Self-employed workers will be the ‘big winners’ from the government’s new flat rate state pension, as others are set to lose out, provider Aegon has said.
Self-employed workers will be better off under the new rules because they will have access to the same £155.65 a week pension entitlement as others.
Under the previous system, the self-employed were excluded from the additional earnings-related pension others were entitled to, so their maximum possible state pension was £119.30 – £36.35 less.
The new single-tier pension came into force on 6 April, offering those who have paid full rate National Insurance contributions (Class 2 for the self-employed) for 35 years or more the full rate £8,000 a year.
Under the previous system, entitlement to the full basic state pension required 30 years of full rate NI contributions.
The government said the new pension state pension would also benefit women, who had been previously unable to accrue the same pension as men based on their earnings.
It said: “More than 75% of women and 70% of men will gain in the first 15 years of the new state pension, and by 2030 over 3 million women stand to gain an average of £550 extra per year as a result of these changes.”
However, the new pension has been marred by controversy, as some people are set to lose out in the long-term.
According to think-tank the Institute for Fiscal Studies, about two-thirds (62%) of workers who retire in the next four years will get less than the full £155 flat rate.
It estimated about 17% of people will get the exact amount of £155.65 a week, while 23% will get more.
In a post published this month, the IFS said: “The simplicity of the new system has been at best misunderstood and at worst overstated”.
It recognised the potential long-term benefits of the reform, but warned many could be in for a “nasty surprise”.
24 little hours
Aegon UK pensions director Steven Cameron (pictured) said: “For those self-employed individuals who reach state pension age from today, it’s a case of ‘What a difference a day makes’.
“With many people spending more than 20 years in retirement, some self-employed could gain almost £40,000 more from being eligible for the new state pension.”
He added: “While this may come as a very pleasant surprise to the growing number of self-employed who reach state pension age in future, even at the higher level it is unlikely to provide a comfortable lifestyle in retirement.
“Unlike employees, this group are not benefiting from automatic enrolment into a workplace pension, making it even more important to make adequate private pension provision for themselves.”
Criticism
The government has previously been criticised for its communication of the changes to the state pension.
MPs on the work and pensions committee warned in January that some women have had their retirement expectations “smashed” due to lack of proper information on the changes.
An inquiry by the committee discovered widespread confusion over what people think they will receive, and when, from the new state pension.
The committee said it was “extremely concerned at evidence that state pension statements and forecasts are confusing – and in some cases contradictory – and do not provide people with essential information”.
The Women Against State Pension Inequality (WASPI) campaign has also attracted controversy.
WASPI campaigners argue the government has not given a cohort of women born in the 1950s enough notice about steep increases in their state pension age.
The issue has twice been debated in parliament but the women were offered no additional assistance.
WASPI wants the government to make “fair transitional arrangement for all women born on or after 6 April 1951 to have unfairly borne the burden of the increase to the state pension age”.
WASPI’s e-petition on the issue secured more than 180,000 signatures and was debated in the House of Commons in February.
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