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John Greenwood: Is it my imagination or will real people lose out due to pension reforms?

The pensions minister and DWP select committee seem happy that any losers under state pension reforms are only “notional” losers


Look up the definition of the word notional on the internet and you will find it describes something existing only in theory or in the imagination.

Yet this is how the work and pensions select committee describes the losses of the millions of Britons who will lose a considerable chunk of their retirement income as a result of the state pension reforms.

The W&P select committee’s cross examination of pensions minister Steve Webb earlier this year was more of a gentle warming than a grilling. It is a sad indictment on our political system that the biggest change in our pension system for a generation was held up to such a poor level of scrutiny.

So it is no surprise the select committee’s report published last week has continued to miss the real point behind the single-tier proposals, that the Government’s back be covered against claims of misselling of auto-enrolment pensions.

All people who work most of their life, particularly the low paid, will be considerably worse off as a result of the death of state second pension.

Yet the select committee’s report describes the millions who lose out as notional losers.

The person on £9,000 a year from the age of 16 who would have got almost £200 a week under the outgoing system needs a vivid imagination to believe they are only marginally worse off on £144 under the new system.

Ah, said pensions minister Steve Webb, state pension reform and automatic enrolment into workplace pensions are intended to be complementary policies.

Yet this hard-working individual is already going to be cut out of auto-enrolment as a result of the rising earnings threshold, which will surely rise to £10,000 since Osborne’s latest Budget announcement.

The committee report is not alone in using the kind of doublespeak a George Orwell character would have been proud of.

Webb told the committee “together with automatic enrolment and wider welfare reforms we’re giving lower paid people the biggest incentives to save for a generation.” Or in other words, the pension you were going to get has been cut, so you are going to have to save for yourself.

Yet we all know they will not save for themselves. The Institu’ste of Fiscal Studies said so, the Pensions Policy Institute said so and the behavioural finance bods have been telling us for years why hyperbolic discounting means they will not.

That is not to say we should not try to instill more of a savings culture. We should, by shifting the regulatory balance away from borrowing towards putting money away.

Webb also told the committee that “60 per cent of the lowest income pensioners would be getting more”.

What he did not say was that many of them would be getting £1.30 more, because the new state pension is to be less than 1 per cent higher than the Pension Credit guarantee level. How many, we do not know. I am not expecting the DWP to look into it.

There are too many issues the select committee has failed to analyse altogether. Why no mention of how much, or how little the auto-enrolment pots will deliver? Why no mention of the inequality of people contracted out into personal pensions getting to keep their pots and build up the same state pension as those who stayed in?

And of course why no mention of the massive handout being given to public sector workers?

We all know the answer to that one, yet it seems impossible this report would not even mention it in any of its conclusions, particularly in light of the fact so many of the submissions to the committee referred to it.

In fact, it is such a big giveaway that George Osborne found time to mention it in his Budget speech – when he appeased public sector workers by reminding them that a 40-year old civil servant will pay £6,000 more National Insurance but get £24,000 more pension back in return. But I would never suggest that is what bought the silence of the committee report authors.

Cheer up Mr Contracted-in Low Earner, you’re only a notional loser.

John Greenwood is editor of Corporate Adviser


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  1. This is a surprisingly negative article. Yes, as with any such reform, there are losers in the new system, but there are many winners, too. Why (as under the present system) should there be such a wide distribution of state pension entitlements, when we all pay for the system via our taxes? Making it so that most people get pretty much the same seems eminently fair to me.

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