The key to the successful implementation of the single-tier state pension lies in the government informing the public as soon as possible about how it will impact individuals, according to a report by the Work and Pensions Select Committee.
In its Single-tier state pension: part 1 of the draft pensions bill, the committee accuses the government of hampering its scrutiny of the proposals for a single-tier state pension. It claims that the government not only imposed an extremely tight timetable, but brought forward the implementation date by a year after the committee had completed taking evidence.
In the 2013 Budget on 20 March, Chancellor George Osborne confirmed that the government will bring forward its plans to introduce a new single-tier state pension of £144 per week from April 2017 to April 2016.
The committee’s report states that the change in the implementation date has significant implications, particularly for pension schemes and employers, which now have one year less to prepare for the end of contracting-out.
Consequently, the committee said that the government must work with them to ensure the transition is as smooth as possible and that defined benefit pension schemes do not suffer as a result.
Anne Begg, MP and chair of the Work and Pensions Select Committee, said: “We agreed to the government’s request that we carry out pre-legislative scrutiny of the single-tier proposals. This process is a vital mechanism in ensuring that significant reforms receive rigorous and effective scrutiny.
“I am disappointed that the government has hampered us in carrying out this task, by giving us very little time to do it, due to the delays in its own timetable for publishing the proposals, and then making a major change to the policy at a very late stage. “Such a cavalier attitude to the scrutiny role of select committees is unacceptable.
Nevertheless, we believe our recommendations are valid and that our findings will assist Parliament when it considers the finalised Bill in the summer.
“However, Parliament can only carry out effective scrutiny if the government makes the necessary information available to it. It is imperative that the government carries out a further impact assessment of the reform proposals, which takes particular account of the revised implementation date, and publishes it at the same time as the finalised Bill is introduced.”
The report makes a number of other conclusions and recommendations, including:
- The new implementation date of April 2016 should be set out on the face of the Bill.
- The Bill should specify that the minimum number of qualifying years will be not more than 10 years.
- The requirement for the level of the single-tier pension to be higher than the Pension Credit Guarantee rate is a fundamental principle of the reform and should be set out on the face of the Bill. When the Bill is before Parliament, the government should publish an analysis of the cost of setting the single-tier pension rate at a range of higher levels and the level at which the single-tier pension could be funded if the additional national insurance revenue was used for this purpose.
- The government should develop and publish a clear explanation of how means-tested support, including passported benefits, will operate under the single-tier pension, and the transitional protection that will be put in place.
- Many women born between 1952 and 1953 believed that they would suffer a double adverse effect on their state pension income, arising from the increases in their state pension age combined with their ineligibility for the single-tier pension, if it was introduced in 2017 as set out in the white paper. It appears that the government’s decision to bring forward the implementation date to April 2016 will mean that around 85,000 women born between 6 April and 5 July 1953, whose state pension age had been increased a second time in the 2011 Pensions Act, will now be eligible for a state pension under the new system. The change in the implementation date does not appear to bring any of the remaining women in the cohort born between April 1952 and April 1953 within the scope of the STP (although it is far from clear that all of them would have been better off under the single-tier in any case). The government should clarify the position, and set out the range of impacts on the state pensions of these women, in the revised impact assessment.
- Some women did not build up their own national insurance record because they had an expectation that they would be able to rely on their husband’s contributions to give them entitlement to a basic state pension. The government should assess and publish the cost of allowing women in this position who are within 15 years of the state pension age to retain this right.
Begg added: “We support the principle of the single-tier pension. In the short to medium term it will mean more state pension for many people, particularly the self-employed, and women and carers who have been low-earners or had gaps in employment.
“It will be a much simpler system to understand and people will be able to see more clearly how much they can expect from the state. As a result, it will give greater certainty about the value of saving into a private pension scheme and will complement the new system of automatic enrolment into workplace pensions.
“But this is a major reform, which will affect all 40 million people of working age. Although the end result will be simplification, the transition period will be long and complex.
“Individuals will be affected in different ways depending on a number of factors, including their age, and their previous pension and national insurance contributions. There are already misconceptions about who stands to gain and who might lose. People closest to retirement understandably have the most immediate concerns.
“So it is vital that the government decides on its high-level strategy for communicating the changes to the public by the time the finalised Bill comes before Parliament in the summer. This should include how the internet will be used and what individualised information will be provided.
“Now that the implementation date has been brought forward to 2016, it is even more important that people receive understandable and accurate information as early as possible.”