Pensions Policy Institute director Chris Curry says the level of the proposed single tier state pension remains unclear as it becomes more apparent that Government reforms will sharply cut the amount people receive from the state in retirement.
In January, the Government published plans to introduce a flat rate, single tier state pension for future retirees. The new state pension is expected to be worth around £144 a week in today’s prices when it is introduced in April 2016.
Speaking at the Money Marketing Retirement Planning Summit in Cork last week, Curry said the Pensions Bill currently going through Parliament does not specify how high the single-tier state pension will be.
He says: “There are some areas in relation to the single-tier state pension which are not yet finalised. There is nothing in the Pensions Bill which says what rate the single-tier is going to be, which makes calculating who will be better off and who will be worse off quite difficult.
“The white paper, published in January, was very careful to say the level of £144 a week was illustrative.
“It may be less than £144 a week or it may be higher. The Government says that decision will be taken by the Government of the day based on what is affordable.”
When first announced the Government said it intended the changes to be cost neutral but Curry said latest calculations show it will make a significant saving.
According to PPI analysis, the amount the Government is forecast to spend on state pensions in 2060 will drop from 8.5 per cent of GDP to 8.1 per cent of GDP as a result of the changes.
Curry says the Treasury will save even more if the triple-lock – which links the rise in state pension payments to the highest of earnings, prices or 2.5 per cent – is scrapped by the next Government.
He said: “By 2060 the current system would have gone up to about 8.5 per cent of GDP and under the single-tier system it only goes up to 8.1 per cent of GDP, so there is a reasonable amount of saving.
“This figure is based on the triple-lock. If the existing state pension and the single tier were linked to earnings, both figures would come down but the single tier would come down further.”