Pensions reform – winners and losers

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Losers as well as winners in pensions reform

Prospect has reacted cautiously to the government's white paper on state pensions.

Neil Walsh, Prospect's Pension Officer, said: "The government is not in the business of giving something for nothing. The potential impact will have to be examined closely because Treasury restrictions, requiring any reforms to be at least cost neutral in every year, will result in hundreds of thousands of losers as well as the winners the government will be focusing on. The repeated delays in the publication of this white paper provide evidence of the difficulties it will hold for many.

"Reform to the state pension to eliminate means-testing and give workers the confidence that contributing to a pension scheme will be worthwhile is welcome. However, it would be wrong to trumpet the white paper as a boost to state pensions for all. The government made many trade-offs in finalising its proposals and many will receive no benefit or will actually lose out significantly from the reforms."

Categories of people that Prospect identifies as not benefiting or losing out from the white paper include:

  • The poorest pensioners, who will receive the same pension as they currently do – there are no measures to tackle current pensioner poverty in the white paper.
  • Long-serving workers, including low earners, whose overall state pension will be lower due to the loss of significant amounts of state second pension. The higher single-tier pension will be lower than the total state pensions this group would have been entitled to.
  • Members of private sector defined benefit pension schemes. As well as having to pay higher national insurance contributions these workers may see their occupational pension schemes close due to the loss of rebates for employers operating such schemes.
  • Hundreds of thousands of workers in privatised utilities, who may see commitments to pension protections granted on privatisation undermined.

Walsh said the impact of the reforms on long-term state finances is also unclear. "Projections from the Government Actuary's Department are required to enable us to tell whether the reforms are likely to be sustainable."