Less than 50% of retirees to get the full state pension

12th January 2015

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Just 45% of those retiring between next year and 2020 are set to receive the full new flat rate state pension and a mere one million are set to get less than 86% according to Hargreaves Lansdown.

The revelation comes on the back of a freedom of information request submitted by the fund and stockbroker.

Under the new pension freedoms, retirees might already have spent any private pension savings they have accumulated before they find out just how much they can expect from their state pension.

Tom McPhail, head of pensions research at Hargreaves Lansdown said: “The new state pension will ultimately be a simpler and fairer system. However in the short term it will be complicated and many people are likely to get less than they may expect. With the new pension freedoms meaning that they will be free to spend all their private pension savings, it is imperative that they receive a proper state pension forecast. Without this, they could get a nasty shock when they do reach state pension age.”

Approximately 3.5 million workers will reach their state pension age between 2016 and 2020. Of these, just 45% will be entitled to receive a full new state pension of at least £148.40.

This means nearly two million pensioners will get less than they might have been led to expect by the government.

With the new pension freedoms due to start in April 2015, all these people will potentially be able to access their private savings before their state pension age.

Some 30% of pensioners will get less than 90% of the new state pension, meaning that they will be entitled to a state pension income of no more than £133.56 a week

State pension entitlement for those retiring between 2016 and 2020

Income wk/pa Proportion of £148.40 Proportion of retiring pensioners
£89.04/£4,630 At least 60%

96%

£103.88/£5,401.76 At least 70%

95%

£118.72/£6,173.44 At least 80%

90%

£133.56/£6,945.12 At least 90%

70%

£148.40/£7,716.80 At least full new state pension

45%

In fact the position is slightly worse than stated according to the firm. This is because the projections provided by the DWP are based on the current Pension Credit minimum income of £148.40, whereas the state pension in 2016 is likely to be around £155 per week – based on the assumption of two years’ worth of increases at 2% a year.

This means the 90% threshold is actually only going to be around 85% of the new state pension; so 30% of pensioners – 1 million people – will be getting less than 85% of the new state pension.

Why will they get less than 100%?

The majority of people falling short of the full state pension are likely to have been contracted out during their working lives; others who get less than 100% are likely to be those with interrupted National Insurance contribution histories such as mothers and the self-employed.  The formula for calculating the new state pension entitlement is complicated. For those who have been contracted out of the second tier state pension it involves making a deduction from their state pension entitlement to reflect the fact that they have been able to build up a larger private pension using the National Insurance rebate.

3 thoughts on “Less than 50% of retirees to get the full state pension”

  1. Noo 2 Economics says:

    Oh what a short memory poor old Tom seems to have. Only, under the “Triple lock” which applies to the new State pension as well as the present one, pensioners receive rises of the highest of inflation, average earnings rises or 2.5%……..so where does “2%” come from?

    Moreover, in case Tom doesn’t understand, someone should explain to him that Pension Credit will continue for many years to come.

    Pension Credit will be increased in line with other benefits and may even be aligned with the “Triple Lock”. If the former than it is likely, in the case of a retiree who has limited savings and whose only income is their state pension, that 95% of them will receive 95% of the full new state pension in 2 years time. If the latter, then it is a racing certainty in the case of retirees who has limited savings and whose only income is their state pension that 100% of them will indeed receive the full state pension.

    It’s scary that these guys (Hargreaves Lansdown) expect you to place your savings with them to invest in a pension when they haven’t the foggiest idea of how the state pension and means tested Pension Credit work in relation to each other!!!!

    1. Anonymous says:

      You’re a bit scary as well and wrong.

      The ‘triple lock’ is a crock. Yet another Liberal con.

      To make the sound bite mean anything, the State Pension should be one amount – and the same for all – on changeover day.

      Now, one either gets the current full amount or a lesser amount plus a means tested top-up.

      This year those most in need and claiming extra got a reduced award. But for the scheming Liberals, and their TL, it would have been more. No “highest of inflation, average earnings rises or 2.5%” for them.

      This to pay for a notional increase for those already getting more.

      In years to come people claiming the State Pension will find that the gap between the full award and the lesser amount will grow, as will the number stuck on the lower amount due to small occupational pensions, such that a worse iniquity will replace the one that this change was meant to fix.

