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Pensions

Volume 692: debated on Thursday 24 May 2007

asked Her Majesty's Government:

What assessment they have made of the likely net cost of permitting (a) men, and (b) women reaching state pension retirement age in 2007, 2008 and 2009 respectively to buy class 3 national insurance contributions of up to six years to provide a full basic state pension, assuming average life expectancy. [HL3583]

The information requested is in the table below.

The estimates assume that people who are projected to reach state pension age in 2007, 2008 and 2009 without a full basic state pension buy as many extra qualifying years as are needed to provide a full basic state pension, up to a maximum of six, when they reach state pension age. Not all these people would, however, achieve a full basic state pension.

Estimates further assume that people gain the higher basic state pension for the remainder of their lives. They do not make any allowance for issues associated with category B pensions. For example, in reality, some women may gain from this option only until their husband reaches state pension age, when they may become eligible for a higher basic state pension through their husband's entitlement (termed category B(L) pension).

Estimates of costs and revenue

£ billion, 2007-08 prices—UK + overseas

2007

2008

2009

2010

2015

2020

2025

2030

2040

2050

(a) Increased spend on basic state pension

0.2

0.6

0.9

1.1

1.1

1.2

1.2

1.1

0.6

0.1

(b) Net benefit cost

0.2

0.4

0.7

0.8

0.9

0.9

0.9

0.8

0.4

0.1

(c) Revenue from class 3 contributions

-1.1

-1.0

-0.9

0.0

0.0

0.0

0.0

0.0

0.0

0.0

(d) Net benefit cost less revenue (b-c)

-1.0

-0.5

-0.2

0.8

0.9

0.9

0.9

0.8

0.4

0.1

Source: Information about people’s national insurance records has been obtained from the Lifetime Labour Market Database 2, 2005 release. Costs have been estimated based on mortality assumptions for Great Britain from the 2004 based population projections.

Notes:

1. Estimates have been rounded to the nearest £0.1 billion. Estimates may not sum due to rounding.

2. Estimates assume basic state pension is uprated in line with earnings from April 2012.

3. People who fail the “25 per cent rule” both before and after they have purchased six extra years are assumed not to purchase extra years.

4. Estimates assume that people buy additional class 3 national insurance contributions in whole years, even if less than 52 weeks of additional contributions are required to achieve a qualifying year. People buy these extra years when they reach state pension age in either 2007, 2008 or 2009.

5. Estimates assume that the option to buy extra years is available to everybody with a national insurance record and can be used to fill any deficient year during the working life.

6. Estimates on this basis are not available split by gender.

7. Estimates are based on a sample of national insurance records as at the end of the financial year 2003-04.

8. Net benefit costs in (b) are costs after taking account of income related benefit savings.