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

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