Twelve million pensioners to lose out when credits are scrapped
Experts warn of a two-tier system that will last for 30 years. Chiara Cavaglieri and Julian Knight report
Sunday 10 April 2011
Anger is growing over the coalition's overhaul of the state pension system.
The plans outlined in a Green Paper last week will see means-tested pension credits scrapped and a new flat rate state pension paying an estimated £155 a week introduced in 2015. However, pensioner groups are furious that the new scheme will not be open to 12 million people who are already retired or are set to collect the state pension before 2015.
"It is breathtaking the way in which the Government has abandoned those who have spent years contributing to our society, by excluding them from plans to raise the state pension," says Dot Gibson, teh general secretary of the National Pensioners Convention (NPC).
This will create a huge divide between today's retirees, who will be stuck with the current system, and everyone else who will, in the main, benefit from a higher pension income based on a far less complicated model. Steven Baxter, longevity consultant at Club Vita, calculated that based on current trends, we will have to wait until 2027 before half of pensioners are receiving the new pension and 2042 before 90 per cent of retired people are. "That means we will have at least 30 years of a two-tier system that could provoke uncomfortable envy among current pensioners," he says.
This disparity will see one tier of existing pensioners on a full basic state pension receiving only £102.15 a week (as of 6 April 2011), and another tier of pensioners earning around £155 under the new system as long as they have 30 years of National Insurance (NI) contributions.
There are some high earners who will be wishing their state pension birthday falls before the new system comes in – in fact the figures from the Department for Work and Pensions (DWP) highlight that 1.5 million pensioners receive a state pension of at least £150 a week, many of whom qualify for earnings-related top-up payments from the state second pension (S2P). However, for those who do not currently qualify for the full basic state pension, many of whom will be women, the gap when both systems are running side by side will be even more apparent.
Women on average get about £40 less state pension than men, according to recent figures from the DWP. Women tend to have lower earnings and are less likely to build up enough qualifying years to get the full basic state pension, not least because many spend long periods out of work caring for children. Reforms are in place to address this inequality, including more generous credits for carers, but the DWP has said it will take until 2020 for the proportion of women qualifying for the full amount to catch up with men.
"The real losers will be the millions of older women who don't have a full state pension record, but would benefit from these changes," Ms Gibson said.
The self-employed are another group who suffer under the current system. At the moment, those who work for themselves are not entitled to the S2P because they pay reduced NI contributions, but under the new proposals, the S2P will be scrapped and everyone is in a position to build up as good a pension as everyone else. The only drawback will be a potential NI hike to bring self-employed rates from 9 per cent up to the 12 per cent most workers pay, although this has yet to be decided.
Another significant problem with the current system is that although almost half of all pensioners (45 per cent) are entitled to the means-tested pension credit, about one-third fail to claim it, equating to up to £2.9bn of unclaimed cash in 2008-09. Many find the system for claiming this welfare too complicated, or are hesitant to go through the process of declaring exactly what they have or haven't got. But if we do see a £140 state pension for all in 2015, this will automatically take it above the £132.60 guaranteed income that pension credit currently offers.
It seems that for anyone worried about missing out on the new state pension, either because they are already retired or will be soon, the message is tough luck – and hope for proposals for changes that existing pensioners might benefit from.
"The issue here is that this will be a really good system for future generations of pensioners – it's what we should already have – but the Government is saying it's only going to do it for future pensioners, otherwise it can't do it at all," says Dr Ros Altmann, director general of Saga. "It's what we're stuck with, but I do hope the Government may find a way to improve things for current pensioners because it's clearly not good enough."
In the meantime, there are other ways to boost a pension; those nearing retirement should think about topping up their pension now to try to get the most out of it. For many it will also be worthwhile putting off claiming the basic state pension and continuing to work instead which increases the weekly allowance by 1 per cent for every five weeks. Another option is to buy back missed years of NI contributions to fill gaps of up to six years in order to be eligible for the full state pension.
"I hesitate to say buying back extra years because you just don't know what you're going to get at the moment, but do look at what tax breaks you could take advantage of and think about sheltering money in an individual savings account (ISA) ahead of retirement," says Tom McPhail, a pensions expert at Hargreaves Lansdown.
Will your credit card rewards be scrapped following new EU rules on charges?
Overdue tax returns: You have until 30 April to get last year's forms in or face additional fines
What would happen if you put a statistician in a casino with £1m?
Simon Read: 'The fight must go on over equality on expat pensions'
Pension freedoms: How to deal with cold calls from scammers
- 1 Student jailed for hacking University of Birmingham computers to improve his grades
- 2 Smartphones are making children borderline autistic, says psychiatrist
- 3 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 4 Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
- 5 The most powerful passports in the world
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
Day In a Page
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms