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 />
legislation. This is described briefly in the next paragraph for completeness.<br />
However, given the range of activ<strong>it</strong>ies that earn ent<strong>it</strong>lement to both BSP and S2P<br />
under the current system – and therefore the likelihood that many people will<br />
have relatively high state <strong>pension</strong> ent<strong>it</strong>lements in the future under current<br />
legislation – most people in the long run should not expect to be in this pos<strong>it</strong>ion. 63<br />
<strong>The</strong> PCGC level is increased each year in line w<strong>it</strong>h average earnings. State <strong>pension</strong><br />
income under the current system is increased less quickly than this. <strong>The</strong>refore,<br />
under the current system, there could be some individuals whose state <strong>pension</strong><br />
income is sufficient to remove them from PCGC eligibil<strong>it</strong>y at SPA but who will fall<br />
back onto <strong>mean</strong>s-tested benef<strong>it</strong>s at older ages. As an example, a <strong>single</strong> low earner<br />
born in 1986 who accrued 28 years of contributions to BSP and S2P would find<br />
that their state <strong>pension</strong> income from the current system would fall below the<br />
PCGC level by age 73; this would rise to age 90 if they had accrued 35 years of<br />
contributions, as shown in Figure 5.3.<br />
Figure 5.3. Falling onto <strong>mean</strong>s-tested benef<strong>it</strong>s?<br />
Age at which state <strong>pension</strong> income under<br />
current system falls below PCGC<br />
118<br />
113<br />
108<br />
103<br />
98<br />
93<br />
88<br />
83<br />
78<br />
73<br />
68<br />
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48<br />
Number of years of contributions<br />
Low earner High earner<br />
Note: This graph is for someone contracted in, aged 16 in 2002–03, and who is an employee<br />
continuously from 2002–03, so someone w<strong>it</strong>h 10 years of contributions here is assumed to start<br />
work in the 2002–03 tax year and stop in 2012–13. <strong>The</strong> low earner is assumed to earn between<br />
the LEL and the LET in every year they are in work (or, equivalently, is engaged in some form of<br />
S2P-cred<strong>it</strong>able activ<strong>it</strong>y), whereas the high earner is assumed to earn at or above the UEL in each<br />
year. <strong>The</strong> level of the BSP is assumed to increase w<strong>it</strong>h the triple lock until April 2015 and then w<strong>it</strong>h<br />
average earnings growth thereafter, whereas the value of the <strong>single</strong>-<strong>tier</strong> <strong>pension</strong> is assumed to be<br />
£146.30 in 2013–14 earnings terms and uprated w<strong>it</strong>h average earnings growth after 2016. <strong>The</strong><br />
<strong>pension</strong> cred<strong>it</strong> guarantee cred<strong>it</strong> level is uprated w<strong>it</strong>h average earnings growth.<br />
Source: Authors’ calculations.<br />
63 DWP estimates that, even by 2020, approximately 85% of people reaching SPA will have 35 or<br />
more qualifying years, though these qualifying years will include years of self-employment and<br />
other activ<strong>it</strong>ies that accrue BSP but not S2P ent<strong>it</strong>lement.<br />
56