The new state pension is being introduced in April 2016 and while there’s been a fanfare about it, consumer research commissioned on behalf of The Open University Business School’s (OUBS) dedicated research centre, The True Potential Centre for the Public Understanding of Finance (True Potential PUFin), has found that many consumers are confused by their likely entitlements.
The full amount of the new state pension will be about £155 a week and its conditions include:
The research found that 45% of employees (40% of men and 48% of women) don’t think they will get the full amount of the state pension. Across those 45% of respondents, £114 was the average weekly state pension they believed they would receive. The main reasons they give for not getting the full amount are not having paid National Insurance contributions for 35 years (29%) and having been contracted out (13%). Notably 34% of female employees cite insufficient National Insurance contributions as being the reason compared to only 23% of men.
This new research is announced ahead of the True Potential PUFin conference, Consumers and the New Pension Landscape, to be held in London on 26 November. The results of the research reinforce the concerns highlighted by the ongoing True Potential’s Tackling the Savings Gap research, which highlights the projected shortfall in financial resources and income in retirement across UK consumers.
It’s apparent that there is widespread uncertainty about the new state pension and this exacerbated by a quarter (24%) of employees aged 30 or over not knowing whether they’ve ever been contracted out. Some mistakenly believe that they’ll be entitled to the full amount, whereas in reality they will be disappointed by the actual amount they receive with the inherent danger that it may then be too late for them to do anything to remedy the shortfall.
This research also found that the average age that people would like to retire is at the age of 62 and a half whereas the average age at which they think they will actually retire is 66. Almost a tenth (9%) of employees think they’ll never retire.Martin Upton
Director of True Potential PUFin
This is yet more evidence of the complexity of pensions and it is no wonder that so many people are confused. Attempts to retro-fit pensions risk causing more problems than they solve and even the Pensions Minister has admitted that there are widespread misconceptions.
People may be tempted to put less of their own money aside for retirement, in the belief that they will receive the full state pension. Far from giving savers a decent income in retirement, this could actually make the Savings Gap worse.David Harrison
Managing Partner of True Potential
Six in ten (60%) employees aren’t aware that those who have been contracted out may not get the full amount of the new state pension and seven-in-ten (70%) don’t think that the government has clearly communicated the issue. About half (49%) think the reductions are fair whilst three-in-ten (30%) claim to understand how the reductions will be calculated.
This latest research highlights the level of confusion around the new state pension, and once again highlights the limitations in broader personal finance knowledge across the UK population. In an effort to tackle this problem, True Potential PUFin recently partnered with Share Radio to launch a ground-breaking national broadcast version of its popular ‘Managing My Money’ course. The eight-week radio course is accompanied by a free online test with those who complete all the tests getting a statement of participation certificate from OUBS. Anyone looking to boost their pension know-how, or their overall personal finance knowledge can find out more.
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