Ahead of today’s Budget, the DWP have confirmed that the new Single Tier State Pension will be brought forward to 2016 as supposed to 2017 as previously proposed.
Chris Noon, Partner at Hymans Robertson, commenting on how today’s announcement regarding The Single Tier State Pension will reduce the pension for most private sector workers, said:
“Only 9% of private sector employees are members of final salary plans. Whilst there is a danger of these changes being the final nail in the DB coffin, the real scandal in these changes is the substantial reduction in State Pensions for the majority of the other 91%.
“The Single Tier State Pension reduces pensions for the vast majority of current employees, including those on minimum wage and part time workers. The savings are then used to increase the State Pensions of the self-employed and rightly the very, very low paid. Furthermore, a quirk of the technical drafting introduces an uneven playing field among current employees, in both the private and public sectors. Millions who have ever been in a reasonable quality “contracted-out” pension scheme will be winners relative to their “contracted-in” colleagues. This is because the current proposals mean that anyone with “contracted-out” pension scheme membership, now or in the past, will in effect get a “second bite at the cherry” when building up State Pension in future. The proposed rules mean that a previously contracted-out worker can often earn more State Pension than a previously contracted-in colleague.
“Whilst we’re supportive of the simplification agenda, the Government has developed an approach that penalises the majority of low paid workers, wiping out any gains these employees get from auto-enrolment. Fast tracking reform to 2016 may come at the expenses of proper scrutiny of the consequences, and the current changes need to last 30 years for people to properly plan for their retirement. Further reform at a later date to repair the effects of unintended consequences would not be welcomed.”
John Wright, Partner at Hymans Robertson, commenting on how today’s announcement will also affect the public sector, added:
“The other real losers under these proposals are the thousands of employers providing public services (including schools, charities, councils, police forces and hospitals) and taxpayers. This is because of the increased costs which will fall on almost all employers in the public sector. Such employers were supposed to see reduced pension costs following the reforms which have been nearly three years in the making. It is regrettable that the cost reductions from pension reforms will be wiped out at a stroke by these DWP proposals, due to the higher National Insurance Contributions which public service employers will have to pay.
“Westminster has reformed public sector pensions to make modest savings on the one hand, only to take these away and add further costs with the other. Unless the pension reforms are amended, to counteract the added costs from these DWP proposals, then public services will suffer further.”
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