More Than 11 Million Workers In Their 20s-30s Could Be Worse Off With New State Pension Rules

Penny Cogher, pensions partner at Irwin Mitchell, raises concern over the financial future for young people as the new flat-rate state pension starts tomorrow.

On the 6^th April, the basic and additional state pensions will be replaced by a flat-rate, single-tier state pension of £155.65 a week, designed to make the system fairer for women, carers and the self-employed.

However, the Pensions Policy Institute (PPI) has calculated that most younger people in their twenties and thirties will get less out of the new system.

Currently, workers who have built up enough years of National Insurance contributions could qualify for top-ups worth up to £135 a week, but under the new system, older workers who have already made contributions to the second state pension will have those payments protected. However, younger workers won’t qualify for the top-ups even though they are paying full National Insurance contributions.

In total, the PPI said that 11.4 million younger workers between the ages of 20 to 30 will be getting less out of the system than they would have done if they old system continued.

Pensions Partner Penny Cogher, said:

Expert Opinion

“In the light of the 2016 budget changes, there is now something for young people to get excited about with the new Lifetime ISAs to be launched from April 2017.

“Having a tax-efficient, state sponsored, way of saving for a flat or house is much more relevant to many people than saving for a pension - but their primary concern remains paying off their student debt. This means that workers in their twenties, and also their thirties, have probably not studied quite how the new state pension will work for them and the position currently seems to be that it won’t work in their favour.

“The Pensions Policy Institute has calculated that these people will lose out most with the new state pension – possibly by thousands of pounds. However, I detect a certain cynicism among them. They seem resigned to being unable to retire until extreme old age and not at all sure that when they do so the state pension will even exist at that time and certainly not in its current form.

“This view is encouraged by the fact that before the new state pension has even come into operation there have been various reviews launched on it by the Work and Pensions Committee, including looking at its intergenerational fairness, as well as an independent review, required by statute to be conducted each Parliament as to when state pension age should be.”

Penny Cogher - Partner