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Pensions

Volume 457: debated on Monday 5 March 2007

To ask the Secretary of State for Work and Pensions if he will estimate how many pensioner benefit units in 2050 will face (a) a 100 per cent. marginal rate of pension credit withdrawal if the White Paper reforms are implemented and (b) a 40 per cent. marginal withdrawal rate if they are not. (112912)

The proposed reforms to state pensions will provide a solid foundation for private saving, both by limiting the spread of pension credit entitlement and by delivering simpler and more predictable state pension outcomes. Under the proposed reforms, by 2050 just one in 50 pensioners will receive the guarantee credit only when they first reach state pension age. Even then, we would expect many to be able to reduce the interaction between additional private saving and benefit entitlement by taking some or all of their private pension income as a lump sum. Those with private savings of less than £15,000 can take them as a lump sum under the trivial commutation rules.

It cannot be assumed that all those with 100 per cent. marginal deduction rates are in receipt of the guarantee credit only. People on both guarantee credit and savings credit who qualify for additional amounts because they are severely disabled or a carer or have certain housing costs and are on the savings credit maximum will also have 100 per cent. marginal deduction rates.

Numbers and proportions of pensioner benefit units in 2050 that will face (a) a 100 per cent. marginal rate of pension credit withdrawal if the Pensions Bill reforms are implemented and (b) a 40 per cent. marginal withdrawal rate if they are not are as follows.

Without reformPensions Bill reforms40 per cent. marginal deduction rates: current system standard guarantee credit uprated by earnings100 per cent. marginal deduction rates: Pensions Bill reformsNumber of pensioner households in 20509,050,000650,000Proportion of pensioner households in 2050756 Notes: 1. The analysis is based on the reform proposals presented in the Pensions Bill rather than the White Paper. Some methodological improvements were made to the projections of pension credit eligibility between publication of the White Paper and the introduction of the Pensions Bill. 2. Estimates of the number of pensioner households eligible for pension credit are taken from the DWP dynamic micro-simulation model PENSIM2. Modelling of the reform proposals does not include any increase in private saving from the introduction of personal accounts, which would reduce the numbers eligible for pension credit. 3. The marginal deduction rate reflects the extent to which a marginal increase in gross income would result in a change in net income, assuming this is fully taken into account for pension credit entitlement. The deduction rate shown would not apply to all changes in income—for example where additional pension savings are taken as a lump sum. 4. Care should be taken when interpreting these projections as they are subject to a margin of uncertainty. The projections are based on long run simulations of the incomes of individuals under a set of assumptions including life expectancy, partnership formation, earnings growth, employment rates, state and private pension accumulation. 5. Projections of the number of pensioner households eligible for pension credit are derived from the projected proportions eligible and projections of the number of pensioner households in Great Britain. 6. Estimates cover all those aged above women's state pension age in the private household population of Great Britain. 7. Estimates account for equalisation of state pension age between 2010 and 2020. They also account for the proposed further increases in state pension age described in the Pensions Bill. The estimates assume that the minimum age at which people can claim pension credit rises in line with women's state pension age. 8. Projections under the Pensions Bill proposals assume: continued earnings uprating of the standard guarantee credit; the savings credit maximum is uprated by earnings from 2008 and then by prices from 2015; earnings uprating of the basic state pension from 2012; and measures to improve coverage of state pensions described in the Pensions Bill. Figures exclude the effect of personal accounts. 9. Projections under the current system with guarantee credit earnings uprated assume: continued earnings uprating of the standard minimum guarantee; continued price uprating of the savings credit threshold and the basic state pension. 10. The total number of pensioner households under the Pensions Bill reforms is lower than the total number under the current system because of the phased increase in the state pension age starting in 2024 Source: DWP microsimulation modelling.

To ask the Secretary of State for Work and Pensions if he will revise Figure 1(xiv) in the Pensions White Paper ‘Security in Retirement: Towards a New Pension System’ to show the cost of proposed reforms to employers if all employers currently offering schemes with an employer contribution worth at least 3 per cent. of banded earnings automatically enrol all staff aged 22 years or over with earnings of at least £5,000 a year on their existing schemes on existing terms. (112914)

The following figures show the estimated costs to employers who contribute at least 3 per cent. of employees' salary if they were to automatically enrol all staff aged 22 years or over with earnings of at least £5,000 a year into their existing schemes on existing terms.

Most of these estimated costs would arise from the employer voluntarily offering a scheme with a contribution rate above the proposed minimum.

Costs of employer contribution at existing contribution rates ( million)Firm-size£ million1-41005-4920050-249300250+1,200Total1,800Notes:1. These costs cannot be added to costs of the 3 per cent. minimum contribution presented in the White Paper because this would involve double counting2. Cost to employers are based on estimates of their current contribution rates, not projected contribution rates in 2010.3. Costs of minimum employer contribution (£ million) are rounded to the nearest £100 million, figures may not sum due to rounding.4. Participation rates are identical to those used in of Figure l.xiv in the Pensions White Paper ‘Security in retirement: Towards a New Pension System’ and are based on our central estimate of opt out and around one third. We estimate that the range of opt-out rates will be between 20 per cent. and 50 per cent.Source:DWP modelling using Employers' Pension Provision Survey 2005, Family Resources Survey 2004-05, Annual Survey of Hours and Earnings 2004 and Small and Medium Sized Enterprise Statistics 2004

To ask the Secretary of State for Work and Pensions what estimates he has made or received of the amount of (a) state and (b) occupational pension entitlements accrued by people aged (i) 16 to 30, (ii) 30 to 40, (iii) 40 to 50, (iv) 50 to 65, (v) 65 to 75, (vi) 75 to 85 and (vii) over 85 in (A) the last year for which data are available, (B) 1985 and (C) 1995. (119517)

The requested information is not available for occupational pension entitlements.

The following table provides an estimate of the average number of qualifying years for state pension that had been accrued during a working life in the tax years 1984-85, 1994-85 and 2003-04.

Average number of state pension qualifying years

Tax year

Age

1984-85

1994-95

2003-04

16-29

6.9

7.7

6.2

30-39

17.5

19.9

20.5

40-49

23.2

28.4

31.4

50-64

32.8

34.9

40.0

65-74

36.3

40.9

41.9

Notes: 1. The sample size for people aged over 74 is insufficiently large to provide this information. 2. State pension qualifying years relate to the total number of fully accrued years for basic state pension, SERPS and state second pension. Source: Lifetime Labour Market Database (LLMDB).

To ask the Secretary of State for Work and Pensions when he plans to reinstate the link between pensions and earnings. (123248)

I refer the hon. Member to the written answer given on 11 December 2006, Official Report, column 724W, to the hon. Member for Portsmouth, South (Mr. Hancock).