A single-tier pension: what does it really mean? - The Institute For ...

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Executive summary will reduce spending on state pensions by 0.4% of national income by 2060. 1 The new single-tier pension may therefore have a better chance of surviving than the multitude of reforms that have gone before, thereby ending a long period of large and frequent upheaval in the design of state pensions. But exact contributory conditions and indexation rules are still subject to change. Changing the latter in particular could substantially change the structure and generosity of the scheme. It is to be hoped that future governments refrain from such changes. 1 This assumes that the triple lock continues beyond this parliament. (Department for Work and Pensions, 2013b.) 3
1. Introduction In a White Paper published in January 2013, the Department for Work and Pensions (DWP) set out proposals for major reforms to the UK state pension system. 2 These proposals have now been developed into the Pensions Bill 2013– 14. 3 The main part of the legislation is to combine the basic state pension (BSP) with the state second pension (S2P) to create a new ‘single-tier’ pension, which would be set at a level high enough to ensure that anyone with full entitlement would not qualify for the means-tested pension credit guarantee. 4 This single-tier pension is set to be implemented from April 2016. 5 The government has said that these proposals will increase certainty, reduce inequality and take people out of means testing. 6 This report examines the proposals in detail and discusses how they compare with the existing pension rules and how they will affect different groups of people. We also discuss the wider implications of these reforms for individuals and for the current and future governments. Chapter 2 starts by describing the current state pension rules, before Chapter 3 describes the proposed reforms in more detail. Readers who are very familiar with the current and proposed pension systems or those who are merely interested in the main results may wish to skip these chapters. Complex transition issues mean that the short- and long-run effects of the proposed reforms are likely to be very different. Chapter 4 examines how the two systems would compare in the short run, making use of a unique new data set that links individuals’ National Insurance contribution histories with detailed information about their socio-demographic, financial and health circumstances. Chapter 5 examines how the two systems compare in the long run. Chapter 6 discusses some of the broader implications of the proposed reforms – beyond income from the state in retirement – and discusses what the important lessons are for individuals and the current and future governments. Chapter 7 concludes. This report focuses on the direct effects of the reforms on individuals’ incomes in retirement. We therefore ignore some other important aspects of the reforms, such as the potential impact of the ending of contracting out on defined benefit pension schemes and their members. 2 Department for Work and Pensions, 2013a. 3 http://services.parliament.uk/bills/2013-14/pensions.html. 4 Specifically, the single-tier pension is expected to be set at £146.30 per week (in 2013–14 earnings terms). This is above the level of the pension credit standard minimum guarantee, which is £145.40 for a single adult in 2013–14. 5 Page 5 of HM Treasury (2013). 6 Department for Work and Pensions, 2013a. 4 © Institute for Fiscal Studies
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7. Conclusions Pensions Bill 2013-1
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References Attanasio, O. and Rohwed
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A single-tier pension: what does it really mean? - The Institute For ...

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