      There will be almost as many pensions amounts payable as pensioners.

      What a mess!

      1. Noo 2 Economics says:

        Ahh and here was I just yesterday saying I wouldn’t be posting on MM any more when along comes a piece of crassness like the post I am replying to and which reinforces my resolve to give up posting here:

        If I’m scary then you’re very very frightening and also wrong.
        Allow me to explain as simply as I can as my first post was based on the assumption that a reader would be reasonably informed.

        Tom Mcphail states “whereas the state pension in 2016 is likely to be around £155 per week –
        based on the assumption of two years’
        worth of increases at 2% a year.”

        The “Triple lock” has been in force since April 2011
        (http://webarchive.nationalarchives.gov.uk/20130129110402/http://www.hm-treasury.gov.uk/junebudget_fairness.htm).,
        For your information the general benefit uplift paid each April is calculated based on the rate of inflation in the previous September each year, so the minimum increase in THE CURRENT STATE PENSION – BECAUSE YOUR STATE PENSION WILL ALWAYS BE CALCULATED UNDER OLD RULES TO ESTABLISH A GUARANTEED AMOUNT CALLED “THE FOUNDATION AMOUNT” AND THEN RECALCULATED UNDER THE NEW RULES FROM APRIL 2016 WITH THE
        HIGHEST OF THE FOUNDATION AMOUNT OR SINGLE TIER AMOUNT (NEW RULES) BEING PAID UNTIL ALL PEOPLE ON THE CURRENT (OLD) SCHEME HAVE RETIRED will be 2.5% in April 2015 because the inflation rate in September 2014 (on which the uplift is based) was below 2.5% –
        (http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/september-2014/index.html)
        and will indeed be at least 2.5% in 2016 unless the next Government decides to tamper with the Triple lock..

        You say “This year those most in need and claiming extra got a reduced award”. I assume you are referring to those in receipt of Pension Credit which
        fits perfectly with my statement in my first post “Pension Credit will be increased in line with other benefits… “ as it has been!! (i.e. it is not currently enjoying “Triple Lock status so is determined by the inflation rate each September). I am merely
        suggesting Pension Credit “may even be Aligned with the triple lock” – not putting it forward as an absolute truth as you clearly believe. You also say “In years to come people claiming the State
        Pension will find that the gap between the full award and the lesser amount will grow, as will the number stuck on the lower amount due to small occupational pensions, such that a worse iniquity will replace
        the one that this change was meant to fix.”

        I refer you to my original post with the relevant parts capitalised for you to READ PROPERLY – “it is likely, in the case of a retiree WHO HAS LIMITED SAVINGS AND WHOSE ONLY INCOME IS THEIR STATE PENSION ,
        that 95% of them will receive 95% of the full new state pension in 2 years time”

        So to spell it out I was only talking of people with LIMITED SAVINGS WHO HAD NO OTHER INCOME (OR IN OTHER WORDS THOSE LIKELY IN
        RECEIPT OF PENSION CREDIT ALTHOUGH I CONCEDE IF THEY HAD A TINY OCCUPATIONAL PENSION THEY COULD STILL RECEIVE PENSION CREDIT)
        although it is correct to say that if Pension Credit is not aligned with the Triple Lock that over time a gap will open between the Foundation Amount with Pension credit added on and the new Single
        tier amount.

        You also miss that Pension Credit will still be there as a safety net for those not qualifying for a full Single Tier pension under new rules. The Single Tier Pension will also be improved to a level where if you have someone who has worked/claimed qualifying benefits (JSA/Carers Allowance) or who has looked after someone for at least 20 hours a week for 35 years (Carers Credit) or a mixture of these benefits and credits over 35 years from 2016 they will qualify for a full SINGLE TIER STATE pension which will put them above the poverty level unlike the current “full” State Pension (£113.10 pw )which results in
        the requirement of a Pension Credit top up to the Pension Credit amount of £148.35 pw based on a single person (assuming no other or
        a tiny other income) to bring them “up” to the poverty level.

        In case you want to actually learn something instead of trying to score points I suggest you educate yourself with the following links

        https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181229/single-tier-pension.pdf,
        https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181231/single-tier-pension-executive-summary.pdf
        and finally the easiest but least informative
        https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

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