'Too few people' understand new state pension, Commons committee warns

Ministers have failed to make it clear that most people retiring on the new state pensions will not receive the £155.65 weekly flat rate in its early days, a Commons committee has warned.

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", MPs said.

Just 13% of people reaching state pension age in the first year of the overhauled system will receive the new flat rate, they found.

More than half (55%) of claimants will receive less than the weekly amount, as a result mainly of contracting out or gaps in contributions, the Work and Pensions Committee said.

Around one third (32%) will receive more after building up additional state pension under the current system, it added.

The proportion of people receiving the full flat rate on reaching state pension age is set to exceed 80% by 2040, the communication of the new state pension report found.

In the early years of the new system, which comes in next month, claimants with fewer than ten years of qualifying contributions, people who derive rights to a pension based on their spouse's contributions and those who built up large guaranteed minimum pensions between 1978 to 1988 face receiving less than they would under current rules, the committee warned.

MPs called for the Department for Work and Pensions to write to people who stand to receive less than previously expected and also set up a telephone hotline to deal with their questions.

Committee chairman Frank Field said: "The new state pension will ultimately be a welcome simplification of an over-complicated system. The problem is that failures of communication mean that too few people understand it. The Government seems to have managed to muddle its communications to the point where neither the winners nor losers yet know who they are.

"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. 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. It is only one part of the answer though. Government must focus on identifying the individuals affected, assessing their potential losses, and communicating with them directly, clearly, and regularly. But nobody should underestimate the challenges of achieving this objective."

A DWP spokesman said: "The new state pension reflects a bold move to create a system that is simpler and easier to understand and millions stand to gain from the changes, including women and the self-employed, who so often have lost out in the past. "We are committed to ensuring that the public fully understands the changes being made to the state pension, that is why we launched a multimedia campaign in 2014, which will continue over the coming months and years."

Saga's director of communications Paul Green said: "It is simply untenable that those approaching retirement can be treated with such disregard when it comes to their pension income.

"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.

"Unfortunately despite commitments from Government ministers that these changes would be well communicated this appears not to be the case.

"It's like history is repeating itself with striking similarities to the shambles that occurred around women's state pension age.

"Government ministers have repeatedly claimed that changes to women's state pension age were well communicated, but the very women themselves knew nothing of these changes. It is surely not too much for those saving for retirement to get fair treatment along with accurate and timely information.

"Perhaps less time should be spent on developing adverts with giant furry pension monsters, and more time on getting the basics right would avoid the monster mess the Work and Pensions Select Committee investigation highlights."