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Shake-up to hit half of pensioners
A radical shake-up of state pensions will leave up to half of pensioners worse off by 2060, it has been revealed.
High earners and recent immigrants will be among those hit by the Government's plans to reform the pensions system.
Ministers said their proposals would simplify the current complicated system and particularly benefit women, low earners and the self-employed, with a single flat rate state pension, equivalent to around £144 a week in current money, introduced for new pensioners from 2017. But the Government's White Paper revealed that a number of people will lose out.
Under the new system, around one in five people reaching state pension age after 2017 will be better off, less than one in 10 will be worse off and the others will see no difference. But the proportion who will be worse off will rise rapidly, with more than half of people reaching state pension age after 2060 left worse off. The majority of these will be worse off by more than £2.
Pensions minister Steve Webb said high earners will be among those whose pensions will be affected by the changes, adding there were "far more winners". Anyone recently arrived in this country who isn't able to build up 10 years' worth of National Insurance (NI) contributions before state retirement age will not get a state pension. Mr Webb said an example of those affected would be "Aussie backpackers" who only work for a few years in this country but are eligible for a pension.
The minister said millions of people needed means-tested top-ups under the current system, adding: "Our simple, single tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save."
The Institute for Fiscal Studies said the announcement looked like a "welcome simplification", but it warned: "While there will be a fairly complex pattern of winners and losers from the reform in the short-term, the main effect in the long run will be to reduce pensions for the vast majority of people, while increasing rights for some particular groups, most notably the self-employed."
Labour said 84,000 people in Wales were receiving a pension higher than the level proposed by the Government. People entitled to such pensions stand to lose at least £10 a week, said shadow Welsh secretary Owen Smith.
He added: "We will need look very carefully at these proposals as there is a risk that thousands of hard-working people across Wales who have paid contributions throughout their life will lose out. When in Government Labour made ground-breaking changes to the state pension system to recognise the contribution of people who take time out of paid work because of caring responsibilities, so it is important that we are clear about winners and losers when considering further reform."
Dr Adam Marshall, Director of Policy and External Affairs at the British Chambers of Commerce said: "Today's announcement will bring welcome simplification for pension savers and parity for the self-employed, who were previously ineligible to top-up state pensions. These reforms support the rollout of automatic enrolment, providing certainty about the size of the state pension and creating a much-needed incentive for individuals to save privately."