In Depth

Why the state pension is more complicated than you think

Even the government's own department in charge of the benefit didn't understand how it worked

You’d be forgiven for thinking the state pension is simple. You hit state pension age, retire and start drawing your flat rate £155 weekly pension. Sadly, you’d be wrong.

Not everyone will get the full state pension and the state pension age is different depending on your gender and when you were born. In fact, the state pension system is so complicated even the Department for Work & Pensions doesn't understand it.

Earlier this month the BBC’s Moneybox broadcast a programme about how people could top-up their state pension in certain circumstances. Listeners were thrilled with the news and quickly called the Department of Work & Pensions or HMRC to start the top-up process.

However, some were told that Moneybox was wrong and they weren’t able to boost their state pension.

“You might think that if it comes to a tussle between government departments and a broadcaster about the detail of the state pension, the official bodies must be right,” says Richard Evans in The Telegraph. “But no.” Moneybox had got its facts from “the very person who had designed and implemented the legislation concerned, Steve Webb, the former pensions minister.”

As it turned out it was the government department tasked with managing the state pension who didn’t fully understand how it worked, proving that the state pension system is “vastly too complicated for any normal person, whether taxpayer or government employee, to understand,” says Evans.

In an effort to help people understand the system he helped design Steve Webb has now produced a booklet explaining all the different top-up schemes. It runs to 30 pages and includes “two flow charts that bring to mind diagrams that show the workings of a nuclear reactor,” adds Evans.

Britain’s pension system is diabolically complicated and every year it seems the government sets out to muddy the waters further. The latest ideas have been released in an interim report into making the state pension age more fair.

The report, which is a triennial review carried out this time around by former CBI head John Cridland, suggests that the state pension age has to continue to rise in order to reflect increasing life expectancy, but that raising the age has to be fair.

It then goes on to suggest that some people should be allowed early access to their state pension depending on how long they’ve worked, their level of education, and their life expectancy based on the type of work they do and where they live. Of course others, probably office workers who are on a decent salary living in areas with generally high life expectancy, might have to take their pension later.

“What do we mean by ‘fair’,” asks Paul Johnson, director of the Institute for Fiscal Studies, in The Times. “The richer and better educated do live longer on average and therefore receive the state pension for longer, but they are still big net contributors to the public finances.”

Rather than fiddling with the system it’s time the government “admits the state pension is going to fail to deliver as well as it did in the past,” says Emma Ann Hughes in FT Adviser.

Britain has an aging population, which means slowly but surely we are getting more and more pensioners and fewer people in work paying the taxes to fund the pensions. This means the state pension will have to become less generous.

To those who work in the industry “it is clear that the responsibility for providing an income in retirement is increasingly moving from the state to individuals,” says Hughes. But, the general public aren’t being told this in clear terms.

“The reality is people are going to have to work longer and save harder to ensure not just a comfortable but a basic income in retirement – and it is disgusting that the government is failing to clearly communicate that fact,” concludes Hughes

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