As it is damp, dark and dreary January many people are checking their post-Christmas bank statement to see if there is enough cash in the kitty to pay for a sunny summer holiday to look forward to.
If, after booking your big summer holiday, your bank then admitted they had got the figures on your statement wrong so you shouldn’t have paid for that as it has plunged you into the red, then you would demand compensation.
You had made a financial decision based on that information.
A statement is a document setting out items of debit and credit between a bank or other organisation and a customer – you should be able to rely on it.
It would be unacceptable for your bank to give you the wrong information about the state of your finances and while the state pension forecast doesn't claim to be a statement it is just as wrong for the government to fail to give a less than accurate round-up of how much cash you can expect during retirement.
This is only presented as a forecast, which means prediction or estimate, but as the information is coming from the government people expect it to be fairly accurate and will make decisions based upon it.
This week Financial Adviser reported state pension forecasts can be showing more income than the individual will receive, since it will include contracted-out savings even if these are cashed out by the individual.
In 2016, Baroness Ros Altmann introduced the Contracted Out Protected Earnings (COPE) element in the state pension forecast, designed to explain to the public that they might not be getting a full flat rate pension, due to the fact that there was some other pension arrangement in place.
Between 1978 and 1997, employers sponsoring defined benefit (DB) pension schemes could contract their employees out of the additional state pension, as long as the scheme paid a comparable guaranteed minimum pension (GMP).
The GMP is payable for life at age 60 for women and 65 for men, and a survivor benefit is payable to a spouse or living partner.
The benefit of contracting out was that both employer and worker had a reduction in their National Insurance contribution.
However, with the introduction of pension freedoms in 2015, savers are now allowed to cash out their final salary savings.
In these cases, the state pension forecast provided by the Department for Work and Pensions (DWP) will still show the COPE, even though that pension pot no longer exists as a benefit.
Baroness Altmann was right to introduce COPE to the statement but it is vital the DWP recognises the way the world has shifted post pension freedoms and makes sure this figure isn’t now misleading savers into thinking they will get more cash than is actually coming their way.
