The single-tier pension white paper cites its first key objective as being clarity. So the news that the public will not automatically receive a statement of their individual foundation pension amount is surprising to say the least.
Most pension professionals had assumed that everyone would be told what their foundation amount will be when the new system comes into place in two years time. But in a written answer to Parliament the Department for Work and Pensions has outlined a system whereby people will be expected to contact the Government if they want to find out what their foundation amount actually is.
Calculating the pensions benefits of 30m or so Britons and writing to them all was always going to be a mammoth task – imagine the number of enquiries that would be raised by such an undertaking, let alone a very expensive trip to the Post Office – so I can see why the DWP is looking to keep its workload down to a minimum. Yet this reform was meant to be all about certainty. So are they throwing the baby out with the bathwater or deliberately keeping the public in the dark?
Teresa Pearce, MP for Erith and Thamesmead, asked the DWP whether it will write to individuals with their foundation amount. All she has been assured of is that the current on-demand system will be modernised and awareness of it will be raised through a communication programme.
The DWP says in its response that it is ‘committed to providing timely information to those affected’. Surely that means everyone, given this is a universal policy, but it would appear that the ministerial view is different.
As we all know there is a massive difference between writing to everyone telling them what they will or won’t get and advertising a website where they can get information if they really want it. You have only got to look at the effectiveness of Association of British Insurers’ annuity information website of a decade ago in altering shopping around behaviour to see how anonymous websites communicate pension messages to unwilling punters.
It is hard to imagine many will bother to find out their foundation amount if they are not written to – which is convenient for the Government as it means the numbers who find out they are losers will be kept to a minimum.
Today the process for finding out your state pension entitlement is hardly ‘on-demand’. It is an energy-sapping process that involves going online, signing up for the Government Gateway, waiting five days for a password to arrive in the post, going back online within 28 days of receiving it and then completing your online application. Of course, the Government has to make sure it sends out information to the right people, and says it will modernise the process before 2016, but other departments seem happy enough to write to us without going through such a lengthy process.
One of the key policy objectives of the single-tier pension is to ensure that the state pension system provides a clear foundation for private saving. Let us not forget that the policy will not obliterate the disincentive to saving caused by means testing overnight. The policy as currently written is predicted to cut the number of retirees moving onto means-tested benefits from 40 to 20 per cent but that still means significant numbers will not get the full amount. And many more will not know whether they are over the means-test threshold or not.
Without a personalised foundation pension statement people simply will not know how the reforms are affecting them. Yet knowing where you stand is meant to be one of the main reasons why this reform is being implemented.
Given the wide disparities between the winners and losers, knowing where you stand is political dynamite the Government would rather keep under wraps.
John Greenwood is editor of Corporate Adviser