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 />
earner would expect to get by £26 per week. <strong>For</strong> the low earner, this last reform<br />
returned their expected <strong>pension</strong> to about £10 a week below the level that was<br />
implied by the pre-1981 earnings-indexed BSP.<br />
State <strong>pension</strong> reforms since 1974 first dramatically increased the amount of state<br />
<strong>pension</strong> that higher earners could receive from the state, then gradually reduced<br />
the add<strong>it</strong>ional <strong>pension</strong> available to higher earners. <strong>The</strong> biggest effect on many,<br />
particularly low earners, was the decision to index the basic state <strong>pension</strong> in line<br />
w<strong>it</strong>h prices after 1981. This significantly reduced future ent<strong>it</strong>lements. Reforms to<br />
the earnings-related element and cred<strong>it</strong>ing of unpaid activ<strong>it</strong>ies from 2000<br />
onwards have benef<strong>it</strong>ed lower earners. <strong>The</strong> combined effect of these reforms<br />
<strong>mean</strong>s that high earners in earlier cohorts will have received relatively higher<br />
state <strong>pension</strong> ent<strong>it</strong>lements than high earners in later cohorts, while low (or non-)<br />
earners in later cohorts have tended to fare better than low (or non-) earners in<br />
earlier cohorts.<br />
Figure 6.2. State <strong>pension</strong> income at SPA for example low- and highearning<br />
men, by cohort<br />
£ per week (2013–14 earnings terms)<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
1930 1935 1940 1945 1950 1955 1960 1965<br />
Low earner High earner<br />
Note: This graph is for men born in different years, who are assumed to be employed and to be<br />
contracted in to the state second-<strong>tier</strong> <strong>pension</strong> for all years (where relevant) between ages 16 and<br />
64. <strong>The</strong> low earner is assumed to earn at fractionally above the LEL, while the high earner is<br />
assumed to earn at the UEL. <strong>The</strong> figure excludes ent<strong>it</strong>lement to the graduated retirement <strong>pension</strong>.<br />
Source: Authors’ calculations.<br />
This is illustrated in Figure 6.2, which shows state <strong>pension</strong> income at SPA for<br />
example low- and high-earning men from a number of different cohorts. (<strong>The</strong>se<br />
example low and high earners have the same type of career history as the<br />
individuals depicted in Figure 6.1.) <strong>For</strong> low earners, later cohorts will receive<br />
more state <strong>pension</strong> income than earlier cohorts did – w<strong>it</strong>h the 1965 cohort<br />
expecting to receive £167 a week at SPA under current legislation (in 2013–14<br />
earnings terms), compared w<strong>it</strong>h just £101 a week for the 1940 cohort, who<br />
reached SPA in 2005. Conversely, higher earners fared better in earlier cohorts,<br />
w<strong>it</strong>h state <strong>pension</strong> ent<strong>it</strong>lements peaking (at £300 a week) among the 1935<br />
cohort, who reached SPA in 2000, compared w<strong>it</strong>h £265 a week for the 1965<br />
64