Under reform a median earner who works from age 25 reaching state pension age at 68 in 2053 and saves in line with the assumptions set out in “Security in retirement: towards a new pensions system” could expect to receive around £152 a week in state pension. They would not receive any savings credit but could expect to receive around £86 a week in private pension income. In total they would receive around £237 a week under reform.
Without reform a median earner who worked and saved in the same way reaching state pension age at 65 in 2050 and then deferred their state pension for a further three years until they reached 68 could expect to receive around £143 a week in state pension. They could also expect to receive around £17 a week in savings credit and around £37 a week in private pension income. In total they would receive around £197 a week under the current system.
1. In 2007-08 earnings terms, income shown before tax.
Assumes a median earner works from age 25 to SPA, retiring in 2050 at age 65 and deferring until the age of 68 under the current system and retiring in 2053 at age 68 under reform.
2. Under the current system it is assumed that saving is 5 per cent. of salary between the primary threshold and the upper earnings limit (UEL) into a stakeholder pension, with a 1.5 per cent. annual management charge. This is equivalent to employee-only contribution rate into the new personal accounts.
3. After reform it is assumed that saving is 8 per cent. of salary between the primary threshold and the UEL into a personal account (which includes 3 per cent. contribution, and has 0.5 per cent. annual management charge). Amounts may not sum due to rounding.