155 a week, they will still be getting a bigger pension than they would have been entitled to under the current system.
Personalised pension statements will eventually be available to all workers, but those retiring in the first five years are being given priority.
Source: The Daily Mail