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State pension reforms: who will lose out?

Younger workers may lose £2,000 a year in pension

The new flat-rate state pension will see those in their 20s and 30s losing out on thousands of pounds’ worth of state pension income in the future.

New research from the Institute for Fiscal Studies (IFS) has found that people born in the mid 1980s or later will lose out under the government’s state pension reforms. You can read more about how the state pension will work in our guide, State pension explained.

Someone born in 1986, who spends 35 years as a high earner, will receive nearly £2,300 less under the flat-rate pension than they would under the current system. Someone born in the same year, who spends 35 years as a low earner, would get almost £1,000 less.

State pension reform winners

The 2016 reforms, which will see everyone receiving a single-tier state pension of £144 a week (in today’s money), replacing the complex basic state pension and state second pension system currently in operation, will also result in better state pensions for some people.

People who have spent long periods of time out of work, and the self-employed, will be the biggest winners from the reforms. The self-employed can currently receive a maximum state pension of £110.15 per week – they are not entitled to build up additional state pension. The additional state pension will be abolished in 2016.

The research estimates that women will gain £5.23 per week under the reforms, and those with more than ten years of self-employment under their belts will gain £7.51 per week. Men, however, will receive just £1.62 extra and people in employment will get £2.19 per week.

State pension reform losers

The government has also announced plans to increase the minimum number of National Insurance years people need to have to qualify for the state pension, from 30 to 35, which will affect everyone. Our guide to National Insurance has more advice on how it works.

The abolition of the additional state pension (also known as Serps or state second pension), is also part of the reforms. It will mean that higher earners who did not contract out and built up additional pension will see their incomes reduced. Currently, additional state pension can boost your state income to £250 a week – but this will be capped at £144.

What can you do to boost your state pension?

If you’re one of the people who looks set to lose out from the state pension reforms, there are measures you can take.Saving into a personal or workplace pension will ensure you have more retirement income to live on – our guide to workplace pensions has more information.

You have the option to buy National Insurance contributions. These can cover the past six years, plus the current year – but you have to have a minimum of 20 qualifying years.

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