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

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
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