The DWP Select Committee has published its report “Understanding the New State Pension” this morning. The accompanying Press release calls for clear statements of entitlement while stopping short of calling for changes to those entitlements.
The Work and Pensions Committee’s report on the New State Pension calls on DWP (Department for Work and Pensions) to make urgent changes to the information they are sending to people reaching retirement age.
It’s left to Frank Field to tell it as it is
“Successive governments have bungled the fundamental duty to tell women of these major changes to when they can expect their state pension. Retirement expectations have been smashed as some women have only been told a couple of years before the date they expected to retire that no such retirement pension is now available.
We are also concerned about the accuracy of existing information that is being sent out to women about their state pensions entitlement. Groups representing this grotesquely disadvantaged group of women have suggested a pension entitlement notice. And so have other experts who have given evidence to the Committee. We expect the Department for Work and Pensions immediately to call into the department these witnesses, hammer out a new pension entitlement notice, and begin supplying all women with accurate information on their pension entitlement.”
And that’s before we move on to occupational schemes
The problems for the DWP do not of course stop there. The introduction of the new state pension brings new issues for occupational pension schemes, in the public and – in particular the private sector who are struggling to do for their member’s contracted out state pension alternative, what the Government are doing with the State Pension.
This separate can of worms (known as GMP equalisation) is still on the DWP’s drawing board. Goodness only knows when occupational schemes will be told what they have to do and when they have to do it by, but with April 2016 a couple of months away, the answer will undoubtedly be “too much too soon” – certainly for the administrators , trustees and employers involved.
And that’s before we move on to pension taxation
As usual, the equalisation issues emerging today are crystallised by these pensions being shortly due for payment. The women most “grotesquely treated” are those who are now 61 and 62 who might in the old world be “receiving their giros”.
The problems looming for those not getting their “government incentive” from auto-enrolment are further away and impact people who have less capacity to complain (those on lowest incomes). Nonetheless, the injustice with net pay occupational schemes differs only from those mentioned by Frank Field in that we can do something about it now!
The ghosts of pensions past, present and still to come
Whether it be the miscommunication of the past (State Pension Age entitlements)
Whether it be the miscommunication of pensions of today (GMP equalisation)
Pensions still to come (Net Pay schemes – especially those auto-enrolling those on low incomes)
the problem is the same.
We have no reliable communication infrastructure that can educate ordinary people about what they’ve already been told, about to be told or will be told in years to come.
We all should play our part
I feel very strongly that this is not a problem for the DWP and its pension minister Ros Altmann.
The responsibility for educating the public about what these matters is a general pensions problem for which a general solution must be found. The issues of GMP equalisation are matters that the PLSA and PMI and the SPC and the ACA should be addressing with the DWP with great urgency. They have a key part to play in this – what help are they giving the Government?
The responsibility for sorting out the net pay fiasco that looms rests with the administrators of DC pensions. What are they doing with HMRC and the DWP to ensure that we do not have another scandal on our hands?
The responsibility for sorting out the State Pension is the DWP’s and the DWP’s alone, but the communication of the new entitlements rests with us all. That’s everyone from Paul and Martin Lewis, right through the advisory chain to the youngest paraplanners helping financial advisers talk to their clients.
Don’t sack the manager
We know how football clubs, when they find themselves in trouble, point the finger at their manager and sack them. Just look at Swansea.
It does not make any sense to sack a manager unless that manager was the cause of the problem and is preventing it being sorted.
There will be plenty of people, as this current wave of troubles breaks, who will point to Ros Altmann and call for her removal.
I think that this would be quite the wrong thing to do.
Firstly, Altmann has spent the last 9 months getting into a position to understand the problem. She is very competent, any replacement is not going to get to the same degreee of consequence till the end of 2016 (if ever).
Secondly, Altmann is a brilliant communicator. If ever we needed her skills to tell people what they are entitled to and why, it is now. We need Altmann.
Thirdly, the effectiveness of our Pension Minister depends on her capacity to talk and our capacity to listen. If we spend our time shouting at her, she cannot talk and we cannot listen.
I have said it before, and I’ll say it again, we have precisely the right pension manager/minister in place and her name is Ros Altmann. Now is Altmann’s first big test and she will not succeed without the dressing room. Those in the DWP need to get behind their minister and those of us who work with occupational schemes and with the general public need to do our bit to help people understand what is going on.
Here are the recommendations being made by the DWP Select Committed to make the current entitlement statements easier for ordinary people to understand.
- statements should be limited to one page in length;
- key messages should be highlighted in boxes to ensure they stand out clearly;
- statements should prioritise the current value of state pension built up, state pension age, the date that age will be reached, and how to build up additional benefits;
- state pension age should be highlighted in a prominent position, especially for those whose pension age has changed;
- means of getting further information, such as a full breakdown of NI history, details and calculations of NSP starting amounts, and calculations of deductions for period of contracting out should be clear and that information should be readily available;
- the term ‘Contracted Out Pension Equivalent’ should be replaced by ‘contracting out deduction’; and
- the contracting out deduction should be explained as such, making it clear that it is a reduced state pensions as a consequence of paying reduced NI contributions but may be compensated for by the individual’s private pension scheme.