§ Mr. Jacques ArnoldTo ask the Secretary of State for Social Security what is the estimated pension fund and weekly pension on retirement of a person on average earnings under basic pension plus using the Government Actuary's assumptions on investment returns. [21476]
§ Mr. HealdBased on the Government Actuary's prudent assumptions for real investment returns of +4.25 per cent. per annum, it is estimated that people on average earnings for most of their working lives should accumulate a pension fund of some £130,000, equivalent to a pension of £175 a week in today's prices. In practice, funds could do much better than this; over the past 45 years or so, investments in equities have enjoyed returns averaging 7.7 per cent. a year in real terms.
Source:
Government Actuary's Department.
§ Mr. ThomasonTo ask the Secretary of State for Social Security (1) what assessment he has made of the impact of basic pension plus on charges by pension providers; and if he will make a statement; [21480]
(2) what steps he is taking to keep down pension charges under basic pension plus. [21481]
§ Mr. HealdBasic pension plus will apply to everyone and its security is guaranteed, therefore marketing costs will be lower than for existing personal pensions. We are also confident that the pensions industry would respond to the economies of scale by designing low cost products, but we would not hesitate to use legal powers to impose a ceiling on charges, in particular transfer charges, should it prove necessary.
§ Mr. ThomasonTo ask the Secretary of State for Social Security what assessment he has made of the risks of mis-selling under the basic pension plus proposals; and if he will make a statement. [21482]
905W
§ Mr. HealdBasic pension plus will apply to everyone and its security is guaranteed, so the sort of alleged mis-selling that occurred in the late 1980s is not directly relevant. Moreover, any company that failed to compensate for past mis-selling would not be eligible to manage a basic pension plus fund.
§ Mr. MansTo ask the Secretary of State for Social Security what plans he has to consult on the proposals under basic pension plus; and if he will make a statement. [21520]
§ Mr. HealdRepresentatives of the pensions industry and other interested parties will be invited to join a working group to discuss the proposals and how they might be implemented. A Green Paper will then be published inviting views more generally.
§ Mr. LidingtonTo ask the Secretary of State for Social Security what plans he has under basic pension plus to ensure the maintenance of full records of contributors' rebates, credits and home responsibilities protection. [21525]
§ Mr. HealdIt is proposed that the Contributions Agency would maintain full records of people's rebates, credits and home responsibilities protection as it does now.
§ Mr. ArnoldTo ask the Secretary of State for Social Security if the rebates under basic pension plus may be paid into occupational pension schemes. [21478]
§ Mr. MansTo ask the Secretary of State for Social Security if he will make a statement on survivors' benefits under basic pension plus. [21518]
§ Mr. HealdFunds of those in the new scheme who die before drawing any money purchase benefits' would be inherited in full by the surviving spouse, or the estate where there is no spouse. Some or all of these funds would have to be used by a surviving spouse to purchase an annuity, or income could be withdrawn. The state would also guarantee the basic pension rights of widows. In cases where the individual dies after purchasing an annuity, the surviving spouse would get an annuity equal to 50 per cent. of the annuity in payment to the deceased.
Note:
1Under basic pension plus, the £9 per week payments will always provide money purchase benefits. The payments on 5 per cent. of earnings between the lower earnings limit and the upper earnings limit for national insurance contributions purposes will also provide money purchase benefits, except in a contracted-out salary-related scheme—COSR. In the case of a COSR, the scheme will be required to provide a pension to a surviving spouse equal to half of the pension in payment to the member at the time of death. If death occurs before retirement, half the pension accrued by the member at the date of death would be payable to the surviving spouse.
§ Mr. LidingtonTo ask the Secretary of State for Social Security what is the estimated pension fund and weekly pension on retirement of a person on average earnings under basic pension plus assuming investment returns equivalent to those since 1979. [21523]
§ Mr. HealdThe real return on pension fund investments from 1979 to 1994 was 9.6 per cent. in real terms. Assuming that rate of investment growth, it is estimated a person on average earnings paying in the906W minimum contributions over a working lifetime would accumulate a fund worth £553,000 by retirement, paying a pension of £745 a week in today's money.
Source
Government Actuary's Department/Bacon and Woodrow pensions pocket book 1996.
§ Mr. GarnierTo ask the Secretary of State for Social Security if he will make a statement on the cost of state pensions after 2040 assuming the introduction of basic pension plus. [21396]
§ Mr. HealdIt is estimated that, assuming the introduction of basic pension plus, expenditure on state pensions will fall rapidly after 2040, eventually relieving the taxpayer of a cost of some £40 billion a year.
§ Mr. GarnierTo ask the Secretary of State for Social Security what steps he plans to take to ensure that prudent investment principles are adopted by scheme managers under basic pension plus. [21397]
§ Mr. HealdWe would discuss with the pensions industry regulators and others any appropriate restrictions to guard against exploitation of the Government guarantee on the basic pension. We may introduce legislation to require scheme managers to publish, and be liable for adhering to, a statement of investment principles based on the "prudent person" principle; to prescribe rules on the amounts of funds to be allocated to different types of asset, and to require pension providers to disregard the existence of the Government guarantee in investment decisions.
§ Mr. GarnierTo ask the Secretary of State for Social Security (1) if he will make a statement on the effect on the estimated future income related benefits claimants level of the introduction of basic pension plus; [21398]
(2) what estimate he has made of the reduction in future income related benefits claimant levels in the event that investment returns on basic pension plus exceed those used by the Government Actuary by (a) 1 per cent. and (b) 2 per cent. [21399]
§ Mr. HealdIt is not possible to provide such estimates given that, under basic pension plus, no-one will retire before 2040 or later.
