A single-tier pension: what does it really mean? - The Institute For ...
A single-tier pension: what does it really mean? - The Institute For ...
A single-tier pension: what does it really mean? - The Institute For ...
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A <strong>single</strong>-<strong>tier</strong> <strong>pension</strong>: <strong>what</strong> <strong>does</strong> <strong>it</strong> <strong>really</strong> <strong>mean</strong>?<br />
Table 2.1. How different activ<strong>it</strong>ies are currently treated by the state<br />
<strong>pension</strong> system<br />
Activ<strong>it</strong>y Earns<br />
ent<strong>it</strong>lement to<br />
BSP?<br />
Earns<br />
ent<strong>it</strong>lement to<br />
S2P?<br />
Earning > LEL <br />
Caring for child aged ≤ 11 <br />
Foster carer <br />
Caring for sick or disabled adult<br />
(20+ hours per week)<br />
<br />
Incapac<strong>it</strong>y or lim<strong>it</strong>ed capabil<strong>it</strong>y for<br />
work a<br />
<br />
Matern<strong>it</strong>y allowance <br />
Statutory matern<strong>it</strong>y/patern<strong>it</strong>y/<br />
adoption/sick pay<br />
<br />
Working tax cred<strong>it</strong> <br />
Jobseeker’s allowance <br />
Self-employment <br />
Universal cred<strong>it</strong> b<br />
<br />
a Ent<strong>it</strong>lement to severe disablement allowance earns individuals ent<strong>it</strong>lement to both BSP and S2P.<br />
Ent<strong>it</strong>lement to incapac<strong>it</strong>y benef<strong>it</strong> and employment & support allowance earns individuals<br />
ent<strong>it</strong>lement to BSP and, w<strong>it</strong>h some extra cond<strong>it</strong>ions, to S2P.<br />
b Once universal cred<strong>it</strong> is rolled out, some of those who would not otherwise be cred<strong>it</strong>ed under<br />
existing cred<strong>it</strong>ing arrangements, and who receive housing benef<strong>it</strong> or child tax cred<strong>it</strong>s, or whose<br />
partner receives working tax cred<strong>it</strong>, will earn cred<strong>it</strong>s towards the BSP. All members of benef<strong>it</strong><br />
un<strong>it</strong>s receiving universal cred<strong>it</strong> will earn cred<strong>it</strong>s towards the BSP.<br />
Note: In add<strong>it</strong>ion to the activ<strong>it</strong>ies listed in the table, the following activ<strong>it</strong>ies also earn ent<strong>it</strong>lement<br />
towards the BSP: jury service, wrongful imprisonment, being the partner of a member of the<br />
armed forces posted overseas, being on an approved training course.<br />
Source: Department for Work and Pensions, 2013c.<br />
<strong>The</strong> BSP is a flat-rate <strong>pension</strong>, currently worth £110.15 per week, which is<br />
payable to all individuals w<strong>it</strong>h 30 or more years of National Insurance (NI)<br />
contributions or cred<strong>it</strong>ed activ<strong>it</strong>ies. Individuals w<strong>it</strong>h fewer than 30 years of<br />
accrual are ent<strong>it</strong>led to the BSP on a pro-rata basis. <strong>For</strong> example, an individual<br />
w<strong>it</strong>h 10 years of contributions would be ent<strong>it</strong>led to a <strong>pension</strong> of 10/30×£110.15 =<br />
£36.72 per week. Each add<strong>it</strong>ional year of ent<strong>it</strong>lement is therefore worth £3.67<br />
per week of extra <strong>pension</strong> ( 1/30×£110.15) until the maximum ent<strong>it</strong>lement is<br />
achieved.<br />
<strong>The</strong> second component, S2P, is some<strong>what</strong> more complicated since the<br />
ent<strong>it</strong>lement accrued for a given year of activ<strong>it</strong>y is (currently) related to an<br />
individual’s earnings in that year: 8<br />
8 In each year, <strong>pension</strong>s are uprated w<strong>it</strong>h lagged earnings/price growth. <strong>For</strong> example, in 2014–15,<br />
existing S2P accrual will be revalued according to average earnings growth between 2012 and<br />
2013. When we present figures in 2013–14 earnings terms, we are deflating by contemporaneous<br />
earnings growth. As average earnings growth is projected e<strong>it</strong>her to increase or to be flat over the<br />
next few decades, this <strong>mean</strong>s that when we present future parameters of the <strong>pension</strong> system in<br />
6