Financial advisers have praised the government for its commitment to write 100,000 letters to people who stand to receive nothing in the new state pension but have said more must be done.
In particular, they said the government must better engage those who have not chalked up the full 35 years of national insurance contributions needed to be receive the full £155.65 a week.
On Wednesday (22 June) the government announced it would send letters to all the people who have not made 10 years worth of NI contributions, and would therefore receive no state pension.
However, the government stated it would not do the same for those set to receive only a part pension.
Anna Sofat, founder of Addidi Wealth, said in her experience people did not understand the new state pension.
“There have been so many changes to pensions people have been turned off. About the only awareness is that they think they’ll get £155.65 a week, and it is a nasty surprise when they don’t,” she told FTAdviser.
She said those disadvantaged by the changes included people who have lived part of their working life abroad, and “older women who would have qualified for a state pension, but now won’t.”
Under the old basic state pension, she said people who made NI contributions for nine years would have qualified for £40.02 per week.
Now, they will qualify for nothing. She said the government needed to communicate this fact.
“You don’t ever hear of the 10 years. The government has done a good job of publicising the good bits, but not the bad bits. But that’s human nature,” she said.
Claire Walsh, a financial adviser at Aspect8, said that, with the introduction of means-tested child benefits, some women were inadvertently and unnecessarily missing out on making NI contributions.
“Historically everyone used to claim child benefits. But now if your partner is earning more than £50,000, you’re not eligible to claim benefits.” She said this meant women in that situation are simply not bothering to claim, and this means they could be losing years and years of NI contributions. The answer, she said, was to claim anyway, and pay the benefits back.
While Ms Walsh said her clients were generally ignorant about how the state pension rules, she said they tended to underestimate what they would receive.
She said television advertisements would be a more effective tool to educate people about the state pension. “But letters are cheaper than adverts,” she said
Pensions expert Steve Bee of Pension Guru said the government’s promise to send letters to 100,000 people was an “ideal start”, and showed that they had learnt from their blunder over the changes to women’s eligibility age – a blunder that caused uproar and led to the Waspi campaign.
But he said there was much more the government needed to do.
“Giving people the impression the state pension is brilliant is wrong. I think it should still be called the basic state pension,” he said. “This should be the start of talking to people realistically and truthfully about what they are going to get.”
He said there was no way around the fact that, if people wanted to spend decades at the end of their life not working, that costs a lot of money. Inevitably he said people would have to work longer. He urged the government to come up with solutions to create jobs suitable for people in the late 60s and 70s.
james.fernyhough@ft.com
