New flat rate pension won’t help 20-30 year olds

Posted by Sam Twyford in Personal Finance on 15 July 2013 - Sam is a Product Manager at checkmyfile

The Institute of Fiscal Studies (IFS) has found that younger workers currently in their twenties and thirties are set to lose out under the Coalition's reform of the state pension, with many people receiving hundreds of pounds less a year than if they were at the retirement age now.

This is due to the basic state pension and second state pension being replaced by a flat rate payment expected to provide around £144 per week from 2016.

The new scheme has not been welcomed by all due to questions about the fairness of the state support for future generations.

From April 2016 the IFS has predicted that on average women will be £5.23 a week better off due to the change, and men will be £1.62 better off. Self-employed workers would see the biggest increase by being £7.51 a week better off as they cannot currently benefit from the second state pension.

A person born in 1986, who spends 35 years in low-income jobs, will receive nearly £1,000 a year less from the single-tier scheme than they currently would, with high earners losing as much as £2,300 per year.

Soumaya Keynes of the IFS says, “The single-tier pension proposals will boost the state pension entitlements of some of those who are close to state pension age, particularly those who have spent time caring for children or who had long periods of self-employment. However, for most of those now in their 20s and 30s, although these reforms should make it easier for people to predict how much state pension income they will get, the reforms will also reduce the state pension income that they can expect to get.”

Pensions Minister Steve Webb says the changes will improve clarity for young people, and benefit those who have been disadvantaged by the current system, such as women and carers.

Sam Twyford is a Credit Analyst at Checkmyfile, has a degree in Business Studies and is an Associate of the Institute of Credit Management. He can be contacted at sam.twyford@checkmyfile.com

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