A massive DWP focus on the 21 million losers in the switch to single-tier state pension is needed to allow them to make up the shortfall they will experience says Hymans Robertson.
Responding to the DWP select committee report into communication of the new state pension, Hymans has highlighted the 19 million contracted in workers, 1 million contracted out low earners and nearly 1 million workers contracted out for short periods in the 1980s and early 1990s who are all worse off by at least £1,000 a year.
It contrasts this with the 5 million long-term contracted out, 5 million self-employed and 11 million unemployed or inactive workers who will be better off by around £2,000 a year as a result of the transitionary arrangements.
Hymans Robertson predicts the reduction in benefits – which is focused overwhelmingly on workers will low or no pension savings – will in may cases wipe out benefits from auto-enrolment and lead to greater reliance on state benefits in future.
Hymans Robertson partner Chris Noon says: “We agree with the Work and Pensions Select Committee that the new State Pension is widely misunderstood. Due to the speed of the transition, the redistribution of Government spend on State pensions is extreme. Many people will not know how much they will be entitled to in the near future or the impact this has on their long-term pension position. While the Single Tier pension will go some way towards simplifying a complex system the transition throws up a number of anomalies. Working out who the winners and losers are is incredibly complicated. Individuals will not be able to work out their starting amount – they will need to be told.
“Today’s interim report focuses on the communications to those approaching retirement. While we welcome the sense of urgency it creates in dealing with the issues for those approaching retirement, we also hope that the full report looks at how the new State pension is being communicated to the whole workforce – not just those approaching retirement. This is because the majority will receive less State pension in the new regime than they would have done in the old.
“We see first-hand how much of a savings shortfall two thirds of UK workers face. Around 20m workers will lose out under the new regime. In this context it is vital individuals know how much they will be entitled to so that they have an opportunity to make up the savings shortfall.
“The reduction in State entitlements effectively neutralises and undermines the effects of auto enrolment on the majority of individuals’ pension positions. In that context it’s fair to assume reliance on State benefits will increase in the future. In the interests of sustainability, this puts even greater emphasis on the need for clearer and more targeted communications around reduced State benefits. The DWP has been too broad brush in its approach thus far to raise awareness.”