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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Wider implications<br />
years – between ages 16 and 64. <strong>The</strong> high earner is assumed to have earned at<br />
the upper earnings lim<strong>it</strong> (UEL) for the same 49 years.<br />
At the age of 20 (in 1970), assuming these people knew their future earnings<br />
trajectories and believed that contemporaneous state <strong>pension</strong> legislation would<br />
continue, both these individuals would have expected to get a state <strong>pension</strong><br />
income at the age of 65 of £145 per week (in 2013–14 earnings terms) – that is, a<br />
full BSP indexed to growth in average earnings. In 1975, when these people were<br />
25, a new Social Secur<strong>it</strong>y Act was passed, which legislated for the original<br />
incarnation of SERPS. This hugely increased the income that the high earner<br />
would have expected to receive from the state <strong>pension</strong>, although <strong>it</strong> had<br />
essentially no effect on the low earner.<br />
Figure 6.1. Expected state <strong>pension</strong> income at SPA based on legislation in<br />
place when individuals were at different ages: men born in 1950<br />
Weekly state <strong>pension</strong> income<br />
(£; 2013–14 earnings terms)<br />
370<br />
350<br />
330<br />
310<br />
290<br />
270<br />
250<br />
230<br />
210<br />
190<br />
170<br />
150<br />
130<br />
110<br />
90<br />
70<br />
50<br />
1975 Social<br />
Secur<strong>it</strong>y Act<br />
1981 price<br />
indexation<br />
of BSP<br />
1986 Social<br />
Secur<strong>it</strong>y Act<br />
1995 Social<br />
Secur<strong>it</strong>y Act<br />
2000 Social<br />
Secur<strong>it</strong>y Act<br />
20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58<br />
Age<br />
Low earner High earner<br />
Note: This graph is for men born in 1950, who are assumed to be employed and to be contracted<br />
in to the state second-<strong>tier</strong> <strong>pension</strong> for all years (where relevant) between ages 16 and 64. <strong>The</strong> low<br />
earner is assumed to earn at fractionally above the LEL, while the high earner is assumed to earn<br />
at the UEL. <strong>The</strong> figure includes all major state <strong>pension</strong> reforms but excludes minor changes that<br />
have happened to uprating in the past. <strong>The</strong> figure also excludes ent<strong>it</strong>lement to the graduated<br />
retirement <strong>pension</strong>.<br />
Source: Authors’ calculations.<br />
It quickly became apparent that the costs of the state <strong>pension</strong> system implied by<br />
the 1975 Act were unsustainable. Against this backdrop, the Conservative<br />
government in 1981 decided to break the link between the BSP and average<br />
earnings and instead uprate using the retail price index. This decision affected<br />
both the high and low earners and reduced the amount that each of them would<br />
have expected to get from the BSP by £35 a week.<br />
Subsequent reforms of SERPS (in 1986 and 1995) reduced the value of SERPS for<br />
the high earner by £44 a week in total. Finally, at the age of 50, the introduction<br />
of S2P in the 2000 Social Secur<strong>it</strong>y Act increased the state <strong>pension</strong> that the low<br />
63