United Kingdom

New pensioners at risk of receiving less than full pension rate

April 2016


Over half of new pensioners set to retire in the first year of the new state pension introduction will receive less than the full rate, a new report has revealed.

The final report into the new state pension carried out by the Work and Pensions Committee found that those most at risk of receiving less than the full amount were those with ten or less qualifying years of national insurance contributions or those with less entitlement rights derived from a partner's contributions under the previous system.

Under the new system, entitlement rights are now excluded when calculating starting amounts in the new state pensions, which came into force on the 6th April.

David Parfett, Senior Corporate Pension Consultant at Aon Employee Benefits explained: "One of the potentially damaging impacts of the new state pension is that a woman's state pension now depends on the individual's own contribution record, rather than reflecting the benefits earned by the husband.

"Previously, married women with an incomplete record of national insurance contributions were entitled to a basic pension of 60 per cent of their husband's entitlement, and divorcees could use their former husband's national insurance record for the duration of the marriage, if it is better than their own. Furthermore, a widow could inherit her husband's basic pension, plus half of his entitlement to top-ups such as S2P and SERPS, if her own NICs would provide less."

Under the new system, in order to qualify for the full rate, at least 35 qualifying years of national insurance contributions are now required or at least 10 qualifying years of significantly lower amounts.

According to the report, just 13 per cent of retirees would receive the full amount, 32 per cent would get more than the full amount and 55 per cent would receive less than the full amount due to a lack of national insurance contributions.

Commenting on the findings, Frank Field, chair of the committee told The Actuary that whilst the new system was a 'welcome simplification' overall, the lack of communication meant that the majority of people would be unable to understand and interpret the changes.

"There is no way that communicating changes which affect different groups very differently, over different timelines, should ever have been left to general awareness campaigns or happenchance," he said.

In response to the findings, the committee has called on the Department for Work and Pensions (DWP) to write to affected individuals who are likely to lose out with projected entitlements and advice and guidance on how to improve them. Automatic annual statements should also be sent to those over 50, the committee advised.

Parfett added: "The new state pension system has not been phased in but implanted immediately for anyone who reaches state pension age on or after 6 April 2016. Inevitably, changes of this nature will mean that there will be winners and losers. Generally, it will be the less well paid, who have not yet attained state pension age that are likely to benefit from the new system, whilst those who FP16/171accrued a large state second pension under the old system, but too young to retire before the new rules come into force, will be worse off."



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