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

Short-run effect on pensioner incomes
Table 4.5). The gains are greater on average among women than men – £5,381
compared with £3,396. This is not only because women gain more state pension
income on average but also because they are expected to live for longer post-SPA
on average. Low-wealth individuals gain more on average than high-wealth
individuals: those in the poorest wealth quintile gain £5,607 on average
compared with £2,368 among the highest wealth quintile.
4.4 Interaction with means-tested benefits
So far, this chapter has examined how state pension income will change as a
result of the proposed single-tier reforms. As Table 4.5 showed, the largest gains
in state pension income are concentrated among lower-wealth households;
however, these households are more likely to be eligible for means-tested
benefits, and so some of the changes in state pension income will be offset by
changed entitlement to means-tested benefits. Ignoring this interaction
overstates the cash gains and losses from the reforms for those who receive
means-tested benefits. While individuals might of course prefer to have nonmeans-tested
income rather than means-tested income, even if the amounts are
the same, it is important to examine whether households’ net income in
retirement will actually be increased as a result of the state pension changes
described above. Furthermore, although the removal of the PCSC is a coherent
part of the single-tier proposals, its proposed abolition also has the potential to
reduce income for these cohorts.
To assess the potential impact of the reforms on net household incomes, we have
estimated means-tested benefit entitlement under the current and proposed
systems, using information on state pension entitlements of the individual and
their partner (where relevant) from the NI data and information on the
individual’s and their partner’s private pension rights and household wealth
holdings from ELSA. In these calculations, we take into account entitlement to
means-tested pension credit but we ignore potential entitlement to other meanstested
benefits, in particular housing benefit and support for council tax. We also
assume full take-up of pension credit. Since, in reality, take-up is not complete,
we will be overstating the extent to which the gains from the single-tier pension
are offset by reduced means-tested benefit income.
Means-tested benefit entitlement depends not only on the income of the
individuals described above but also on the circumstances of their partners.
Therefore, in the analysis presented below, rather than focusing on income in the
year in which the individual reaches SPA (as we have done above), we instead
examine the family’s income in the year in which the last individual in the couple
reaches SPA. We have dropped from our sample a small number of individuals
(49 people, less than 5% of our sample) who reach SPA between 6 April 2016 and
5 April 2020 but who have significantly younger spouses (who reach SPA later
than 2026), since for these people this exercise would require examining income
a long time in the future.
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