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

7. Conclusions
Pensions Bill 2013–14 proposed a significant reform of state pension rules in the
UK – bringing about a system under which the same state pension income will be
accrued for a wide range of activities during working life. This reform marks
perhaps the final step on a journey to unpick the effects of the 1975 introduction
of SERPS. Indeed, the proposed system will look rather similar to the state
pension system that was in place in 1974, although with more extensive crediting
for periods of unpaid activity. The short- and long-run effects of the proposed
reforms are very different.
The short-run effect of this policy is to equalise pension incomes for those close
to retirement more quickly than would be achieved under current legislation.
Few people living in the UK will see any significant reduction in their already
accrued rights but some will see significant increases. In particular, this applies to
those who had significant periods out of paid work caring for children prior to
2002 and to the long-term self-employed. Using a unique new data set that links
individuals’ National Insurance contribution histories to detailed survey data on
their socio-demographic, financial and health circumstances, we have been able
to analyse in detail how the proposed reforms will affect the state pension
entitlements and means-tested benefit entitlements of those reaching state
pension age (SPA) between April 2016 and March 2020.
Our analysis suggests that 27% of those reaching SPA between April 2016 and
March 2020 (34% of men and 11% of women) would anyway accrue state
pension rights worth more than the level of the single-tier pension. This group
will be largely unaffected by the proposed reforms.
In these short-run cohorts, 19% of individuals (21% of men and 14% of women)
stand to receive a lower state pension at SPA under the proposed system than
under the current system. At the same time, 43% of individuals (35% of men and
61% of women) will see an increase in state pension income; 26% of individuals
would see an increase of at least £5 per week in their state pension income and
13% would see an increase of at least £10 per week.
Those who are likely to see the largest increases in their state pension income are
women, people with relatively low wealth and those who have been selfemployed.
On average, individuals in these cohorts living in England are set to
gain £2.74 per week in state pension income at SPA. This figure is £5.23 for
women, compared with £1.62 for men. We estimate that those who have had at
least 10 years in self-employment will gain on average £7.51, compared with
£2.19 among those who have never been self-employed. Those in the richest
wealth quintile will gain £2.18 per week on average, compared with £3.97 per
week among the lowest wealth quintile.
Some of these increases in state pension income will be offset by the loss of
means-tested benefits and, for some groups, the abolition of savings credit
alongside the introduction of the single-tier pension will actually lead to an
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