The government should provide an updated assessment of the costs of creating a single-tier state pension after bringing forward the date for the change by a year, MPs said today.
The work and pensions select committee said the plans to introduce the new single state pension in April 2016, and not April 2017 as originally planned, could have 'significant implications' for the public, pensions industry and employers. The decision to bring forward the reforms was announced by Chancellor George Osborne in the Budget last month, and subsequently confirmed by pensions minister Steve Webb.
Under the changes, the two existing state pension schemes will be merged into one payment, set at £144 a week in current prices. Pensioners currently top up their basic state pension of £107.45 a week with either the second state pension or through means-tested Pension Credit.
The move to a single state pension will bring an end to workers being able to contract out of the second state pension and instead receive payments through their workplace scheme. Both the employee and employer then pay lower National insurance contributions.
But having one less year to prepare for this would impose a 'significant burden' on employers and the pensions industry, MPs said.
'We believe it is therefore the government's clear responsibility to work with these key stakeholders to ensure that the transition to the ending of contracting-out is as smooth as possible,' the committee's report explained.
Government should ensure 'already beleaguered defined benefit private sector occupational schemes do not suffer further adverse consequence'. Pension funds have already warned that bringing forward the reforms could hasten the demise of DB pension schemes.
It is 'imperative' government carries out a furtherimpact assessment of the single-tier pension proposals when the final Bill is introduced in May, the report added.
This should provide details of the costs of bringing forward the plan, and set out the impact the new timetable will have on the pensions industry and employers.
An analysis of the spending implications of setting the single-tier pension rate at a range of higher levels should also be provided. An estimate of the level the pension could be set at, if all additional NI revenue was used for this purpose, should also be given to Parliament, the committee concluded.
Committee chair Dame Anne Begg said the committee supported the principle of the single state pension.
She added: 'In the short to medium term it will mean more state pension for many people, particularly the self-employed, and women and carers who have been low-earners or had gaps in employment. It will be a much simpler system to understand and people will be able to see more clearly how much they can expect from the state.'
However, the transition period will be long and complex, and the government should provide a better explanation of the likely impacts, she added.
'Individuals will be affected in different ways depending on a number of factors, including their age, and their previous pension and National Insurance contributions. There are already misconceptions about who stands to gain and who might lose. People closest to retirement understandably have the most immediate concerns.
'So 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.'
Responding to the report, a DWP spokesman said: 'We appreciate the committee has put a lot of effort in to looking at our plans for the new simpler and fairer state pension, which will particularly benefit women and the self-employed.
'We are pleased this cross-party committee is broadly supportive of our approach. We will study the recommendations carefully before responding in due course.'