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

More documents

Recommendations

Info

Current state pension system extensive crediting has been made available for periods of unpaid activity. However, there are still some individuals who can expect to reach SPA with less than full entitlement to the BSP, particularly those who have spent long periods outside the UK. Under the current system, provisions are in place to allow such individuals to boost their state pension income on the basis of their spouse’s (or former spouse’s) contributions. A married (or civilly partnered) individual will receive 60% of their spouse’s (civil partner’s) BSP entitlement, if this is greater than his or her own BSP entitlement. This rises to 100% of their spouse’s (partner’s) entitlement after the partner dies. 21 Individuals can also inherit up to 50% of their spouse’s SERPS and S2P entitlements when their spouse dies. Up to 1977, women could elect to pay the ‘married woman’s reduced rate’. Women who elected to do so paid lower NI contributions and in return built up no BSP or SERPS/S2P entitlement. After 1977, no one was able to start paying the reduced rate but, under certain conditions, those who had already opted in could continue paying it. Only approximately 3,000 women are still paying National Insurance contributions at the reduced rate, 22 but those who opted to pay it in the past will potentially have relatively poor NI contribution histories. For this Box 2.2. Examples of state pension entitlements under current legislation The following examples describe hypothetical individuals with specific career histories up to 2016. All the individuals described were born in 1957 and started their careers at age 21, in 1978. All monetary figures are expressed in 2013–14 earnings terms. Zainab has been continuously self-employed since the age of 21. Under current legislation, by 2016 she will have accrued full entitlement to the BSP but will have no SERPS or S2P entitlement, as she has always been self-employed. She therefore expects to get £109 a week of state pension income from age 66. Mohammed has always been employed on moderate earnings. He has never contracted out. By 2016, Mohammed will have accrued entitlement to a total of £184 a week of state pension income from age 66. This comprises £109 from the BSP plus £75 of additional pension. Ava has the same career history as Mohammed but has always been a member of her employer’s occupational pension scheme and contracted out of the state second-tier pension. By 2016, Ava will have accrued entitlement to £121 of weekly state pension income. This comprises £109 from the BSP plus £12 of S2P entitlement. 21 Slightly different arrangements exist for divorced people who have not remarried; see, for example, Bozio, Crawford and Tetlow (2010) for details. 22 See Department for Work and Pensions (2013d) for further details of derived and inherited rights. 13
A single-tier pension: what does it really mean? group in particular, the ability to derive rights from one’s partner’s contributions remains especially important. To help clarify some of the points mentioned in this section, Box 2.2 describes – for some illustrative individuals with particular career histories – what state pension income people will receive under the current pension rules. 2.3 Pension income received under the current system In March 2012, the average weekly state pension paid to those aged 65–69 was – in 2013–14 earnings terms – £111.83 (the average was £129.50 for men and £95.57 for women). 23 These figures are well below the maximum possible amount that men and women of these ages could have accrued if they had a full record of contributions to the BSP and second-tier state pension. Our calculations imply that the maximum state pension entitlement someone from this group could have accrued is around £282. While these lower levels of pension in receipt arise largely because most individuals will not have been continuously employed throughout their working-age years, they also reflect the fact that large numbers of people have spent periods contracted out. As female labour market participation has increased over the past few decades, the number of women qualifying for a full BSP has increased, and reliance on derived pensions is decreasing. Furthermore, a change to the BSP affecting those retiring after 2010 reduced the required number of years of NI credits to qualify for a full BSP from 39 to 30, so state pension entitlement should be higher particularly for later cohorts of women. DWP estimates that, by 2015, around 85% of women will qualify for a full BSP in their own right. 24 23 Source: http://tabulation-tool.dwp.gov.uk/5pc/sp/tabtool_sp.html. 24 Department for Work and Pensions, 2006. 14
Page 1 and 2: A single-tier pension: what does it
Page 3 and 4: Published by The Institute for Fisc
Page 6: Contents Executive Summary 1 1. Int
Page 11 and 12: 1. Introduction In a White Paper pu
Page 19: A single-tier pension: what does it
Page 55 and 56: 5. Long-Run Effect of the Proposed
Page 69 and 70: 6. Wider implications of the propos
Page 71 and 72:
A single-tier pension: what does it
Page 73 and 74:
A single-tier pension: what does it
Page 75 and 76:
7. Conclusions Pensions Bill 2013-1
Page 77 and 78:
References Attanasio, O. and Rohwed
show all

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

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?