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19 Dec 2006 : Column 2003W—continued
| Typical working life | ||
| Reaching SPA in year | Median earner current system | Reformed system |
| Notes: 1. Values are projections. They are dependent upon future assumptions of price and earnings growth, and consequently are subject to revision. 2. Numbers are shown in 2005-06 earnings terms. 3. The male median earner is assumed to work from 16 or 25 years old until SPA and earns £440 per week in 2005-06 earnings terms with a flat earnings profile. 4. Figures exclude graduated pension. 5. Projections under current policies assume continued price uprating of the basic state pension. 6. The reform projection assumptions are based on data in the Regulatory Impact Assessment published with Pensions Bill. 7. The reformed system reflects the increases in pension age proposed in the Pensions Bill. The transitional years over which state pension age increases are excluded from the table as the phasing cannot easily be incorporated within the modelling. 8. The information provided in the first table shows the position of someone working from age 16 to state pension age. The information provided in the second table shows the position of someone working from age 25 to state pension age. | ||
Mr. Laws: To ask the Secretary of State for Work and Pensions if he will publish a revised version of Figure 8 from the Pensions White Paper Security in Retirement: Towards a New Pension Scheme in which the median earner chooses to defer his state pension until the age of 68, if current policies are continued. [102224]
James Purnell: Under our reforms a median earner who works from age 25 to state pension age, without private saving, could expect to receive £138 a week in basic state pension and state second pension if they retired in 2053. Without any reform a person with the same work record who deferred their state pension in 2050 could expect to receive £124 a week basic state pension and state second pension if they took their state pension in 2053.
Notes:
1. Values are projections. They are dependent upon future assumptions of price and earnings growth, and consequently are subject to revision.
2. Numbers are shown in 2005-06 earnings terms.
3. In the example the value of the state pension after increments have been included takes account of the decline in the value of state pension relative to earnings over the three year deferral period.
Mr. Laws: To ask the Secretary of State for Work and Pensions if he will publish a revised version of Figure 1.xiv in the Pensions White Paper Security in Retirement: Towards a New Pension System to show the cost of proposed reforms to employers if all employers currently offering schemes with an employer contribution worth at least 3 per cent. of banded earnings automatically enrol all staff aged 22 years or over with earnings of at least £5,000 a year into their existing schemes on existing terms. [102225]
James Purnell: The following figures show the estimated costs to employers who contribute at least3 per cent. of employees’ salary if they were to automatically enrol all staff aged 22 years or over with earnings of at least £5,000 a year into their existing schemes on existing terms.
Most of these estimated costs would arise from the employer voluntarily offering a scheme with a contribution rate above the proposed minimum.
| Firm size | Costs of employer contribution at existing contribution rates (£ million) |
| Notes: 1. The figures are calculated on the same basis as that used in Figure 1.xiv in the Pensions White Paper Security in retirement: Towards a New Pension System. Figures in the White paper Personal Accounts: a new way to save are on an updated and hence different basis. 2. These costs cannot be added to costs of the 3 per cent. minimum contribution presented in the White Paper because this would involve double counting. 3. Cost to employers are based on estimates of their current contribution rates, not projected contribution rates in 2010. 4. Costs of minimum employer contribution (£ million) are rounded to the nearest £100 million, figures may not sum due to rounding. 5. Participation rates are identical to those used in of Figure 1.xiv in the Pensions White Paper Security in retirement: Towards a New Pension System and are based on our central estimate of opt out and around one third. We estimate that the range of opt-out rates will be between 20 per cent. and 50 per cent. Sources: DWP modelling using Employers' Pension Provision Survey 2005, Family Resources Survey 2004/05, Annual Survey of Hours and Earnings 2004 and Small-and Medium sized Enterprise Statistics 2004. | |
Mr. Laws: To ask the Secretary of State for Work and Pensions (1) if he will estimate what proportion of pensioner benefit units, including those with sufficient income not to qualify for pension credit, would in 2050 face an average rate of pension credit withdrawal on any income from sources other than the basic state pension that is (a) 40 per cent., (b) 41-50 per cent., (c) 51-60 per cent., (d) 61-70 per cent., (e) 71-80 per cent., (f) 81-90 per cent., (g) 91-99 per cent. and (h) 100 per cent., if current uprating policies were continued indefinitely; [102227]
(2) what proportion of pensioner benefit units, including those with sufficient income not to qualify for pension credit, will in 2050 face an average rate of pension credit withdrawal on any income from sources other than the basic state pension that is (a) 40 per cent., (b) 41-50 per cent., (c) 51-60 per cent., (d) 61-70 per cent., (e) 71-80 per cent., (f) 81-90 per cent., (g) 91-99 per cent. and (h) 100 per cent., if the reforms proposed in the Pensions White Paper Security in Retirement: Towards a New Pensions System are implemented. [102228]
James Purnell: Our reforms to state pensions will ensure that by 2050 the vast majority of pensioners will have income from both the basic state pension and state second pension, with pensioners receiving on average around £130 per week in state pension. This means most people will have a higher foundation on which to save than a full basic state pension.
We estimate that around 30 per cent. of pensioner households will be eligible to pension credit in 2050 under the reforms proposed in the Pensions Bill, compared to around 80 per cent. without reform. Furthermore, only around 6 per cent. of pensioner
households will be eligible to just the Guarantee element of pension credit and therefore face a pound for pound withdrawal rate. Most of these will either have no private savings or very small amounts. Those with savings pots below £15,000 may take advantage of the trivial commutation rules and take their savings as a taxable lump sum.
