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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A <strong>single</strong>-<strong>tier</strong> <strong>pension</strong>: <strong>what</strong> <strong>does</strong> <strong>it</strong> <strong>really</strong> <strong>mean</strong>?<br />
SPA than when we assume all contributions end in 2016. This suggests that, on<br />
average, the add<strong>it</strong>ional gains outweigh the add<strong>it</strong>ional losses. <strong>The</strong> exceptions to<br />
this are among individuals in the lowest two wealth quintiles, and among<br />
individuals w<strong>it</strong>h fewer than five years contracted out of SERPS/S2P. This is<br />
because few of the individuals w<strong>it</strong>h these characteristics would benef<strong>it</strong> from<br />
being able to ‘work off’ past periods of contracting out.<br />
In the remainder of this section we present figures that assume individuals<br />
continue contributing until SPA.<br />
Auto-cred<strong>it</strong>s under the <strong>single</strong>-<strong>tier</strong> <strong>pension</strong><br />
Currently, men aged between the female SPA and the male SPA receive automatic<br />
cred<strong>it</strong>s towards the BSP – that is, regardless of whether or not they are doing any<br />
cred<strong>it</strong>able activ<strong>it</strong>y, they automatically receive a BSP (but not S2P) cred<strong>it</strong> if they<br />
are aged above the female SPA but below their own SPA. As the female SPA rises<br />
to meet that for men, these ‘auto-cred<strong>it</strong>s’ are gradually being phased out. <strong>The</strong><br />
government has not yet decided whether auto-cred<strong>it</strong>s will continue to exist<br />
under the proposed <strong>single</strong>-<strong>tier</strong> system; this is still under consideration. <strong>The</strong><br />
analysis presented in this section assumes that auto-cred<strong>it</strong>s are discontinued.<br />
Among the sample we consider here, men born between 6 April 1952 and 5<br />
September 1953 (35% of men in our sample) could get at least one year of autocred<strong>it</strong>s<br />
between 2016 and SPA under the current system, if they have not already<br />
got 30 qualifying years for BSP. In our sample, 97% of the men born between<br />
these dates are expected already to have accrued 30 BSP qualifying years before<br />
they would potentially become eligible for auto-cred<strong>it</strong>s. <strong>The</strong>refore, for the vast<br />
major<strong>it</strong>y, the auto-cred<strong>it</strong>s would have no effect on state <strong>pension</strong> ent<strong>it</strong>lement<br />
under the current system.<br />
However, under the proposed <strong>single</strong>-<strong>tier</strong> <strong>pension</strong>, these auto-cred<strong>it</strong>s could have a<br />
much larger impact. <strong>For</strong> those eligible for auto-cred<strong>it</strong>s, following the evaluation<br />
of individuals’ foundation amounts in 2016, a year of auto-cred<strong>it</strong>s would boost<br />
<strong>single</strong>-<strong>tier</strong> ent<strong>it</strong>lement by £4.18 for all men w<strong>it</strong>h foundation amounts of less than<br />
£146.30. Of the men who could be eligible for auto-cred<strong>it</strong>s, 66% are estimated to<br />
have a foundation amount below £146.30. As described above, a large proportion<br />
of men who will have a foundation amount below this level are those who have<br />
had prolonged periods of contracting out. In our sample, 94% of men who could<br />
be eligible for auto-cred<strong>it</strong>s, who have a foundation amount of less than £146.30<br />
but who have a full BSP have contracted out at some point in the past.<br />
Maintaining auto-cred<strong>it</strong>s could, therefore, potentially be very generous to a group<br />
of relatively well-off individuals. It would add to the group of gainers that we<br />
have identified in this section and by much more than our ‘continue to SPA’<br />
assumption reveals, as the auto-cred<strong>it</strong>s would accrue to all men who would not<br />
otherwise accrue a qualifying year.<br />
To avoid the benef<strong>it</strong> of auto-cred<strong>it</strong>s accruing to individuals who have been<br />
contracted out for prolonged periods in the past – which was not intended under<br />
the current system – <strong>it</strong> might make sense at least to restrict these auto-cred<strong>it</strong>s<br />
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