The Great Pensions Robbery! Millions worse off under pension ‘reforms’

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Teachers march during a national public sector strike in defence of pensions
Teachers march during a national public sector strike in defence of pensions

MILLIONS of workers will be worse off under state pension reforms, the TUC warned yesterday.

New research published by the TUC found that the vast majority of people currently entitled to the state second pension will get less when they retire as a result of the scheme being replaced by the new single tier pension.

The state second pension was introduced by Labour in 2003 as a way to help low earners and carers get more from the state pension.

Around 20 million people, the vast majority of whom are private sector workers, are currently contracted into the scheme.

The second state pension will be abolished as part of the single tier pension, which comes into effect in 2016.

The TUC research models what the projected retirement incomes of people currently contracted into the second state pension will be under the new single tier pension – which has been set at £144 a week (in 2012/13 terms).

The research includes various income bands, pension contribution levels and retirement dates.

The TUC report shows that anyone with a long work history will lose out under the single tier pension.

While high earners lose most, people on low to middle incomes (£10,000 to £26,000) could also lose significant amounts.

Low earners now in their late 30s will get around £30 a week less than they would get under the current arrangements.

Those set to benefit from the single tier pension, such as low earners and carers, will only be at an advantage when the reforms first take place. In time, their retirement incomes will fall too.

The report finds that a median earner retiring in 2030 will be £29 per week (£1,508 per year) worse off.

The losses will increase over time, warns the report, with a median earner retiring in the late 2040s set to be around £40 a week (£2,080 a year) worse off than they would be under the current state pension arrangements.

A low-paid worker earning £10,000 a year can expect to be £5-10 a week better off if they retire soon after the changes take place.

However, someone earning £10,000 now but retiring in the 2040s will be between £18 and £32 a week worse off.

For median earners with ten years of missing national insurance contributions, for example a woman who has taken a career break to have children, the potential income losses range from £3 to £27 per week, depending on when they retire.

With most workers expected to be auto-enrolled into a workplace pension by 2018, it is expected that private pension saving will plug the gap left by the scrapping of the second state pension.

However, the TUC research shows that even the combined total of the single tier pension and private pension saving will not be enough to match the level of pension received under the current system from the state pension alone.

TUC General Secretary Frances O’Grady said: ‘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.

‘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.’