The new state pension will slash the retirement incomes of millions of people earning over £25,000 by as much as £1,000 a year, experts are warning.
In December, pensions minister Steve Webb admitted that high earners would receive less under the new state pension, but with the release of the government's White Paper on the state pension expected any day, it has emerged that even middle earners who pay basic-rate tax will be hurt by the reform.
Because the second state pension will be abolished when the new regime takes hold in 2017, earners who would have been able to build up bigger pension contributions under the old system will no longer be able to do so.
Their contributions will be frozen at current levels, meaning those with fewer years until retirement will be less affected as they will be allowed to keep the contributions they have already accrued.
High earners will be the biggest losers and will lose up to £26,000 over the course of their retirement, but middle earners on as little as £25,000 (the average yearly wage in the UK) will also feel the pinch, according to John Lawson, head of policy for corporate benefits at Aviva.
High earners have always been 'low priority' when calculating who will win and who will lose as a result of the new state pension. But at a Department of Work and Pensions (DWP) select committee meeting in Westminster on Monday, committee members raised the impending drain on middle and high earners' pensions as one of their biggest concerns with the new state pension.
Malcolm McClean, consultant at Barnett Waddingham, described the new state pension as a "socialist regime" because the pensions of higher earners are being used to pay for the new care bill.
He believes the regime, which was originally designed to be cost neutral, will actually make the Treasury a profit by creating more 'losers' than 'winners'.
And Gregg McClymont, deputy pensions minister, who has seen a draft version of the White Paper, told Investors Chronicle that it will show a "dramatically sharper" cut in government pension spending than people are expecting.
Mr McClymont said: "People are going to be shocked when they see these new projections. They will reveal that the new state pension means younger workers in particular will not be able to rely purely on the state in retirement because spending will be cut so much over time. This should be a real wake-up call to them to start making private provisions so they can support themselves."
