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Millions ‘to be worse off’ under new state pension rules, warns TUC

 

Millions of workers will be worse off when the flat-rate single tier pension comes into effect in April 2016, a new study has warned.

 

According to the TUC, the majority of the 20 million workers contracted into a state second pension will receive less money when they retire.

 

The state second pension was introduced in 2003 as a means of boosting the income of low income earners. However, the new system will bring an end to various top-up payments and see pensioners receive a single payment worth around £144 a week.

 

As a result, the TUC claims that someone on an average income of £26,000 with a full employment record could lose £29 a week, or £1,508 a year, if they retire in 2030.

 

The report also warns that the losses will increase over time, with a median earner retiring in the late 2040s set to be around £40 a week (£2,080 a year) worse off.

 

‘Many low and middle-income private sector workers, particularly those several decades away from retirement, could be thousands of pounds a year worse off in retirement,’ said Frances O'Grady, the TUC general secretary.

 

'While the government is right to move towards a simple, single state pension, setting it at just £144 a week is far too low and will mean many future pensioners will be worse off.’

 

However, a spokesperson for the Department for Work and Pensions (DWP) insisted that ‘most people retiring by 2040 will be better off over the course of their retirement with the new state pension than under the current system.’

 

‘The flat rate will provide a fair base, set above the basic level of means test, helping people to know how much they need to save for the kind of retirement they want’.

 

Those people already receiving a pension, or those who reach state pension age prior to 6 April 2016, will continue to receive payments under the current system.