New state pension: Millions ‘worse off’

April 4, 2016 5:00 pm Published by

Millions of younger workers to be ‘worse off’ under new state pension

  • 4 April 2016
  • From the section Business

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Workers now in their 20s could end up £19,000 worse off over their retirement

More than 11 million workers now in their 20s and 30s will end up worse off as a result of reforms to the state pension, a think tank has saidd.

The Pensions Policy Institute (PPI) has calculated that the vast majority of younger people will get less out of the new system than the old one.

Anyone retiring after Wednesday 6 April will be part of the new single-tier or flat-rate state pension.

The government said young people would benefit from better workplace pensions.

The PPI told the BBC that three-quarters of people in their 20s would lose an average of £19,000 over the course of their retirement, as a result of moving to the new system.

Approximately two-thirds of workers in their 30s would lose an average of £17,000, it said.

However, not everyone in those age groups will lose out. The rest of the workers in both those categories will gain an average of £10,000, according to the PPI.

Winners and losers

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‘Less generous’

In total, the PPI said that 11.4 million younger workers would get less out of the new system than they would have done, had the old system carried on.

This is because of the abolition of the second state pension, otherwise known as Serps.

Under the old two-tier system, workers built up additional savings in the second state pension. This paid an additional income over and above the basic amount of £120 a week.

Younger workers will not qualify for the second state pension, even though they will be paying full National Insurance Contributions (NICs).

Older workers who have already made contributions to the second state pension will see those payments protected.

“I think people would be surprised to find out that there was a state second pension, so I don’t think people are that aware of the top-up,” said Chris Curry, director of the PPI.

“And I think people will be even more surprised to find out that what’s replacing it is less generous.”

For an extensive guide to the state pension change click here.

Case study: Saskia Revell

Saskia Revell, from Hertfordshire, is 32. Under the old system, she could expect to retire on £178 a week, made up of £120 of the basic state pension, and £58 a week under the second state pension. Under the new system she will get £155.

“Just with the cost of housing, trying to get paid enough, and now hearing that the pension is disappointing, it’s quite a shock,” she told the BBC.

Media captionAs changes to the state pension come into place, who will financially benefit, and who will be worse off?


The government said that its reforms were designed to ensure that the state pension remains affordable and sustainable for future generations.

In the long run, the new system will be less expensive for the tax-payer.

The Department for Work and Pensions (DWP) said that young people in particular will benefit from automatic enrolment in workplace pensions.

“It’s misleading to look at the new state pension in isolation,” said a spokesperson for the DWP.

“The truth is that by bringing in automatic enrolment into workplace pensions more young people will have the opportunity to save than ever before.”

Government projections show that, in the first 15 years of the new system, 75% of pensioners will receive more than they would have done under the old system.

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This post was written by FSB News