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

A single-tier pension: what does it really mean?
£7.70 per week at SPA. 46 As shown in Table A.4 in Appendix A, 47 on average those
who will have already accrued £146.30 under the current system by 2016 are
estimated to lose £2.58 per week of state pension income when we allow for
contributions up to SPA; this compares with an average loss of just 39p per week
under the assumption of contributions ceasing in March 2016.
Second, those who have had periods of contracting out in the past will find they
are able to work this off after April 2016. This accrual that they can potentially
achieve under the proposed system is considerably greater than the additional
pension rights they may be able to earn under the current system. Under the
current system, most of these individuals have already accrued full BSP and so
additional years of contributions will provide them only with additional S2P
entitlement (worth between £1.70 and £2.60 per week in state pension income
for each additional year of contributions). 48 In contrast, under the proposed
system, these individuals would be able to accrue £4.18 of weekly state pension
income for each year’s contribution. Comparing Table 4.4 with Table 4.5 later, we
can see that only 5% of those with more than 10 years of contracting out stand to
gain immediately from the single-tier pension (with the average gain being 52p
per week of state pension income); however, once we allow for these individuals
to continue contributing up to SPA, the proportion gaining rises to 39% and the
average gain increases to £2.07 per week.
Across the sample as a whole, 43% of individuals would gain in terms of income
at SPA, allowing for continued contributions up to SPA. This compares with just
18% who are estimated to gain under the assumption that contributions cease in
2016 (see Table 4.4). With contributions continuing up to SPA, 26% of
individuals (17% of men and 47% of women) would see an increase in state
pension income of at least £5 a week; 13% (7% of men and 26% of women)
would see an increase of at least £10 per week.
Table 4.5 shows the proportion of individuals with certain characteristics who
gain and lose from the proposed reforms under the assumption that individuals
continue contributing until they reach the SPA; this is similar to the analysis
presented in Table 4.4. Ignoring the possibility of future accrual (as we did at the
start of this section) understates both the proportion of individuals who lose
from the reform and the proportion who win. We found above that 3% of men
and 6% of women are estimated to lose more than £1 per week in pension
income at the SPA from the proposed reform if they make no further
contributions after 2016. These figures increase to 21% and 14% respectively if
we assume individuals continue contributing until the SPA. If we assume
contributions cease in 2016, 6% of men and 44% of women are estimated to gain
46 This calculation is based on someone earning at or above the upper accrual point (UAP) for three
years from April 2016 to March 2019 and accruing additional S2P entitlement for this activity.
47 http://www.ifs.org.uk/docs/report_single-tier_pension_appendices.pdf.
48
This figure decreases over time as S2P accrual gradually becomes flat-rate and the maximum
S2P accrual converges to £1.70.
38