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Pensions

Volume 716: debated on Wednesday 13 January 2010

Question

Asked by

To ask Her Majesty's Government what is the estimated cost of uprating the basic state pension on the basis of the higher of average earnings or retail prices index from (a) 2010, (b) 2011, (c) 2012, and (d) 2015. [HL149]

Baseline projections of expenditure on pensioner benefits used for these costings 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.

If the basic state pension were to be uprated by the higher of earnings or prices in 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.

A policy of uprating the basic state pension on the basis of the higher of average earnings or the retail prices index from 2015 is equivalent to the baseline. Therefore there would be no additional cost compared to the baseline projections for part (d).

The information requested in relation to parts (a), (b) and (c) is given in the table below:

Additional basic state pension spend from uprating the basic state pension by the higher of earnings or retail prices index, £ billion 2009-10 price terms, net of income related benefits, UK and overseas.

(a) From April 2010

(b) From April 2011

(c) From April 2012

2010-11

-0.3

0.0

0.0

2011-12

-0.3

0.0

0.0

2012-13

0.0

0.3

0.3

2013-14

0.0

0.3

0.3

2014-15

0.0

0.3

0.3

2015-16

-0.1

0.3

0.3

Source: DWP calculations

Notes:

1. Estimates given are net to baseline, they do not include the gross additional basic state pension spend from implementing the 2007 Pensions Act reforms to the basic state pension from April 2010.

2. 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.

3. In the financial years up to and including 2014-15 Treasury economic assumptions consistent with table B1 of the Pre-Budget Report 2009 have been used in the above modelling.

4. 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 from estimates based on Treasury economic assumptions consistent with table C1 of the Budget 2009.

5. Estimates are in 2009-10 prices, have been rounded to the nearest £100 million and include UK and overseas claimants.