How will changes to pensions affect me? Your guide to the new rules

From April 6 a new pensions scheme will replace what the Department of Work and Pensions, DWP, has referred to as a 'mindblowingly complicated' existing system.

On the face of it the new scheme all sounds simple enough.

In theory at least, those reaching state pension age on or after April 6 will get the new 'flat rate' payment, which has been set at £155.65 a week.

But despite the changes to the system being broadly welcomed, concerns have been raised that poor communication has led to confusion about the age at which payments begin and the overall value of retirement pots.

The extent of the confusion was laid out in a report by the House of Commons work and pensions select committee released on Sunday.

According to the cross-party committee of MPs the impact of the changes on different groups has been 'oversimplified', leaving many people under the impression that they will immediately receive the flat rate of £155.65 a week.

In reality 55 per cent of claimants won't get this figure in the first year, mainly because of 'contracting-out' or contribution gaps. The committee said that only 13 per cent of people reaching state pension age in the first year of the overhauled system will receive the new flat rate.

• How much is the new state pension going to be?

The basic state pension is currently £115.95 a week, and it will be rising to £119.30 from next month.

It is currently topped up by additional state pension entitlements – S2P and Serps – accrued during working years.

This two-tier system will change from April 6, 2016, and be replaced by a 'flat rate' pension. Chancellor George Osborne has announced the starting rate will be £155.65 a week.

However, people who have contracted out of S2P and Serps over the years will get a lower amount.

Workers need to have 30 years of qualifying National Insurance (NI) contributions to get the current full state pension.

However, to get the full flat rate state pension in future they will need 35 years of contributions behind them.

Even if you paid in full for a whole 35 years, if you contracted out for some years on top of that it might still reduce what you get. People who retire under the old system are allowed to top up their state pension to receive higher payouts.

They also have the option of deferring it under more generous terms than people will get in the future.

Rises in the state pension are presently calculated on the basis of something called the 'Triple Lock'.

This means that payouts always increase by whatever is the highest: inflation, average earnings or 2.5 per cent.

Critics have pointed out that the Triple Lock could prove an unsustainable financial commitment in the longer term, but the Government has pledged to maintain it during its current term in office.

• How does ‘contracting out’ work?

Contracting out was a system where employees gave up their right to additional state pension, firstly in the form of the state earnings related pension scheme (Serps) – then from 2002 in the form of the state second pension (S2P)

In return, workers and their employers paid a lower amount of NI.

In personal pensions you paid the same NI as everyone else but had some of it rebated into a pension.

Until 1988 only those in defined benefit schemes could contract out, but the law changed to allow those in defined contribution schemes to do the same.

Since 2012, only those in defined benefit pension schemes have been allowed to be contracted out of paying.

According to government figures around 80 per cent of older workers at some point contracted out in this way.

The idea was that you built up additional retirement savings through a private or occupational pension which would pay you an income instead – outweighing the benefits missed from Serps or the state second pension.

"Over time, more and more pensioners will receive a single flat rate," the report said. "During transition however, the majority will not. This has not been made sufficiently clear in government communications that have focused on the full flat rate of £155.65, contributing to confusion about the new system." Committee chairman Frank Field was highly critical of how the new pension has been touted. He said: "There is no way that communicating changes which affect different groups very differently, over different timelines, should ever have been left to general awareness campaigns or happenchance.

"The oversimplified message about the flat-rate amount has left many people unprepared and confused.

"We very much welcome the commitment in the Budget to a one-stop 'pensions dashboard', which we and others have been calling for."

The committee first pointed these issues out back in January and called for urgent changes to the information provided by the DWP and how the message was being put across. At the time it warned that millions of people were planning their retirement based on duff information.

Paul Green, Saga's director of communications, said: "Most people make significant financial plans about their future based on what they believe they will get from their state pension and, if inaccurate or outdated, could leave them with little to no time to make up for this government information error."

So how exactly will things change next month? Currently the state pensions system has three strands. There's the basic state pension, calculated on your record of National Insurance contributions.

Then there's the second state pension (S2P), formerly known as Serps. This is additional cash on top of the basic pension. Then, for those that need it, there is the means tested top-up, pension credit.

Confused yet? Well you're not alone. The £155.65 a week figure trumpeted by George Osborne is misleading mainly because many people contracted out of paying the additional state pension top-up and under-paid National Insurance during their working lives. This amounts to what the Government calls 'contribution record gaps', and means those people will receive less in the early years of the new state pension than they had previously.

The result is that far from simplifying the system, many have been left more confused than ever over how much their pensions pots will be worth. To further muddy the waters, state pensions will no longer be paid automatically into people's bank accounts, but will have to be claimed.

Kate Smith, head of pensions at Aegon UK, said: "For most, the state pension is the bedrock of their retirement income. It's absolutely fundamental that people know exactly when and what they will receive from the Government so they can plan their retirement.

"Most people don't know how much new state pension they will get, particularly given complicated transition arrangements to the new flat rate pension.

"There's a further challenge in that people probably aren't aware they won't receive their state pension automatically, but have to claim it which is could be difficult if you don't know your state pension age."

Another key point of confusion is the uprating of Guaranteed Minimum Pensions, GMPs. Under existing rules pension schemes must uprate GMPs accrued up to a maximum of 3 per cent a year, allowing the Government to recalculate the state pension.

But for those who retire after April 6 the Government will no longer take account of these increases to GMPs when uprating people's new state pensions.

This means that people who have spent long periods in a contracted-out pension scheme and are close to retirement on April 6 will do worse under the reforms, as a result of having little time to build up additional entitlement to new state pension.

It all adds more fuel to the arguments of critics who say that this is a Government that specialises in adding to confusion rather than bringing clarity.