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New flat rate state pension will lead to benefit cuts for some groups

PSSRU-logo_140pA new report involving LSE academics has found that low earning renters stand to lose the most from planned reforms to state pensions and long-term care if they are not protected.

The introduction of a single-tier pension scheme in April 2016, coupled with changes to long-term care financing in 2020, will affect pensioners in different ways, according to a report released this week co-authored by researchers from LSE’s Personal Social Services Research Unit (PSSRU).

The Nuffield-funded analysis – undertaken by the PSSRU at LSE, the Health Economics Group at the University of East Anglia and the Pensions Policy Institute (PPI), contains the following key findings:

  • Low earning renters are more likely to lose out from the pension reforms because of reduced housing benefits from increases in state pensions;
  • Gains in net income from the pension reforms are small at state pension age but increase during retirement;
  • Home owners and people on relatively high incomes stand to gain from both sets of reforms. They do not receive housing benefits and so do not lose the benefit if their state pensions increase. Home owners will also benefit from the cap on long-term care costs if they have eligible care needs over an extended period;
  • People on low incomes who do not claim their entitlements to means-tested benefits should benefit from the pension reforms.

Under the long-term care financing reforms to come into effect in 2020, a lifetime cap will apply on individual liability for care costs. This will protect pensioners against the risk of catastrophic costs which could use up nearly all of their savings.

The reforms mean that individuals will be able to use the potential increased income from the state pension to pay for care costs which, coupled with the lifetime cap, means some pensioners will deplete their capital to a lesser extent.

The report found that a median earning female home owner uses £46,000 less capital and an equivalent high earning male uses £36,000 less capital.

Raphael Wittenberg, Associate Professorial Research Fellow, PSSRU, said: “The postponement of the planned reforms to long-term care funding means that older people in England continue to face a risk of costs of care in late old age that could use up most of their savings. The topic seems likely to return to public policy debate as the revised implementation date of 2020 draws nearer. Our study of long term care and pension reforms, and specifically the interaction between them, will continue to provide evidence to inform the debate.”


Interactions between State Pension and Long-Term Care Reforms” was funded by the Nuffield Foundation. The report by the Care and State Pension Reform (CASPeR) research team comprised members from the Pensions Policy Institute, the Personal Social Services Research Unit at the London School of Economics and Political Science, and the Health Economics Group at the University of East Anglia.

For more information, contact Angela Mehta, Manager, PSSRU, on +44 (0)20 7955 6238 or A.Mehta3@lse.ac.uk

11 November 2015