MPs should ask the Department for Work and Pensions for a secret document that spells out the extent to which the contracted-out win through the single-tier pension reforms and the contracted-in lose, says former pensions minister Steve Webb.
Giving evidence to the DWP Select Committee, Webb said members should ask the DWP for a table of winners and losers from the reforms. Webb told the committee the document would show that the policy, which is largely cost-neutral to the middle of the century, will show that contracted out individuals, who already have pensions, will gain from the policy, meaning contracted in workers, who include all those within the target market for auto-enrolment because they have little or no pension saving of their own, will be worse off.
The DWP has refused to disclose the document to Corporate Adviser, saying it has nothing in the public domain on contracted out versus contracted in winners and losers. It has refused Freedom of Information Act requests from Corporate Adviser for details on how the reforms impact contracted in versus contracted out.
The DWP’s impact assessment gives detailed information of the impact of the transitionary arrangements on contracted out workers, including public sector workers, but gives no details whatsoever of the impact on contracted out workers. But a recent DWP document has confirmed that 52 per cent of men retiring between 2026 and 2030 will be worse off under the new system, losing on average £11 a week.
The great majority of those worse off will be those with little or no private pension provision of their own. Experts have calculated many contracted in workers retiring in the next 20 years will lose more from the transition to the single-tier pension than they will gain from auto-enrolment.
Speaking to the Committee, Webb said: “On contracting out I would encourage the Committee to ask the Department for a table of gainers and losers by contracted out and contracted in.
“I happen to know what that table will show, and it will show that contracted out are gainers. And the reason they are gainers. Imagine you are a teacher aged 40 years old and all you have is basic state pension. You will have a maximum of £155.
“Under the new rules for every year you work you will move towards the full figure. Without these reforms you would never have got a pension of more than £115 because you weren’t in the second bit. Over time people who were contracted out can build up pension to make up these deductions on top of their teacher’s pension which will not be reduced at all.
“They are gainers but they don’t perceive it, because they say ‘he’s getting the flat rate and I’m not’. But they were getting their teacher’s pension and now they’ll get their better state pension and teacher’s pension.”
A DWP spokesperson says: “There is nothing in the public domain on this.”
