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State Pension

Volume 403: debated on Monday 10 March 2003

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To ask the Secretary of State for Work and Pensions if he will estimate the cost to the Exchequer, net of savings in means-tested benefits and of non-introduction of the pension credit and of additional income tax revenue, of an increase of £5 per week in the basic state pension together with the introduction of age additions of £5 per week at age 75–79 and £10 per week at age 80 years and over, on the basis that the age additions for those aged 75 to 79 and 80 years and over are paid in full, regardless of contribution record. [94404]

Our priority is to target help on those current pensioners who have the lowest incomes. While it is true that older pensioners tend to be poorer on average, income inequality is far more pronounced across the whole pensioner population than between pensioners of different ages. For example, the median net income of the richest fifth of pensioner couples is around four times that of the poorest fifth.Age additions are not the most effective way to target those pensioners with the lowest incomes. For example, just under half of all minimum income guarantee claimants are aged under 75.From October 2003, the poorest third of pensioner households will have gained over £1,500 a year in real terms as a result of the reforms introduced by this Government.If the maximum rate payable of the basic state pension was increased by £5 per week and weekly age additions of £5 were introduced for people aged 75-79 and £10 for people aged 80 and over in 2003-04, we estimate that the increase in public expenditure could be in the region of £0.5bn. This assumes that pension credit is not introduced and spending is re-directed into the basic state pension. It is also calculated on the generous assumption that consequent savings in other benefits and any additional tax yield are channelled back into the basic state pension.In this scenario, many of the poorest pensioners are no better off than they would have been under pension credit because their increased basic state pension is completely offset by the reduction in their minimum income guarantee. Instead, expenditure is targeted on those further up the income distribution. In addition many pensioners with modest private pension provision would be worse off under this scenario than under pension redit.For example, a person aged 75 is receiving a full basic state pension and has a small private pension worth £10 per week. Under these proposals, they would receive a basic state pension of £87.45, plus their private pension of £10 per week and would be topped up to £102.10 by the minimum income guarantee.Under pension credit they would receive £77.45 from the basic state pension and would still be topped up to the guarantee of £102.10. However in addition they would also receive a savings credit of £6 per week, giving a total weekly income of £108.10. This person is over £300 per year better off under pension credit than under the suggested proposals.Notes:1. Estimates are in cash terms for Great Britain and are rounded to the nearest £0.5bn.2. The estimate takes account of offsetting savings in income related benefits and additional tax yield. Income related benefit offsets are calculated using the Department for Work and Pensions Policy Simulation Model for 2003/04. Additional tax yield is calculated by the Inland Revenue based upon the Survey of Personal Incomes2000/01, projected to 2003/04.3. Calculations assume the maximum rate payable of the Basic State Pension is increased by £5 per week and all other payments proportionately and that age additions of 5 per week are paid to all those aged 75–79 and £10 per week to those aged 80 and over.4. For modelling purposes, the pension credit is assumed to be in place throughout2003/04. In fact, the pension credit will begin in October 2003.5. Projections of distributional consequences for 2003/04 are subject to a variety of assumptions and should be treated with caution.


Department for Work and Pensions calculations.