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

A single-tier pension: what does it really mean?
• those who were employed on relatively low earnings (although still at or
above the LEL) between 1978 and 2001 – these individuals will have accrued
BSP but little or no SERPS entitlement;
• those who were carrying out activities prior to 2002 that earned entitlement
to BSP but not SERPS – for example, caring for children, caring for sick or
disabled adults, or receiving certain out-of-work benefits;
• those who have been self-employed.
For these types of individuals, the proposed system is likely to represent a
windfall gain. As discussed in greater detail in Chapter 4, most of these ‘winners’
are in earlier cohorts.
In addition, those who have spent periods contracted out of SERPS/S2P will have
the potential to accrue a larger total pension than otherwise-identical individuals
who had been contracted in, as they will be able to ‘work off’ these contractedout
years in order to qualify for an increased state pension with no loss of private
pension from their years spent contracted out.
Given the transition rules proposed in the White Paper, almost no one would see
a significant reduction in their accrued entitlement as a result of the reform. 32
Those whose foundation amount exceeded the single-tier pension level in 2016
would have that entitlement ‘protected’. 33 However, there are potentially a large
number of individuals who have not yet reached the SPA who should anticipate
accruing a state pension entitlement of more than £146.30 under the current
system and who would, therefore, receive less under the proposed system than
under the current one. As described in Chapter 5, these losers are most heavily
concentrated in later cohorts – those who entered the labour market after (or not
very long before) 2002.
3.5 Changes to means-tested benefits
The current system of means-tested benefits for pensioners includes the pension
credit, which itself is comprised of two components – the pension credit
guarantee credit (PCGC) and the pension credit savings credit (PCSC).
The PCGC tops up income to a minimum level (£145.40 for a single person and
£222.05 for couples in 2013–14), whereas the PCSC was introduced to reward
private saving and has a maximum award of £18.06 (£22.89 for couples). As of
November 2012, 14% of 65- to 69-year-olds claimed the pension credit and
32 Some groups who do – those with fewer than 10 years of contributions and those who would
have received pensions based on their spouse’s entitlement who will now only receive a pension
based on their own contributions – are discussed in Chapter 4.
33 The proposed ‘protection’ does actually constitute a small reduction in pension entitlements for
this group. This is because state pension rights in excess of the single-tier level will only be
uprated between 2016 and SPA in line with CPI inflation, rather than average earnings growth, as
would happen under current legislation.
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