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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Long-run effect on <strong>pension</strong>er incomes<br />
5.4 How <strong>does</strong> the proposed system affect who would<br />
qualify for <strong>mean</strong>s-tested benef<strong>it</strong>s and <strong>what</strong> they<br />
would receive?<br />
In the preceding sections we focused on the impact of the proposed reforms on<br />
individuals’ state <strong>pension</strong> incomes. However, the proposals set out in the<br />
Pensions Bill also affect ent<strong>it</strong>lements to <strong>mean</strong>s-tested benef<strong>it</strong>s in two distinct<br />
ways. First, the proposals affect the level of individuals’ state <strong>pension</strong> income in<br />
retirement, which may move people above or below the <strong>mean</strong>s-testing<br />
thresholds for various benef<strong>it</strong>s. Second, the Pensions Bill proposes abolishing one<br />
existing <strong>mean</strong>s-tested benef<strong>it</strong> – the savings cred<strong>it</strong> component of <strong>pension</strong> cred<strong>it</strong><br />
(PCSC). Since these effects arise from independent aspects of the reform (in other<br />
words, PCSC could be abolished w<strong>it</strong>h or w<strong>it</strong>hout the move to the <strong>single</strong>-<strong>tier</strong><br />
<strong>pension</strong> and the <strong>single</strong>-<strong>tier</strong> <strong>pension</strong> could be introduced w<strong>it</strong>h or w<strong>it</strong>hout<br />
abolishing PCSC), we consider each in turn.<br />
<strong>The</strong> effect of the <strong>single</strong>-<strong>tier</strong> <strong>pension</strong> on ent<strong>it</strong>lement to <strong>mean</strong>stested<br />
benef<strong>it</strong>s<br />
As described in Sections 5.1 and 5.2, in the long run almost all individuals will<br />
accrue lower state <strong>pension</strong> ent<strong>it</strong>lement under the proposed system than under<br />
the current system. Such a reduction in the generos<strong>it</strong>y of the state <strong>pension</strong> would<br />
– other things being equal – increase the dependence of individuals on <strong>mean</strong>stested<br />
benef<strong>it</strong>s. <strong>The</strong> <strong>pension</strong> cred<strong>it</strong> guarantee cred<strong>it</strong> (PCGC) is available to <strong>single</strong><br />
<strong>pension</strong>ers w<strong>it</strong>h incomes below £145.40 per week (2013–14 terms). 62 Figure 5.1<br />
indicates that, under the current state <strong>pension</strong> system, a low-earning individual<br />
born in 1986 would require 28 years of contributions towards the BSP and S2P in<br />
order to accrue a state <strong>pension</strong> income at the SPA in excess of £145.40, while<br />
under the proposed system such an individual would require 35 years of<br />
contributions. <strong>The</strong>refore individuals w<strong>it</strong>h between 28 and 35 years of<br />
contributions may be ent<strong>it</strong>led to PCGC at the SPA under the proposed <strong>pension</strong><br />
system (provided they did not have other income sources or wealth that pushed<br />
them above the threshold), while these individuals would not be ent<strong>it</strong>led to any<br />
PCGC at the SPA under the current system.<br />
While more people are likely to qualify for <strong>mean</strong>s-tested PCGC at SPA under the<br />
proposed system than under the current system, <strong>it</strong> is possible that some<br />
individuals who would not be eligible for <strong>mean</strong>s-tested benef<strong>it</strong>s at SPA under the<br />
current system would fall onto them as they get older, given the way that state<br />
<strong>pension</strong> income and <strong>mean</strong>s-testing thresholds are indexed under current<br />
62 Income for the purposes of assessing PCGC ent<strong>it</strong>lement includes the following: state <strong>pension</strong><br />
income, occupational or private <strong>pension</strong> income, annu<strong>it</strong>y income, earnings, most social secur<strong>it</strong>y<br />
benef<strong>it</strong>s (excluding housing benef<strong>it</strong>, support for council tax, attendance allowance, disabil<strong>it</strong>y living<br />
allowance, and any Social Fund payments), and cap<strong>it</strong>al income over £10,000. See<br />
http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/pc10s-guide-to<strong>pension</strong>-cred<strong>it</strong>/income-rules/#counts<br />
for an exhaustive list.<br />
55