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

Short-run effect on pensioner incomes
Table 4.2. Percentage of individuals entitled to more and less than the full
single-tier amount, under current and proposed systems
State pension entitlement
Current system
Men Women All
£1 or more below £146.30 p.w. 68.4 91.0 75.4
Within £1 of £146.30 p.w. 2.3 1.5 2.1
£1 or more above £146.30 p.w.
Single-tier system
29.3 7.5 22.5
£1 or more below £146.30 p.w. 65.7 77.3 69.3
Within £1 of £146.30 p.w. 5.0 15.3 8.2
£1 or more above £146.30 p.w. 29.3 7.5 22.5
Sample size 741 334 1,075
Source: Authors’ calculations using English Longitudinal Study of Ageing and National Insurance
administrative data.
It can also be noted from Table 4.2 that only 8% of individuals in our cohorts
would actually receive pension income at the SPA equal to the proposed singletier
amount – 23% would enjoy a higher income due to pre-existing entitlements,
while 69% would have a pension income lower than the full single-tier amount.
This may make the simple, largely flat-rate nature of the policy more challenging
to communicate, as few individuals will initially receive exactly the full single-tier
pension level at SPA.
Implications of historic contracting out for entitlements under the single-tier
system
One reason why a significant fraction of individuals in these cohorts will have a
single-tier pension below £146.30 is that many individuals have been contracted
out of the second-tier state pension (SERPS/S2P) in the past. While these
individuals may appear to have relatively low state pension entitlements, they
should have accrued rights in a private pension that (in expectation) are worth at
least as much as the state pension forgone and they will have paid
commensurately lower NI contributions. It is therefore interesting to illustrate
what Figures 4.1 and 4.3 look like if we include these contracted-out pension
entitlements as well – that is, if we pretend that these individuals had instead
been contracted in throughout their working lives. This is shown in Figure 4.4,
with the proportions above and below the single-tier amount summarised in
Table 4.3.
If no individual had ever contracted out, 95% of men and 67% of women would
be entitled to a state pension income under the new system of at least the full
single-tier amount based on their accrual up to 2016 (compared with 34% and
23% respectively shown in Table 4.2). Under the current system, assuming no
past contracting out, 91% of men and 39% of women would have a state pension
income of at least £146.30.
In the absence of contracting out, a larger proportion of individuals would see
their pension entitlement boosted to the full £146.30 by the new system: 4% of
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