Letter from the Minister for Pensions
to Chairman of Committee
Thank you for your letter of 23 February to
Alistair Darling requesting clarification of two pieces of information
relating to the detailed projections of the Credit's cost, contained
in the publication "The Pension Credit: long-term projections".
Your first question asks what assumptions have
been made about the proportion of pensioners receiving private
pension income and the average amounts received, for the years
2010 to 2050. The assumption on pensioners' incomes was that the
level and distribution of incomes would remain constant in earnings
terms. This effectively means that we assumed that pensioners'
total incomes would grow with average earnings. There is no explicit
assumption about private pension income growth as such. However,
the implication is that, for better off pensioners who will not
gain from State Second Pension (S2P), private pension income is
becoming a larger proportion of total income. For poorer pensioners,
a combination of S2P and private pension income is assumed to
make successive cohorts better off than the ones before them so
that total pensioner income keeps pace with earnings.
Part of the reason for the above assumptions
was pragmatic. Modelling limitations meant that we had to use
current data to project the future as we do not have suitable,
simulated data of the future. Our approach is the same as used
by outside commentators, such as PricewaterhouseCoopers and the
Institute for Fiscal Studies.
You also asked what percentage of men and women
who do not have a full basic pension in their own right have a
second income from a private pension and how much this is on average.
Unfortunately, it is not possible to tell this from the Family
Resources Survey (FRS) (on which we model entitlement to the Pension
Credit) because respondents tend to mis-report Retirement Pension
receipt, adding in other benefits like SERPS and the Minimum Income
Guarantee. The administrative data is inadequate, too. Although
we know from administrative data that around 1.4 million pensioners
have incomplete basic State Pension rights, we do not know about
their private income and whether or not they are entitled to Pension
From the FRS, we estimate that around 500,000
benefit units over 65 will not receive the savings reward because
their total incomes are too low. Therefore, these claimants have
incomplete basic State Pension rights, by definition. Of these,
10 per cent have private incomes of £20 on average.
There are likely to be another two or three
hundred thousand benefit units who do receive the savings reward
but have partial basic State Pension but we cannot be sure because
of the data problems described above. When we start to have administrative
data from Pension Credit, we will be able to merge it with the
administrative data on basic State Pension and anser detailed
questions about this group.
Finally, you asked what assumptions, if any,
have been made about these percentages and amounts for future
years in arriving at the projected costs of Pension Credit. No
separate assumption on the future of their incomes has been made
for this group. The assumption on total incomes is as described
I hope this information is useful.
Rt Hon Ian McCartney MP
11 March 2002