Ministers are not being straight with the public on the consequences of a flat-rate pension says Teresa Hunter
As far as I can see, there is only one group that will lose by the introduction of a flat state pension, the merging of the basic and second-state top-up, and the abolition of contracting out. And that is those working in the private sector earning above average wages, and who work all their lives.
Public sector staff will keep their full occupational pension and get a universal state pension on top. So they will emerge significant winners, compared with their private sector counter-parts.
The DWP has been most assiduous at wooing political commentators. I have marvelled at front-page stories eulogising the payment of pensions to women who stay at home.
They are among the biggest winners from the reform, we are told. Wait a minute. Home Responsibilities Protection was introduced in April 1978 to ensure women who stayed at home received pension credits. The system wasn’t perfect, but it did exist, and was improved by the 2007 Pensions Act.
So wherefore these announcements of a great new giveaway, when it has existed for more than 30 years, and was so recently radically improved? To quote the Bard, every wherefore has a why.
The why bit I can answer. It is true, that stay-at-home mums will benefit a bit more from the reforms, because they will get the equivalent of an earnings-linked top-up for the first time.
But it is a lie to suggest this is their first opportunity of any state pension. And the bigger the lie, the bigger the secrets they are designed to conceal. There are two big cover-ups going on, it seems to me, and both are working to the detriment of workers on average and above earnings in the private sector.
First, those in final salary schemes will face a financial penalty when they are forced to rejoin the state system.
In theory, about eight million workers and their employers still participating in final salary schemes, will be worse off when contracting out is finished and they are compelled to rejoin the state pension.
An employee NI rebate of 1.4 per cent will end, costing someone on average wages £276 annually, raising £2.5 billion for the Treasury. However, employers will also lose a valuable 3.4 per cent rebate.
But the bulk of those affected will be public sector schemes, which account for more than five million of those still covered by final salary arrangements.
Most advisers expect the much smaller number, slightly over two million, of private employers still running these schemes to either close them, or slash benefits accordingly.
They will say to staff, you are going to get a bigger pension from the state so you do not need so much from us. Our rebate has been cut, so we will move from a sixtieth accrual, say, to an eightieth.
So far so good. Yet when it comes to the public sector, the employer is the taxpayer, represented by Government. Ministers have promised unions that the latest public sector pensions agreement will not be unravelled again for 20 years. This means that no such reduction can be envisaged. In other words, public sector staff will keep their full occupational pension and get a universal state pension on top.
So they will emerge significant winners, compared with their private sector counter-parts.
The other unfairness will come as employees are forced to wait ever longer for their pensions, as pensions ages rise. They could end up paying NI for 50 years, yet receive no additional investment in their pension after 30 years. That will be 20 years of contributions down the drain.
Fortunately, this is all so complicated Government will probably get away with it. I haven’t, for example, seen any actuarial estimates that put precise numbers on just how much these salt-of-the-earth employees are losing out.
Simple numbers always concentrate minds. If any friendly number cruncher would like to supply them, they will be gratefully received.
Certainly, the TUC isn’t rushing to push them out. I wonder why?
Teresa Hunter is a freelance journalist