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John Greenwood: The deafening silence on state pension forecasts

The DWP’s decision not to provide state pension forecasts undermines the central aim of recent reform of introducing more clarity to the pension system.

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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

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Kenneth Thompson 21st January 2014 at 8:14 pm

    Hi,

    You are correct about wanting to keep people in the dark about their entitlement under single-tier pension. When they first announced it they gave most people the impression that they would receive a state pension of about £144 pw. They failed to mention that the figure included state second pension and that for anyone who had been contracted out, it would reduce the pension by their contracted out pension.

    According to institute of Fiscal only about 35 to 40 percent of people reaching state pension just after it starts will receive the full single tier pension. I think this is why Steve Webb does not want people to know what they will receive.

    I have found out from DWP and Steve Webb that for anyone who has a contracted out pension (SERPS) which includes GMP will no longer receive any of their increases via state second pension. For someone reaching state pension age within the first year the potential loss is about £23,000 for a high earner female and about £17,000 for high earning man.

    This is not mentioned as far as I can see in any government document or risk assessment and does not seem to have been picked up by any journalists.

  2. Andy Robertson-Fox 23rd January 2014 at 4:00 pm

    This is not a new policy of the DWP.

    I am already a pensioner and in the ten years prior to moving abroad and in the remaining five years before I became eligible for the State Retirement Pension I was in contact with the DWP, HMRC and Pensions Office.

    I received three pension estimates and although I specifically asked to be advised for any implications for the payment of my pension in Thailand no mention was made that it would, in fact, be frozen at the level at which it first became payable in that country. In other words no index linking – ever.

    Currently under the present system 4% of UK pensioners are being discriminated against in this manner and if clause 20 of Webb’s Pension Reform Bill is enacted the iniquity will continue.

    However, like me, most will not be aware before it is too late simply because it is not DWP policy to willingly disclose information which is an embarrassment.

  3. Regrettably, it seems that many politicians are very sparse with the real truth and some honourable ones rarely deserve the title. As for not informing people about their true situation I have met so many that say the same thing and I cannot believe that they are all telling lies. Why would they
    As for getting answers or any reply come to that, one has to go overboard but nothing is a certainty especially when the MP that one has to write to, as an ex-pat, is the one in your last constituency who replies to say that he is only responsible for his own constituents. In other words – get lost.
    The frozen pensions argument is so rediculous when they talk of the cost should you compare that to the cost of the false benefits claimants and errors by the DWP, making the uprating peanuts and bad feeling between the UK and the countries involved plus the pensioners, serving nobody any good.

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