This article is part of our Guide to Maximising Your Pension, helping investors build up the maximum possible pension pot – and turn it into the maximum possible retirement income.
The majority of young workers in their 20s and 30s will lose out under new State Pension which comes into force tomorrow, new research reveals.
The findings, in a report by London-based think tank the Pensions Policy Institute, were revealed today before the new flat-rate State Pension of £155.65 is due to start tomorrow, at the beginning of a new tax year.
Among 8.4 million workers who are currently in their 20s, around 75% of them would lose a notional average of £19,000 over the course of their retirement while the remaining 25% are expected to gain £10,000 on average under the new State Pension, the report by the Pensions Policy Institute says.
For workers in their 30s, which have 7.7 million people expected in this age group, about 66% of them would lose a notional average of £17,000. However the rest of the workers would gain £10,000 on average.
Chris Curry, director of the Institute commented that the new State Pension would simplify the system and “significantly” reduce the cost of state pensions in the future. Although a majority of young workers will lose out under new State Pension, they will benefit from “greater clarity about what that income will be”, he adds.
Currently, the State Pension is made up of the Basic State Pension available to all, and then topped up with Additional State Pension – but only until midnight tonight. Both the old system and the new flat rate State Pension are funded through a minimum of 10 years contributions via National Insurance through your wages.
Workers in their 50s: The Biggest Beneficiaries
The report also indicated an estimate of the number of people in other age groups who may be notionally better or worse off under the new State Pension.
For people in their 50s, more than 77% of them would gain £15,000 on average under the new State Pension, presenting it as the largest gainers among all age groups. There are estimated 7.9 million workers in their 50s according to the report. The rest of them would lose £7,000 over the course of their retirement.
Although people under 50s are estimated to gain better compared to the youngsters under new State Pension, the amount and qualifying age may change in the future, Catherine Penney of Barclays Stockbrokers said while commenting on the people’s over-reliance on the State Pension.
Penney also advised people who want the flexibility to retire when it suits them or gradually reducing their working week to ease themselves into retirement, planning for their retirement from as early age as possible will be paramount.
