People in their twenties will have to wait until they are 105 years old to see any benefit from the new state pension proposed by the Government, according to an alarming report from the Institute of Fiscal Studies (IFS).
The extensive report into who wins and who loses from the Coalition’s planned single-tier state pension, due to be introduced in 2016, found that younger people will be the worst hit.
One of the report’s authors, Soumaya Keynes, warned: “For most of those now in their twenties and thirties, the reforms will reduce the state pension income that they can expect to get.”
Ms Keynes used the example of someone born in 1986, earning a low salary, who would be entitled to £21 a week less under the single-tier system than the current state pension.
When future increases in pensions were factored in by the IFS, it found that some people in their twenties could have to wait until 105 until starting to enjoy a income higher under the new system than the one being replaced.
Malcolm Mclean, pensions consultant at Barnett Waddington, said: “This report appears to confirm what many have suspected – that over the longer term the single-tier state pension will create more losers than winners and will produce savings, not increases, in Government expenditure.”
Overall, the IFS concluded that “almost everyone” born after the mid 1980s will lose out through the new system by as much as £2,300 a year.
What’s more, pensions specialists believe the IFS report actually underestimates the financial pain for those in their twenties and thirties. Tom McPhail, from Hargreaves Lansdown, said the plight of younger Britons could be much worse.
“The IFS figures are based on the Government being able to stick to its promise to raise the state pension every year – the so-called triple lock – but I don’t think this is affordable in the slightest,” he said. “In addition, the state pension will probably go up again, if you are retiring around 2030 don’t expect to get any state pension before you are 70.”
However, the IFS did say that some groups would benefit from the reforms, particularly those closer to retirement. The biggest winners are likely to be those with patchy employment records, such as women who have left the workforce to bring up children, the unemployed or those doing part-time and low-paid work. The self-employed are also likely to gain.
But the overriding deciding factor over who wins and loses is age. Pensions minister Steve Webb said the report “reflects that the vast majority of individuals approaching retirement will see a higher state pension over the course of their retirement.”
But for younger people facing both later retirement and a smaller pension, Mr Webb’s words will probably be little comfort: “Younger people will have the advantages of knowing they will get a simple, clear state pension, and when they are employed, have the right to an occupational pension on top.”