If you're feeling baffled by how the new State Pension will affect you, you're not alone. A report released by the Department for Work and Pensions (DWP) Select Committee, a cross-party group that advises the government on pensions, has criticised the government for failing to inform the British public about the true impact of the reforms, which will affect around 40m people when they are introduced in 2016.
Dame Anne Begg MP, chair of the Select Committee, described the government's attitude as "cavalier" because it has rushed the process so fast that it has made it difficult to scrupulously check the policies.
The new flat rate State Pension has been designed to be simpler in the long run by doing away with the second State Pension (S2P) and cutting down on means-tested benefits, but Dame Begg said the transition period will be "long and complex" and needs better explaining to the public.
The confusion and uncertainty could be even worse for many people who will find themselves on cliff edges - cut-off points where they lose or gain entitlement because of their age, their spouse/partner's age or circumstances, or because they fail to meet certain criteria.
There are countless misconceptions flying around about who will win and who will lose as a result of the changes, according to Malcolm McLean, a consultant at Barnett Waddingham.
And with only three years to go until implementation, the Committee is worried this gives people close to retirement little time to make any necessary changes to their financial affairs.
There are many questions yet to be answered about the new system including the following three:
1. Could people who would have received Pensioners’ Credit lose benefits they would get under the current system?
The £144 flat rate is just £1.30 more than the basic level of means-tested support (£142.70 per week), so a loss of benefits would make them worse off under the new system. The Select Committee says the government should develop and publish a clear explanation of how means-tested support, including passported benefits, will operate under the single-tier pension, and the transitional protection that will be put in place.
2. Will people still be able to delay receiving the State Pension and get an uplift on their pay outs instead?
As the policies stand today, 65 year olds can delay claiming their State Pension until they reach the age of 75, when they can get an impressive 10.4 per cent uplift on the overall amount they receive. Nigel Bolitho, owner of independent financial adviser BV Services, says a pensioner who could get a State Pension worth £159.52 a week aged 65, could defer until 75, and receive £325.74 a week or a £94,520.41 lump sum, under the current system. But under the new system, it is not clear whether pensioners will be allowed to do this.
3. Will women within 15 years of State Pension Age be able to retain the right to rely on their husband's National Insurance (NI) contributions for their State Pension?
Some women have spent several years not working, in many cases so they could stay home and look after children. This means that they have not built up their own NI record. They did this with an expectation they would be able to rely on their husband's contributions to give them entitlement to a Basic State Pension, but under the new system, this will no longer be the case. But there is still a question mark over whether women within 15 years of retirement should be allowed to retain this right, and the Select Committee has urged the government to assess and publish the cost of doing so.
