Confusing pension forecasts consigned to the dustbin

Sarah Coles
Senior woman having headache
Senior woman having headache



State pension forecasts are supposed to give you a clear picture of your income in retirement, so you are in a position to plan more effectively and ensure you can afford the lifestyle you were expecting.

Unfortunately, the bizarre decision to include more than one calculation on the forecasts has left many pensioners completely baffled. Finally, the government has seen sense, and decided to ditch the confusing system.

The new state pension forecasts have been sent to around 60,000 people who are set to retire after April 6 next year, when the new flat rate state pension is introduced. However, instead of just showing people a projection of the income they would receive, it showed two figures: what they would get under the flat rate system and what they are entitled to under the current system.

There's every chance this was done in order to show people that they will be receiving the higher of the two figures, but it failed in this ambition, because it simply left many unable to understand which of the projections applied to them.

Pensions minister Steve Webb accepted that the system was confusing. He said in an interview with the FT: "People are saying 'we don't understand why you have given me two numbers when all I want to know is what my new state pension will be from 2016'." However, he added: "Of course if we leave information out and tell people less, then I get slagged off for not really telling people what's going on."

This is Money has confirmed that the change will be complete in the next few weeks, and those who have received confusing statements will be able to request a new one.
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Not such a flat rate

This doesn't necessarily mean an end to confusion for people opening their state pension forecasts, however, because although the flat rate state pension is meant to offer a simple figure for everyone - which is expected to be around £148.40 a week - the sum each individual gets will depend on a number of variables.

Anyone who doesn't have 35 years of national insurance contributions will receive less, so those who interrupted national insurance contributions to bring up children may have a smaller pension. Meanwhile, anyone who ever contracted out of the state second pension (also called Serps) will receive less. This means that around half of all people retiring in the first tax year that the new system is operating will not be entitled to the full payout.

If you're confused about what you might get from the state in retirement, the government will produce an online statement for you, which will show the pension you will be entitled to. If this figure comes as a surprise, consider whether you have the full number of qualifying years of national insurance payments, and whether you have ever been contracted out (this may have been done by your employer so if you are unsure, check with them).

The Department of Work and Pensions is keen to emphasise that nobody will receive less state pension under the new system than they would have done under the old one. However, it doesn't mean you will be entitled to the full flat rate state pension, and if your income in retirement is going to fall short of this, it's worth knowing sooner rather than later.

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