In the 2009 Budget the Chancellor committed to increasing the basic state pension by 2.5 per cent when this is higher than September RPI inflation. This will apply in 2010, which means that the increase in the basic state pension will also exceed growth in average earnings.
The gross and net additional basic state pension spend due to increasing the basic state pension by earnings from 2010 and the 2007 Pensions Act reforms are given in the table below:
Gross Net of income related benefits 2010/11 -0.5 -0.4 2011/12 -0.8 -0.6 2012/13 -1.2 -0.8 2013/14 -0.8 -0.6 2014/15 -0.2 -0.3
Net of income related benefits
Source: DWP modelling
8. Baseline published projections of expenditure on pensioner benefits assume that the basic state pension is increased by earnings from 2012. Prior to 2012, projections assume that the basic state pension is uprated by the greater of RPI or 2.5 per cent.
9. Estimates given show the gross additional basic state pension spend due to increasing the basic state pension by earnings from 2010 and implementing all of the other 2007 Pensions Act reforms to the basic state pension from April 2010 relative to uprating by RPI or 2.5 per cent. They also reflect the estimated savings from reduced income-related benefit payments (pension credit, housing benefit and council tax benefit). 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 next Parliament at the latest. We will make a statement on the precise date at the beginning of the next Parliament.
10. In the financial years up to and including 2014-15 Treasury economic assumptions consistent with Table C1 of the Budget Report 2009 have been used to model earnings uprating. Economic assumptions for uprating beyond 2014-15 are beyond the Budget 2009 forecast.
11. The costs and savings estimates provided are based on future projections of earnings and price inflation—which are inherently uncertain and subject to change, particularly in light of the current economic uncertainty. This is underlined by the fact that the estimated cost of earnings uprating has changed significantly from estimates based on Treasury economic assumptions consistent with Table 131 of the Pre-Budget Report 08.
12. Generally earnings rise faster than prices resulting in a greater cost from earnings uprating that would build over time—this would still be expected to hold over the medium and long term. Therefore despite the initial savings produced under current inflation forecasts, the introduction of earnings uprating would still be expected to increase expenditure on the basic state pension significantly as the cumulative costs of this policy grow over time.
13. If the restoration of the earnings link to the basic state pension were brought forward to 2010, the weekly value of the basic state pension to pensioners would be below the 2.5 per cent increase committed to by the Chancellor at Budget 09.
14. Estimates are in 2009-10 prices, have been rounded to the nearest £100 million and include UK and overseas claimants.
Pension contributions for the current Chief Commissioner of the Northern Ireland Human Rights Commission (NIHRC) are made to an existing employer's pension scheme. The annual cost of pension provision in 2007-08 was £7,436, as set out in the NIHRC annual accounts, available in the Libraries of both Houses. The 2008-09 accounts will be placed in the Libraries of both Houses once these are finalised.