However, the number of pensioners reliant on income-related benefits could be lower than under the present scheme, even if there were no increase in the number making voluntary additional provision.
§ Mr. ArnoldTo ask the Secretary of State for Social Security what estimate he has made of the impact on the public finances of basic pension plus; and if he will make a statement. [21475]
§ Mr. HealdUnder basic pension plus, the value of the new rebates, less the impact of the proposed tax changes, will grow by a net average amount of about £160 million a year, reaching a peak of about £7 billion or ½ per cent. of GDP around 2040—substantially less than the net costs of rebates from SERPS, which peaked at almost l½ per cent. of GDP.
The starting cost of the new scheme will depend on the precise age limit chosen. Expenditure on state pensions will fall rapidly after 2040 and savings in public expenditure will build up reaching some £40 billion a year.
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§ Mr. ArnoldTo ask the Secretary of State for Social Security what is the estimated pension fund and weekly pension on retirement of a person on average earnings under basic pension plus assuming investment returns equivalent to those over the last 50 years. [21477]
§ Mr. HealdThe average annual increase in the ordinary industrial share index in real terms from 1950 to 1995 was 7.7 per cent. Assuming that rate on investment growth, it is estimated that a person on average earnings paying in the minimum contributions over a working lifetime would accumulate a fund worth £320,000 by retirement, paying a pension of £435 a week.
Source:
Government Actuary's Department/Bacon and Woodrow pensions pocket book 1997.
Note
Pension amount is rounded to nearest £5.
§ Mr. MansTo ask the Secretary of State for Social Security if the proposals under basic pension plus affect the accrued rights of existing contributors to the state pension scheme; and if he will make a statement. [21521]
§ Mr. HealdBasic pension plus will be phased in over a generation. Current pensioners and all but the youngest national insurance contributors, will be unaffected. The rights already built up under the existing state pension scheme by young people covered by the new scheme when it is first established will be respected.
§ Mr. LidingtonTo ask the Secretary of State for Social Security what plans he has to ensure that the value of the basic pension guarantee and the £9 rebate under basic pension plus rises in line with the basic state pension under the present pay-as-you-go system. [21526]
§ Mr. HealdOur intention is that the basic pension guarantee would go up in line with basic state pension. Rebates would also be increased to reflect a higher basic pension.
§ Mr. ArnoldTo ask the Secretary of State for Social Security what is the estimated pension fund and weekly pension on retirement of a person on average earnings under basic pension plus assuming investment returns(a) 1 per cent. and (b) 2 per cent. higher than those used by the Government Actuary. [21479]
§ Mr. HealdEstimated pension funds of £166,000 and £216,000 respectively by retirement, paying pensions of £225 and £290 a week respectively.
Source:
Government Actuary's Department.
Note:
Pension amounts are rounded to the nearest £5.
Mr. ThompsonTo ask the Secretary of State for Social Security if he will list for each year from 2020 to 2040 the impact on public expenditure of the equalisation of state pension age at 65 years and the reforms of the state earnings —related pension scheme 1995; and what is the projected revenue forgone as a result of basic pension plus in these years. [21484]
§ Mr. HealdInformation relating to every year from 2020 to 2040 is not available. The measures in the Pensions Act 19951 will produce public expenditure savings of over £6 billion in 2020, over £9 billion in 2030, and over £10 billion in 20402.
908WUnder basic pension plus, the value of the new rebates less the impact of the proposed tax changes will grow by a net average amount of about £160 million a year, reaching a peak of about £7 billion or 1/2per cent. of GDP around 2040. The starting cost of the new scheme will depend on the precise age limit chosen.
Note
1 These measures include equalisation of state pension age, annualisation of SERPS, breaking the links between SERPS and contracting-out, and the introduction of age-related rebates for appropriate personal pensions and contracted-out money purchase schemes. 2The savings in expenditure for the national insurance fund will be £7 billion in 2020, over £10 billion in 2030 and £12 billion in 2040.
§ Mr. MansTo ask the Secretary of State for Social Security if an individual's pension fund under the basic pension plus proposals goes to his estate on his death. [21519]
§ Mr. HealdYes. If an individual dies before drawing any benefits from his fund and there is no surviving spouse, then the funds built up under the proposals would form part of the estate. Similarly, if the individual dies while withdrawing an income from his fund, but before annuity purchase, then the residual fund would form part of the estate.
§ Mr. LidingtonTo ask the Secretary of State for Social Security if the proposals under basic pension plus would retain home responsibilities protection and national insurance contribution credits; and if he will make a statement. [21524]
§ Mr. HealdThe proposals under basic pension plus would retain home responsibilities protection and national insurance contribution credits. They would contribute towards building up entitlement to the guaranteed basic pension, as they do now towards the current basic state pension. For those contributors not in the new scheme, credits and HRP would continue as now.
§ Mr. FlynnTo ask the Secretary of State for Social Security what assumption underlay his forecasts that the £175 pension payable to those on average earnings under his basic pension plus proposal would represent(a) 26 per cent. and (b) 21 per cent. of average earnings. [21099]
§ Mr. HealdI refer the hon. Member to my letter of 13 March to the hon. Member for Peckham (Ms Harman), which was copies to the hon. Member and placed in the Library.
§ Mr. FlynnTo ask the Secretary of State for Social Security what is the estimated value of the pension payable to the average earner under his basic pension plus proposals assuming 1.5 per cent. per annum real earnings growth. [21098]
§ Mr. HealdAssuming real-earnings growth of 1.5 per cent. per annum, a person on average earnings paying in the minimum contributions to basic pension plus should, over a working lifetime, accumulate a fund sufficient to pay a pension of £173 a week.
Source:
Government Actuary's Department.