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Pensions

Volume 451: debated on Wednesday 8 November 2006

To ask the Secretary of State for Work and Pensions how many of the 170,000 private sector employers listed as offering employer pension contributions worth at least 3 per cent. of gross salary in table 1.xiii of the Pensions White Paper, “Security in retirement: towards a new pensions system” use automatic enrolment; and how many employees work for (a) those who use and (b) those who do not use automatic enrolment. (90341)

There is no official statistic of the number requested. However the Department has estimated, using data from the Employers Pension Provision Survey (2005) and Small and Medium-sized Enterprise Statistics (2004), that about 3 per cent (5,500 employers rounded to the nearest 100) of the 170,000 private sector employers listed as offering employer pension contributions worth at least 3 per cent. of gross salary in table 1 .xiii of the Pensions White Paper “Security in retirement: towards a new pension system” use automatic enrolment into their largest scheme.

Of the 9.2 million employees that work for employers offering employer pension contributions worth at least 3 per cent. of gross salary we estimate that (a) about 1.8 million employees work for those who currently use automatic enrolment; and (b) about 7.3 million employees work for those who do not currently use automatic enrolment.

Numbers are rounded to two significant figures.

To ask the Secretary of State for Work and Pensions what assumptions about pensioner incomes from private saving underpin the projections in figure 9 of his White Paper on Pensions. (90420)

Projected incomes from private pension saving are modelled using the Department’s Pensim2 microsimulation model. This includes detailed projections of labour market histories, pension scheme membership, contracting-out status and contributions. Incomes from other (non-pension) private saving are assumed to grow broadly in line with earnings. The projections exclude the effect of any increases in private pension provision resulting from the introduction of personal accounts.

To ask the Secretary of State for Work and Pensions what assumption about the level of real earnings growth over the period 2006-07 to 2049-50 underpins the calculations in the Pensions White Paper “Security in retirement: towards a new Pensions System”. (90422)

For the period to 2010-11, the assumptions on earnings growth used in the White Paper are in line with the economic assumptions described in the Budget 2006 Financial Statement and Budget report. For the period beyond 2010-11, real earnings are assumed to increase at 2 per cent. per year.

To ask the Secretary of State for Work and Pensions (1) what estimate he has made of the number of people who will reach state pension age on or after 6 April 2010 who will, excluding any qualifying years derived from class 3 national insurance contributions, have at least 30 qualifying years but not enough qualifying years to receive a full basic state pension under the present system; (90426)

(2) how many individuals who will reach state pension age on or after 6 April 2010 have paid Class 3 national insurance contributions.

The information is not available in the format requested. Such information as is available is shown as follows:

There are estimated to be around 1.1 million individuals who will reach state pension age on or after 6 April 2010 who have paid Class 3 national insurance contributions for the 2003-04 tax year or an earlier year.

Notes:

1. Figure is rounded to the nearest 100,000, and relates to people estimated to be resident in the UK.

2. Figure only takes into account Class 3 national insurance contributions paid in or before the 2003-04 tax year. Data after this year is not available.

3. Figure includes all individuals who will reach state pension age on or after 6 April 2010 who have paid at least one Class 3 national insurance contribution in or before the 2003-04 tax year.

4. Figure does not take into account the effect of deaths, or of people moving abroad, after 2003-04.

5. Figures are from a 1 per cent. sample and so are subject to sampling variation.

Source:

Lifetime Labour Market Database 2, which is a 1 per cent. sample of national insurance records.

To ask the Secretary of State for Work and Pensions which measure of earnings growth he plans to use (a) to uprate the basic state pension from 2012 and (b) to uprate the band of earnings of which contributions to personal accounts will be paid. (90435)

The White Paper “Security in retirement: towards a new pensions system” states that the earnings link will be restored to the basic state pension. This will be done, subject to affordability and the fiscal position, in 2012 but in any event at the latest by the end of the next Parliament. The restoration of the earnings link together with other state pension reforms will help provide a firm state underpin for the introduction of personal accounts in 2012, which will make it easier for more people to save more for their retirement.

