Millions to lose out under new pension rules

Changes to the state pension will leave millions of Britons as much as £1,500 a year worse off, the TUC has warned

Britons earning an average wage will be £29 a week – or £1508 a year – poorer under new pension rules, the TUC calculates.

The new, single-tier state pension means a long work history counts for a lot less than it does with the current second state pensions.

"The state second pension was designed to give low and middle income earners a much-needed top up to the basic state pension,” said TUC general secretary Frances O'Grady.

"Scrapping it as part of the new single tier pension will mean that 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.”

The new system will come into force from 2016 – it will pay a basic minimum of around £144 a week, a substantial increase from the current £107.45 a week.

But many people will have previously been able to boost their pension to higher than this level using the State Second Pension – which is being scrapped.


"While the Government is right to move towards a simple, single state pension, setting it at just £144 a week is far too low and will mean many future pensioners will be worse off,” said O’Grady.

"The Government should raise the single tier pension rate, and look to raise minimum contribution rates into workplace pensions once auto-enrolment has had time to establish itself, so that fewer people lose out under the Government's pension reforms."
 
Around 20 million workers, mainly employed in private firms, are currently contracted into the state second pension. The TUC calculates low earners in their 30s will get around £30 a week less than they would under the current arrangements.


Losses increase over time, with an average earner retiring in the late 2040s set to be around £40 a week worse off, said the report.

The Government rejects the claims. "Most people retiring by 2040 will be better off over the course of their retirement with the new state pension than under the current system,” said a Department for Work and Pensions spokesman.

“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.”