Hymans is one of the very few organisations to put out any material that explains the way single-tier pension will negatively affect millions as its implementation approaches, so the idea the pensions minister should single the consultancy out with accusations of misleading the public and scaremongering to generate publicity is worrying.
Truth is of course the first casualty of war, and with so many losers, the DWP clearly has a battle on its hands bringing this policy into being. I gave up expecting truth from the DWP on these changes a long time ago.
The Hymans research in fact only scratched the surface of the extent to which certain groups lose out. Low earners who have been contracted in all their working lives, and there must be millions of them, will lose around 23 per cent of their state pension as a result of this change. Scary, not scaremongering, given that state pension will be the principal source of income in retirement for most in this group, many of who will find their auto-enrolment pension will not replace what they are losing under single-tier.
It comes down to simple maths – every single contracted in worker with a relatively full work history loses, even those who are 64 in 2016. Under the current system, anyone earning between £5,564 and £14,700 can build up a state pension of up to £192.45 a week, or £10,007 a year (2012/13 figures), unless they have been contracted out. Under the new regime they will be entitled to a maximum of only £144 a week under 2021/13 figures or £7,488 a year – nearer £151 when it comes in. That is a fall of 23 per cent.
Another way of looking at the scary truth is the Office for National Statistics figures. Before they were mysteriously dropped a couple of years ago, ONS Pension Trends data showed the average contracted-in male retired on £164 combined basic and secondary pension in 2011. That would equate to around £187 this year and over £190 in 2016. There is clearly something for future retirees to be concerned about, yet they have not been told.
The one thing you could say about the recent Hymans research is it does not emphasise the extent of contracted in losers. But Hymans has done so in the past and has been virtually the only consultancy to go out on a limb on this. Last year it furnished me with stats I ran in a Guardian article that showed Prime Minister David Cameron and Altmann’s predecessor Steve Webb around £43,000 better off as a result of the changes, while a contracted in worker of the same age is around £35,000 worse off.
Of course there are winners from the new system – many women and the self-employed. What Altmann doesn’t mention is any of the losers, and the extent to which the contracted out, who by definition already have pensions, are also big winners.
From April 2016 the population will be divided between capped contracted in workers, paying NI until they retire for no extra pension, and non-capped contracted out workers, who carry on accruing state pension. The Pensions Bill allows anyone below the cap to carry on accruing state pension at the incredibly generous rate of £4.11 per week for each year of contribution.
So a contracted out individual 10 years from SPA in April 2016, who has a foundation amount of full basic state pension of £115.95 (2015/16), will be able to build up the full £151, meaning they will retire on exactly the same state pension as the individual of the same age who trusted in the contracted in system all their life.
But unbelievably, the contracted out person will get to keep their contracted out pot as well, possibly £80,000 or even more – free money the government is giving them to take as cash if they wish, a reward for not trusting the state. And that is without even mentioning the pension they will get from their own contributions, those of their employer and the tax relief they have received on top from the State. People talk about pensions apartheid – well these reforms are about to make it even worse.
Public sector workers are of course big winners, even though they don’t realise it. These wrong-headed transitionary arrangements are such a big giveaway that George Osborne found time to mention them in his 2013 Budget speech – when he played to public sector workers by reminding them that a 40-year old civil servant will pay £6,000 more National Insurance but get £24,000 more pension back in return. Who is paying for that in these reforms that are largely cost-neutral in the early years at least? The least-pensioned workers in the country.
These transitionary arrangements hand cash to the people with pensions at the expense of those without pensions, in a bid to create a pension system that gives those without pensions an incentive to save, even though they are being nudged into saving anyway. But the pensions they save into will not replace what they will lose in many cases.
Rather than Hymans misleading the public, it is Altmann’s own department that is doing so. Altmann’s own communications campaign, launched on September 19 under the tagline ‘our state pension is changing’ included a rose-tinted statement that 650,000 women will be better off under the new rules, but did not make any reference to any of the millions of losers under the new regime – let’s hope the campaign does, but I somehow doubt it. Hymans’ report pointed to winners and losers. If anyone is guilty of using selective facts to mislead the public, surely in this case it is the minister and not Hymans.
The DWP has been guilty of all sorts of Orwellian doublespeak and opacity over these reforms. It refused a Corporate Adviser Freedom of Information Act request for details of the current levels of state pension accrual of different cohorts with the legalese argument that ‘a person does not “accrue” an amount of State Pension – the amount payable is calculated at the time that they reach State Pension age in accordance with the rules in place at that time.’
Altmann’s move from poacher to gamekeeper was always going to be difficult. The plight of the contracted in losers is just the sort of cause she would have taken up had she not been in office. Her six-year unpaid campaign on behalf of 150,000 ASW, Dexion and UEF workers that led to £2.9bn in redress is evidence of an unparalleled tenacity and a principled approach to the defence of the underdog. So shooting the messenger on state pension reform losers – Hymans Robertson – seems uncharacteristic.
But the fact remains that she has taken on the role of implementing this uneven and unfair policy. Attacks of this sort do little for her credibility.