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State Retirement Pensions

Volume 475: debated on Wednesday 14 May 2008

To ask the Chancellor of the Exchequer what estimate he has made of the cost of restoring the link between the basic state pension and earnings in each year between 2009 and 2015. (200259)

I have been asked to reply.

Current baseline projections of expenditure on pensioner benefits assume that the basic state pension is increased by earnings from 2012. The net additional cost of increasing the basic state pension by earnings from 2009 in each year between 2009-10 and 2015-16 is given in the table as follows:

Net additional annual cost of increasing the basic state pension by earnings from 2009-10

£ billion, 2008-09 prices

2009-10

0.3

2010-11

1.2

2011-12

1.9

2012-13

1.9

2013-14

2.0

2014-15

2.1

2015-16

2.1

Notes:

1. Estimates are additional to the baseline assumption of increasing the basic state pension by earnings from 2012. During the next Parliament, we will re-link the uprating of the basic state pension to average earnings. Our objective, subject to affordability and the fiscal position, is to do this in 2012, but in any event by the end of the Parliament at the latest. We will make a statement on the precise date at the beginning of the next Parliament.

2. Estimates are presented in net terms reflecting that the estimated savings from reduced income related benefit payments (pension credit, housing benefit and council tax benefit) have been deducted. The proportions of additional expenditure saved through reduced income related benefit payments have been estimated using the Department’s Policy Simulation Model and are assumed to remain constant over time.

3. In the financial years up to and including 2013-14 Treasury Economic assumptions consistent with Budget 2008 have been used to model earnings uprating. After this point a long term earnings growth assumption of 4.93 per cent. has been applied.

4. Estimates are in 2008-09 prices and have been rounded to the nearest £100 million.

Source:

DWP modelling