Skip to main content

Adult Disadvantage

Volume 401: debated on Thursday 20 March 2003

The text on this page has been created from Hansard archive content, it may contain typographical errors.

To ask the Secretary of State for Work and Pensions (1) pursuant to the answer of 4 December 2002, Official Report, column 918W, on adult disadvantage, if he will re-calculate the figures to include retirement on 31 December 2002; [97848](2) if he will update the three tables to include figures for retirement on 31 December 2002. [99334]

The information requested is in the following tables.In the answer I gave to the hon. Member on 4 December,

Official Report, column 918W, data in the final column was in 2000 earnings terms, but was mis-labelled as being in 2001 earnings terms. The column heading has now been corrected. Also, the table headings have been revised so as to, in each case, correctly describe the contents in the tables.

Table 1, includes the data underlying the graph on page 19 of "Modernising Annuities" published by Inland Revenue and the Department for Work and Pensions in February, 2001. Although a stylised model, it is the data in this table that we believe best characterises the investment strategy of many pension funds.

Table 1: Pension entitlement assuming the fund switches from equities to gilts over the last 10 years of growth—an extra 10 per cent. is invested in gilts in each successive year

Year started contributing

Retire at end of year

Years of contribution

Lump sum built up ( cash terms) (£)

Lump sum in 2000 earnings terms (£)

Annuity rate in last year of contribution (Percentage)

Pension at retirement (nominal terms, weekly) (£)

Pension at retirement (2000 earnings terms, weekly) (£)

195619863117,68338,72214.148105
195719873121,06742,81714.057115
195819883123,84644,53513.763117
195919893125,57943,82414.069118
196019903127,86843,49215.282128
196119913134,24549,64514.696140
196219923141,17256,33813.2105143
196319933153,66971,32011.7121161
196419943147,50060,90911.6106135
196519953157,03770,94511.3124155

Given recent falls in the stock markets, table 3 (funds invested 100 per cent. in equities in all years) shows the largest fall in pension income when comparing the results for 2001 with 2002. However, it is highly unlikely that an individual fund will actually follow this particular investment strategy.

Investors will also be interested in expected pension income throughout their retirement and not just the income in the first year. The information does not give an indication of how this first figure may have increased for successive cohorts of pensioners due to increased life expectancy.

Some of the results for 2001 are marginally different to those presented in my previous answer. This is because the FTSE 30 and gilts indices for 2001 have since been revised.

The assumptions involved in the current model are the same as those in my previous answer, and re-stated as follows:

A person contributes to a pension fund for 31 years;
Contributions are made at 10 per cent. of gross earnings;
Earnings in each year are £20,000 in 2000 earnings terms. The earnings growth index was supplied by the Office for National Statistics:
50 per cent. of each year's contributions are made at the start of each year and 50 per cent. at the end of each year;

The return on equities is in line with the FTSE 30. The same figures were used in the answer I gave to the hon. Member on 27 June 2002, Official Report, column 387, to enable consistency with that answer. The use of the FTSE 30 price index, however, may underestimate the returns on investing in equities, as this index takes account of capital gains/losses but excludes dividend payments.

The return on gilts is in line with the Barclays Capital Total Return Index. The same figures were used in the answer I gave to the hon. Member on 27 June 2002, Official Report, column 387, to enable consistency with that answer.

A 1 per cent. fee is deducted at the end of each year

Upon retirement on 31 December of the given year, an annuity is purchased at the prevailing rate in that year, and as indicated in the tables. The source of this is Annuity Direct.

Table 1: Pension entitlement assuming the fund switches from equities to gilts over the last 10 years of growth—an extra 10 per cent. is invested in gilts in each successive year

Year started contributing

Retire at end of year

Years of contribution

Lump sum built up (cash terms) (£)

Lump sum in 2000 earnings terms (£)

Annuity rate in last year of contribution (Percentage)

Pension at retirement (nominal terms, weekly) (£)

Pension at retirement ( 2000 earnings terms, weekly) ( £)

196619963160,72272,90311.0129155
196719973171,04581,81610.4141163
196819983185,60393,8189.4155169
196919993180,17383,8178.9138144
197020003185,44585,4459.1149149
197120013183,56380,0508.9142136
197220023187,40080,8367.5126117

Table 2: Pension entitlement assuming that 50 per cent. of the fund is invested in gilts in each of the last five years of growth

Year started contributing

Retire at end of year

Years of contribution

Lump sum built up (cash terms) (£)

Lump sum in 2000 earnings terms (£)

Annuity rate in last year of contribution ( Percentage)

Pension at retirement (nominal terms, weekly) (£)

Pension at retirement ( 2000 earnings terms, weekly) (£)

195619863119,21142,06814.152114
195719873120,98842,65614.056115
195819883121,80540,72313.757107
195919893126,91246,10714.072124
196019903128,66844,74015.284131
196119913135,40751,32914.699144
196219923140,73255,73613.2104142
196319933146,84362,24811.7106140
196419943149,10562,96711.6109140
196519953153,29366,28711.3116144
196619963156,81468,21111.0120145
196719973161,24970,53510.4122140
196819983171,33478,1799.4129141
196919993179,66283,2848.9137143
197020003175,95275,9529.1133133
197120013171,30568,3088.9122116
197220023162,78658,0717.59184

Table 3: Pension entitlement assuming the fund remains in equities in all years

Year started contributing

Retire at end of year

Years of contribution

Lump sum built up ( cash terms) (£)

Lump sum in 2000 earnings terms (£)

Annuity rate in last year of contribution ( Percentage)

Pension at retirement (nominal terms, weekly) (£)

Pension at retirement ( 2000 earnings terms, weekly) (£)

195619863120,11144,03914.154119
195719873125,47751,77914.068139
195819883123,48943,86813.762116
195919893129,43450,42814.079136
196019903129,46245,98015.286135
196119913133,09747,98114.693135
196219923134,37747,03913.287120
196319933141,05854,56211.792123
196419943144,52657,09511.699127
196519953146,35357,65611.3101126
196619963152,04962,49011.0110132
196719973157,52266,24210.4114132
196819983167,34273,8049.4122133
196919993174,25477,6298.9128133
197020003169,93469,9349.1122122
197120013158,70056,2328.910096
197220023143,03639,8047.56258