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

Wider implications
years – between ages 16 and 64. The high earner is assumed to have earned at
the upper earnings limit (UEL) for the same 49 years.
At the age of 20 (in 1970), assuming these people knew their future earnings
trajectories and believed that contemporaneous state pension legislation would
continue, both these individuals would have expected to get a state pension
income at the age of 65 of £145 per week (in 2013–14 earnings terms) – that is, a
full BSP indexed to growth in average earnings. In 1975, when these people were
25, a new Social Security Act was passed, which legislated for the original
incarnation of SERPS. This hugely increased the income that the high earner
would have expected to receive from the state pension, although it had
essentially no effect on the low earner.
Figure 6.1. Expected state pension income at SPA based on legislation in
place when individuals were at different ages: men born in 1950
Weekly state pension income
(£; 2013–14 earnings terms)
370
350
330
310
290
270
250
230
210
190
170
150
130
110
90
70
50
1975 Social
Security Act
1981 price
indexation
of BSP
1986 Social
Security Act
1995 Social
Security Act
2000 Social
Security Act
20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58
Age
Low earner High earner
Note: This graph is for men born in 1950, who are assumed to be employed and to be contracted
in to the state second-tier pension for all years (where relevant) between ages 16 and 64. The low
earner is assumed to earn at fractionally above the LEL, while the high earner is assumed to earn
at the UEL. The figure includes all major state pension reforms but excludes minor changes that
have happened to uprating in the past. The figure also excludes entitlement to the graduated
retirement pension.
Source: Authors’ calculations.
It quickly became apparent that the costs of the state pension system implied by
the 1975 Act were unsustainable. Against this backdrop, the Conservative
government in 1981 decided to break the link between the BSP and average
earnings and instead uprate using the retail price index. This decision affected
both the high and low earners and reduced the amount that each of them would
have expected to get from the BSP by £35 a week.
Subsequent reforms of SERPS (in 1986 and 1995) reduced the value of SERPS for
the high earner by £44 a week in total. Finally, at the age of 50, the introduction
of S2P in the 2000 Social Security Act increased the state pension that the low
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