We recently published detailed analysis on the incentives to save in personal accounts, Financial incentives to save for retirement. This shows that the vast majority of people can expect to benefit in retirement from saving in a personal account. For example, even someone receiving the savings credit in 2050, and no other benefits, could expect a payback of £2 for every £1 saved due to a minimum employer contribution and tax relief plus investment growth.
Notes:
1. Projections of pension credit entitlement based on the current system assume: continued earnings uprating of the standard minimum guarantee; continued price uprating of the savings credit threshold; and continued price uprating of the basic state pension. Earnings uprating of the standard minimum guarantee was an agreed policy until 2008 and will continue beyond that date as part of our stated pension reform.
2. Projections of pension credit entitlement under reform assume: earnings uprating of the standard minimum guarantee; the savings credit maximum uprated by earnings from 2008 and then by prices from 2015; earnings uprating of the basic state pension from 2012; increases in state pension age as set out in the Pensions Bill; measures to improve coverage of the basic state pension described in the Pensions Bill.
3. Financial incentives to save for retirement is available for download at:
http://www.dwp.gov.uk/pensionsreform/pdfs/Financiallncentives.pdf
Mr. Laws: To ask the Secretary of State for Work and Pensions if he will disaggregate the cost of pension credit reforms listed in figure 9 of the Pensions White Paper into (a) the cost of uprating the guarantee credit in line with earnings from 2008-09 and (b) the savings generated by proposed reforms to the savings credit. [102231]
James Purnell: Under our reforms, more people will be receiving state pensions based on their national insurance records, and there will be a more generous basic state pension due to the restoration of the earnings link. This provides a solid foundation for private saving. The guarantee credit will continue to provide a safety net and reforms to the savings credit will reduce the spread of means-testing and support the savings incentives that are an integral part of the reform package.
The following table contains in column (a) the projected additional costs arising from uprating the standard minimum guarantee from 2008 with earnings rather than prices; and in column (b) the savings arising from savings credit reform to uprate the maximum with earnings from 2008 and with prices from 2015 as set out in the White Paper. All figures are based directly on those in the regulatory impact assessment that supports the Pensions Bill and exclude the effect of all other reform measures.
| Cost of pension credit reforms | ||
| £ billion (2006-07 price terms) | ||
| (a) Cost of uprating the standard minimum guarantee from 2008 | (b) Savings arising from the savings credit reform to uprate the maximum with earnings from 2008 and with prices from 2015 | |
| Notes: 1. Estimates of additional expenditure are consistent with the Pensions Bill and supporting regulatory impact assessment. Costs are net of all other income-related benefits (housing benefit and council tax benefit). 2. Costs or savings presented in the table are based on long-term projections of United Kingdom benefit spend, consistent with the pre-Budget report 2006. Costs are shown additional to a baseline of the current system projected forward with the pension credit standard minimum guarantee uprated by prices from 2008; continued price uprating of the savings credit threshold; and continued price uprating of the basic state pension. 3. Figures assume uprating the pension credit standard minimum guarantee by earnings from 2008, and uprating the savings credit maximum by earnings from 2008 and then by prices from 2015. It excludes changes to pension credit as a consequence of earnings uprating the basic state pension. 4. Figures exclude the effect of personal accounts. 5. Figures exclude the effects on expenditure on pension credit arising from increases in the state pension age. | ||
Mr. Laws: To ask the Secretary of State for Work and Pensions what the cost would be of restoring the link between the basic state pension and earnings in (a) 2008, (b) 2009, (c) 2010 and (d) 2012 for each year from 2008-09 to 2015-16; and if he will make a statement. [102246]
James Purnell: Under our reforms, more people will be receiving state pensions based on their national insurance records, and there will be a more generous basic state pension due to the restoration of the earnings link. This provides a solid foundation for private saving. The guarantee credit will continue to provide a safety net and reforms to the savings credit will reduce the spread of means testing and support the savings incentives that are an integral part of the reform package.
The following table contains the projected additional cost of earnings uprating the basic state pension, assuming different start dates.
| Cost of earnings uprating the basic state pension from different years | ||||
| £ billion, 2006-07 prices | ||||
| Basic state pension earnings uprated from: | ||||
| (a) 2008 | (b) 2009 | (c) 2010 | (d) 2012 | |
| Notes: 1. Estimates of additional expenditure are consistent with the policy detail set out in the White Paper. Costs are net of all other income related benefits (pension credit, housing benefit and council tax benefit), and are relative to a pension credit baseline where the standard guarantee credit is uprated by prices from 2008. 2. Figures do not include the effect of any other reform measures. 3. Costs or savings presented in the table are based on long-term projections of United Kingdom benefit spend, consistent with the Budget report 2006. 4. Figures exclude the effect of personal accounts. | ||||
Mr. Laws: To ask the Secretary of State for Work and Pensions what estimate he has made of the cost of running the Pensions Service in each year from 1990-91 to 2005-06. [102215]
James Purnell: Prior to April 2002, the Benefits Agency was responsible for the delivery of benefits and services for pensioners. From April 2002, this became the sole responsibility of The Pension Service.
The following figures show the operating costs of The Pension Service for the four years since its launch in April 2002.
| Operating costs (£000)( 1) | |
| (1) The costs shown are the operating costs for the running of The Pension Service core business as published in The Pension Service annual report and accounts. They do not include investment costs. Source: The Pension Service annual report and accounts 2002-03, 2003-04, 2004-05, 2005-06. | |
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