- 27 March 2016
- Business
PA
Ministers have not made it clear that most people retiring on the new state pension will not receive the £155.65 weekly rate, MPs have warned.
The Work and Pensions Committee said that "failures of communication mean that too few people understand it".
It said 55% of claimants would get less than £155.65, mainly because of contracting-out or contribution gaps.
The Department for Work and Pensions (DWP) said it was committed to ensuring the changes were understood.
'Bungling'
MPs also called for the DWP to write to people who stood to receive less than previously expected and also set up a telephone hotline to deal with their questions.
In January, the committee warned that millions of people may be planning their retirement based on wrong information thanks to government "bungling".
The new state pension replaces the basic and additional state pensions from 6 April. People who are already in receipt of a state pension by that date will continue to receive their state pension under the existing rules.
Under the new state pension setup the amount a claimant receives can be higher or lower than the £155.65 weekly rate depending on an individual's National Insurance record and they will need 10 qualifying years of contributions.
Around one third (32%) are expected to receive more than £155.65 after building up additional state pension under the current system.
By 2040, the proportion of people receiving the full flat rate is expected to exceed 80%, the communication of the new state pension report found.
'Failures of communication'
The government has "managed to muddle" its communications about the reforms "to the point where neither the winners nor losers yet know who they are", the MPs said.
The committee warned that claimants with fewer than 10 years of qualifying contributions, or people who derive rights to a pension based on their spouse's contributions, face receiving less in the early years of the state pension than they would under the current rules.
So too do those who built up something called a Guaranteed Minimum Pension (GMP) between the years of 1978 and 1988.
Many members of occupational pension schemes were contracted-out of the additional state pension, and instead built up a pension through their occupational scheme that was broadly equivalent to the amount of state pension forgone. This broadly equivalent amount was called the Guaranteed Minimum Pension (GMP).
"People with high-value GMPs who reach state pension age soon after April 2016 stand to lose the greatest amounts," said the committee report.
'Different timelines'
Just 13% of people reaching state pension age in the first year of the overhauled system will receive the new flat rate, they found.
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Committee chairman Frank Field said that while the new state pension would "ultimately be a welcome simplification of an over-complicated system" there had been "failures of communication".
"There is no way that communicating changes which affect different groups very differently, over different timelines, should ever have been left to general awareness campaigns or happenchance," he said.
"The oversimplified message about the flat-rate amount has left many people unprepared and confused.
"We very much welcome the commitment in the Budget to a one stop 'pensions dashboard', which we and others have been calling for."
Paul Green, Saga's director of communications, said: "Most people make significant financial plans about their future based on what they believe they will get from their state pension and, if inaccurate or outdated, could leave them with little to no time to make up for this government information error."
A DWP spokesman said the new state pension was a "bold move" to create a system that was easier to understand.
"Millions stand to gain from the changes, including women and the self-employed, who so often have lost out in the past," he said.
More information on the state pension is available here.
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