Pension shake-up bad news for the young, top economists warn
The "vast majority" of people will be worse off under a radical shake-up of the pension system, leading economists have warned.
Ministers yesterday said the new flat rate of £144-a-week will see low-paid workers, the self-employed and women in a better position than they are now.
Following the publication of a pensions White Paper yesterday, the Government said the "single tier" pension would make it easier for people to plan for old age.
But the Institute of Fiscal Studies warned the current system will hit people retiring in 30 or 40 years' time and from then onwards, meaning younger people would lose out.
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The simplification was broadly welcomed by Adrian Sanders, Liberal Democrat MP for Torbay, which boasts a large and growing retired population.
He said: "The worrying fact is that for many, the state pension is often not enough to live on.
"It's also so complicated people working today don't know what they will get in retirement and it discourages them from putting anything aside.
"Pension reform is vital if we are to build a stronger economy and a fairer society."
In today's money the pension will be worth £144-a-week, based on 35 years of National Insurance contributions. The reform will be introduced for new pensioners from 2017.
The Government has previously announced people will have to work longer before drawing the state pension.
But around six million workers, mainly in the public sector, will now face higher National Insurance payments – though they will get a higher state pension.
Ministers were keen to champion the reform which means the current system of add-ons, means-testing and a second state pension will be replaced.
In particular, they say women will receive a full state pension in their own right – meaning those who take time out to care for children will no longer suffer in retirement.
In the Commons yesterday, Sarah Newton, Conservative MP for Truro and Falmouth, said as a woman in her 50s who stopped work to bring up children she welcomed the change.
The IFS said it welcomed simplification but in the long run the main effect will be to "reduce pensions for the vast majority of people" while increasing rights for some particular groups, most notably the self-employed.
And the Government's White Paper conceded more than half of people reaching state pension age after 2060 would be left worse off. The majority of these will be worse off by more than £2. The reform was immediately condemned by the National Pensioners Convention (NPC) as a "con trick" for future generations.
It argues people currently only need to contribute for 30 years in order to get a full state pension of £150 a week when retiring at 65.
NPC general secretary Dot Gibson said: "Future generations of pensioners are being asked to pay an extra five years' worth of National Insurance contributions, work longer before they can retire and end up with less than they can get today.
"What the Government is trying to sell is a plan for people to pay in for 35 years, get £144 a week and have to wait at least until 68 before they can collect it. No one should be taken in by what is little more than a con trick."
Official figures show an extra 244,500 people will be over 65 living in Devon and Cornwall by 2033 – bringing the retirement population to 643,600. Pensions Minister Steve Webb said high earners will be among those whose pensions will be affected by the changes, adding there were "far more winners".