Assumptions on earnings growth used in the White Paper are in line with economic assumptions described in the Budget 2006 Financial Statement and Budget Report, where earnings are assumed to increase in real terms at a rate of two per cent. per year in the longer term. The Government currently use the calculation of average earnings indices from the Office for National Statistics to uprate social security benefits such as the pension credit standard minimum guarantee. We expect to use average earnings as the index for uprating the basic state pension but will keep the exact measure to be used under review. We will set out our proposals on personal accounts later this year.

To ask the Secretary of State for Work and Pensions if he will estimate the net value of state pension and pension credit payments to the median earner illustrated in figure 8 of the White Paper (a) under current policies and (b) if the reforms outlined in the Pensions White Paper “Security in Retirement: Towards a new pension system” are implemented. (90459)

Under our reforms, more people will be receiving state pensions based on their national insurance records, and there will be a more generous basic state pension due to the restoration of the earnings link. This will provide a solid foundation for private saving. The guarantee credit will continue to provide a safety net and reforms to the savings credit will reduce the spread of means testing and support the savings incentives, which are integral to the reform package.

For the median earner illustrated in figure 8, and in today’s earnings terms:

(a) Under current policies, total contributory state pension (basic state pension and state second pension) would be around £100 a week at state pension age, before any deductions for tax. Under a system with an earnings uprated guarantee credit from 2008, a non-saver would also be entitled to claim pension credit worth about £49 a week, while a saver would be entitled to claim pension credit worth about £36 a week, on top of their £34 a week private pension savings. A saver would have a total state and private income, net of pension credit, of around £170 a week at state pension age.

(b) Under White Paper reforms, total contributory state pension (basic state pension and state second pension) would be around £139 a week at state pension age (before any deductions for tax). Whether they were a non-saver or a saver their income would be above the qualifying threshold for pension credit, so they would not see any reduction in the net value of state payments if they chose to make private pension savings. Under current assumptions, their private pension savings would be worth £80 a week, giving a saver total state and private income, net of pension credit, of around £219 a week at state pension age.

Notes:

1. Values are forecasts only. They are dependent upon future assumptions of price and earnings growth, and consequently are subject to revision.

2. Numbers are shown in 2005-06 earnings terms.

3. Private pension outcomes are forecast using the assumption that under current policy, individuals save using a stakeholder pension at the rate of 3.9 per cent. (the average amount saved currently) and the annual management charge is 1.5 per cent. Under White Paper reforms savings rates are 7 per cent. with a management charge of just 0.5 per cent.

4. Projections under current policies assume: continued earnings uprating of the standard guarantee credit; continued price uprating of the savings credit threshold; and continued price uprating of the basic state pension.

5. The White Paper reform projections assume: continued earnings uprating of the standard guarantee credit; earnings uprating of the maximum savings credit from 2008 and then by prices from 2015; earnings uprating of the basic state pension from 2012; measures to improve coverage of the basic state pension described in the White Paper and measures to simplify state second pension from 2012.

To ask the Secretary of State for Work and Pensions what the latest date is for the restoration of the link between the basic state pension and earnings under the proposals in the White Paper; and if he will make a statement. (96542)

The White Paper “Security in retirement: towards a new pensions system” states that the earnings link will be restored to the basic State pension. the objective is that this will be done, subject to affordability and the fiscal position, in 2012 but in any event at the latest by the end of the next Parliament.

To ask the Secretary of State for Work and Pensions what discussions he has had with the Pensions Regulator on the representation of deferred members on the boards of pension funds. (98698)

[holding answer 31 October 2006]: My officials held discussions with the Pensions Regulator prior to its consultation exercise on its code of practice on Member Nominated Trustees. The consultation exercise included representations about deferred members being eligible to participate in the nominations and selection process.

The code has been laid before Parliament.