The IFS says the proposals imply a cut in pension entitlements for most people in the long run.
It says while there will be some winners, since 2002, coverage under the current pension system, which gives credits for employment, unemployment and caring for children under 12, has been almost as broad as under the proposed system. Younger generations will lose out as a result of the changes it says,
It says the annual pension accrual from such activities is higher under the current pension system. Most low earners and non-workers will under the current system accrue £5.05 (£3.59 plus £1.46) of additional weekly state pension rights for ‘contributing’ for one extra year, provided they have not already accrued 30 years of contributions at that stage (those who already have 30 years, would accrue £1.46 of additional weekly pension). Higher earners would accrue £5.84 a week of state pension (or £2.25 if they already had 30 years of contributions). In the proposed new system, these same people would accrue £4.11 of additional weekly state pension (or nothing if they had already accrued 35 years of contributions). The IFS says that the gap for high earners is even greater.
The IFS says in the long run the reform will not increase pension accrual for part time workers and women who take time out to care for children. Instead these groups would end up with a lower pension at the state pension age under the new system than they would do under the current system. The IFS says those who expect to have fewer than 10 years of contributions or credits will be particular losers from the reforms, since they will receive no state pension under the proposed scheme – though the Department for Work and Pensions says that the majority of people in that position are those who have spent only a short part of their working life in the UK.
A spokesperson for the IFS says: “Overall, the proposals expected in today’s White Paper look like they will bring about a welcome simplification. However, it is important to be clear that – 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.”