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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4. Short-Run Effect of the Proposed<br />
Reforms on Pensioner Incomes<br />
<strong>The</strong> proposed reforms have different implications in the short run from in the<br />
long run. This is because the state <strong>pension</strong> ent<strong>it</strong>lements of people retiring in the<br />
next few decades are heavily affected by historic <strong>pension</strong>s legislation, which in<br />
particular treated unpaid activ<strong>it</strong>ies less generously. <strong>The</strong> proposed reforms aim to<br />
‘protect’ <strong>pension</strong> ent<strong>it</strong>lements that have already been accrued. <strong>The</strong>refore, the<br />
main effect in the very short term is to increase ent<strong>it</strong>lements for some groups,<br />
while leaving other groups’ ent<strong>it</strong>lements largely unchanged. <strong>The</strong>re are, however,<br />
some notable short-term losers, such as those who would have accrued fewer<br />
than 10 years of contributions by 2016; these people would receive no state<br />
<strong>pension</strong> income under the proposed rules unless they were able and chose to pay<br />
voluntary class 3 National Insurance contributions to improve their contribution<br />
records.<br />
In this chapter, we describe who, in the short term, will see their state <strong>pension</strong><br />
rights increased or decreased as a result of the proposed reforms. In particular,<br />
we focus on those who will be reaching SPA between 6 April 2016 and 5 April<br />
2020 – this group includes women born between 6 April 1953 and 5 July 1954<br />
and men born between 6 April 1951 and 5 July 1954. We make use of a unique<br />
data set that links individuals’ NI contribution histories w<strong>it</strong>h detailed survey<br />
information on their socio-demographic characteristics, financial circumstances<br />
and health. We briefly describe the data in Section 4.1.<br />
To make clear how the proposed reforms affect household incomes, we start by<br />
describing how they would affect individuals’ weekly state <strong>pension</strong> income at<br />
SPA (Section 4.2) and the present discounted value of their <strong>pension</strong> income over<br />
the whole of their retirement (Section 4.3). Obviously, for those who expect to be<br />
ent<strong>it</strong>led to some <strong>mean</strong>s-tested benef<strong>it</strong>s after SPA, some of these gains in state<br />
<strong>pension</strong> income will be offset by a reduction in <strong>mean</strong>s-tested ent<strong>it</strong>lement. Section<br />
4.4 therefore discusses how total household income will be affected by these<br />
reforms after taking into account eligibil<strong>it</strong>y for <strong>mean</strong>s-tested <strong>pension</strong> cred<strong>it</strong> and<br />
the planned abol<strong>it</strong>ion of the savings cred<strong>it</strong> component. Section 4.5 summarises.<br />
4.1 Data<br />
In this chapter, we make use of a unique data set containing detailed household<br />
micro data linked to individual NI records to describe how the first few cohorts of<br />
individuals to retire under the new <strong>single</strong>-<strong>tier</strong> <strong>pension</strong> would be affected by the<br />
reforms. <strong>The</strong> English Long<strong>it</strong>udinal Study of Ageing (ELSA) interviews a<br />
representative sample of the English household population aged 50 and over<br />
every two years – following the same individuals over time. <strong>The</strong> survey asks a<br />
huge range of questions covering – among other things – demographic<br />
characteristics, socio-economic circumstances, wealth, physical and mental<br />
health, social participation and cogn<strong>it</strong>ive function. Survey respondents were also<br />
25<br />
© Inst<strong>it</strong>ute for Fiscal Studies