State pension communications strategy needed by summer, says Work and Pensions Committee

The committee was commenting as it published its report on the first draft of the new Pensions Bill, which will introduce a simpler, flat-rate state pension from 2016. It said that although the new single-tier pension (STP) would result in higher pensions for the self-employed and those with career gaps in the short to medium term, the Bill was a "major reform" which would have a "long and complex" transition period.

"Individuals will be affected in different ways depending on a number of factors, including their age, and their previous pension and National Insurance contributions," said committee chair Dame Anne Begg. "There are already misconceptions about who stands to gain and who might lose. People closest to retirement understandably have the most immediate concerns."

"It is vital that the Government decides on its high-level strategy for communicating the changes to the public by the time the finalised Bill comes before Parliament in the summer. This should include how the internet will be used and what individualised information will be provided. Now that the implementation date has been brought forward to 2016, it is even more important that people receive understandable and accurate information as early as possible," she said.

The committee noted that some of the detail of the reforms, including commencement date and minimum number of qualifying years, would be set out in later regulations rather than in the Bill itself. Although acknowledging the need for flexibility, it called on the Government to publish a draft of these regulations "as soon as possible" given the acceleration of the implementation date for the reforms.

Begg also criticised the Government for giving the committee "very little time" to scrutinise its proposals, both as a result of delays to its publication timetable and by bringing forward the implementation of the STP. The Chancellor of the Exchequer announced that the STP would be introduced from 2016 rather than 2017, as originally proposed, as part of his Budget statement last month. In its report, the committee said that this change would have "significant implications" for pension schemes and employers.

"We believe our recommendations are valid and that our findings will assist Parliament when it considers the finalised Bill in the summer," Begg said. "However, Parliament can only carry out effective scrutiny if the Government makes the necessary information available to it. It is imperative that the Government carries out a further Impact Assessment of the reform proposals, which takes particular account of the revised implementation date, and publishes it at the same time as the finalised Bill is introduced."

The Government published its plans for the STP in a White Paper in January, with Pensions Minister Steve Webb saying at the time that the changes would particularly benefit women, low earners and the self-employed. It has proposed creating a flat-rate pension set above the means test and based on 35 years of National Insurance contributions (NICs). Years spent working, claiming benefits for being unemployed, looking after children aged 12 or under or caring for sick or disabled adults will count towards the qualification period. Means testing and the second state pension will be abolished, although limited pension credit and access to other benefits will remain available for pensioners on low incomes.

The new system will be based on individual qualification, with a minimum qualification period of between seven and 10 years. Individuals will not be able to build a pension entitlement based on a spouse or civil partner's NICs as is currently the case, or to inherit or derive such rights. Although transitional arrangements will apply to those with pre-implementation NIC records, the committee called on the Government to consider allowing those within 15 years of retiring who had previously relied on their partners' contributions to retain the right.

The report also reflected the concerns of women born between 1952 and 1953, many of whom believed that they would suffer a "double adverse effect" on their state pension income as a result of both the new system and a higher than anticipated state pension age (SPA). The SPA for women in the UK is due to rise from 60 to 65 to match that of men from 2018, before it increases to 66 for both sexes in October 2020 and to 67 by 2028.

"It appears that the Government's decision to bring forward the implementation date of the STP to April 2016 will mean that around 85,000 women born between 6 April and 5 July 1953, whose SPA had been increased a second time in the 2011 Pensions Act, will now be eligible for a State Pension under the new system," the committee said.

"The change in the implementation date does not appear to bring any of the remaining women in the cohort born between April 1952 and April 1953 within the scope of the STP (although it is far from clear that all of them would have been better off under the Single-tier in any case). The Government should clarify the position, and set out the range of impacts on the State Pensions of these women, in the revised Impact Assessment," it said.

Pensions expert Robin Ellison of Pinsent Masons, the law firm behind Out-Law.com, said that the committee's conclusions were "understandable but ungenerous".

"What they might have said is that they hope the transitional provisions and regulations when they emerge are easy to reap and cheap to implement, rather than in the usual obfuscatory DWP style," he said. "The forthcoming simplification of the state pension system will come as a joy to everyone apart from anoraks, and the acceleration of the coming into force is even better news."