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Pensions

Volume 688: debated on Monday 22 January 2007

asked Her Majesty's Government:

What would be the likely size of the final pot in today's terms, including tax relief, with prudent assumptions about investment growth, for a woman on median earnings if she and her employer have contributed 8 per cent for (a) 10 years; (b) 20 years; (c) 30 years; and (d) 40 years into (i) a contracted-in money purchase scheme, and (ii) a contracted-out money purchase scheme; and what would be the calculation for a woman on half median earnings. [HL1306]

The information is in the tables.

Contracted-in Money Purchase Scheme

Amount of contribution

Number of years of contribution

10 years

20 years

30 years

40 years

8 per cent of median earnings

£20,825

£54,359

£106,750

£186,700

16 per cent of median earnings

£41,650

£108,718

£213,499

£373,400

8 per cent of half median earnings

£10,413

£27,180

£53,375

£93,350

16 per cent of half median earnings

£20,825

£54,359

£106,750

£186,700

Contracted-out Money Purchase Scheme

Amount of contribution

Number of years of contribution

10 years

20 years

30 years

40 years

8 per cent of median earnings

£29,390

£80,561

£167,021

£302,309

16 per cent of median earnings

£50,215

£134,920

£273,770

£489,009

8 per cent of half median earnings

£13,610

£37,323

£77,518

£143,188

16 per cent of half median earnings

£24,023

£64,503

£130,893

£236,538

All figures are in 2006-07 prices.

Total contributions are split equally between employee and employer; thus the rows marked 16 per cent illustrate the case where both the woman and her employer each contribute 8 per cent.

Contributions are assumed to begin in 2006-07 for an individual aged 25.

Assumes a real investment return of 3.5 per cent a year for 40 years.

Figures are for women on median and half median earnings in 2006-07.

The figures already include the impact of tax relief since contributions are made on gross earnings.

The size of the contracted-in and contracted-out pension pots is not strictly comparable. This is because contracted-out individuals on both median and half median earnings also build up a reduced entitlement to state second pension (S2P). So their S2P should be taken into account along with their private pension when comparing to contracted-in individuals.