Millions of people on a range of income levels will lose out under the government's pension reforms when the new single tier pension replaces the second state pension, Trade Union Congress (TUC) has said.

Around 20m people, many of whom are private sector workers, are currently contracted into the state second pension, but the TUC claimed that when the single tier system comes into effect in 2016, many will get less when they retire.

The TUC said that it supports the single tier pension in principle, but believes that the initial rate of £144 a week is too low and warned that ministers must do more to limit the losses, otherwise the progress that has been made so far could be "fatally undermined".

TUC general secretary Frances O'Grady said: "The state second pension was designed to give low and middle income earners a much-needed top up on the basic state pension.

"Scrapping it as part of the new single tier pension will mean that many low and middle-income private sector workers, particularly those several decades away from retirement, could be thousands of pounds a year worse off in retirement.

"While the Government is right to move towards a simple, single state pension, setting it at just £144 a week is far too low and will mean many future pensioners will be worse off."

According to a TUC report, those set to benefit from the single tier pension, such as low earners and carers, will only be at an advantage when the reforms first take place, then in time their incomes will fall.

The research also found that a worker on median income of £26,000 a year with a full employment record will lose out as soon as the new single tier pension is introduced. A median earner retiring in 2030 will be £29 per week, £1,508 per year, worse off.

With most workers expected to be auto-enrolled into a workplace pension by 2018, it is expected that private pension saving will plug the gap left by the scrapping of the second state pension, TUC said.

"The Government should raise the single tier pension rate, and look to raise minimum contribution rates into workplace pensions once auto-enrolment has had time to establish itself, so that fewer people lose out under the Government's pension reforms," O'Grady said.

First published 21.08.2013

mnique_simpson@wilmington.co.uk