§ Mr. WebbTo ask the Secretary of State for Social Security if he will estimate the capital sum which would be required, at current annuity rates, to buy a pension which would give a person retiring at the age of 65 years the same income after housing costs as someone entitled to income support, assuming an average level of housing costs and taking into account the cash value of the principal benefits in kind available to pensioner recipients of income support but not to other pensioners. [65423]
§ Mr. TimmsThe information is not available in the form requested. Such information as is available is as follows.
Using a single life annuity rate, a capital sum of approximately £50,000 would be required to purchase an annuity paying £70.45 per week (the current level of Income Support applicable to a single 65 year old with no dependants or disability), indexed annually to the Retail Prices Index, for a person aged 65. A charge of 2 per cent. of the fund has been assumed to be deducted.
Notes:
1. Estimate is rounded to the nearest £5,000.
2. No adjustment has been made to the basic Income Support entitlement for a person aged 65. Pensioners on this level of income would qualify for assistance with most housing costs and for the principal benefits in kind, even though not actually in receipt of Income Support.
3. The annuity rate used is derived from the tables issued by the Government Actuary for determining the maximum annual income withdrawal from post-1997 protected rights held in an appropriate personal pension, based on the yield on UK gilts (High Coupon; 15 years) on 15 January 1999. These tables assume an annuity with Limited Price Indexation, ie an annual increase in line with the Retail Prices Index or 5 per cent., whichever is lower. Under current conditions, this gives a reasonable approximation to the cost of an annuity with full RPI linking.
§ Mr. WebbTo ask the Secretary of State for Social Security, pursuant to paragraph 17, on page 14 of "Partnership in Pensions", Cm 4179, what estimate he has made of the number of those reaching retirement age who, by 2025, will have to rely on means-tested benefits under his proposals. [65579]
§ Mr. TimmsThe Green Paper proposals are designed to ensure that someone with a full working life, or years covered by credits, will receive a pension on retirement above the Minimum Income Guarantee. The full impact of the proposals will be felt when people have experienced a full working lifetime in the new scheme.
The estimate referred to in the Green Paper was made using the Department's PENSIM model which can give only a broad indication of the impact so far into the future. Due to the degree of uncertainty surrounding estimates, 231W PENSIM cannot identify relatively small changes. The impact of pension policy tends to build up slowly over time and in 2025, after only 20 years of the new system, will be relatively small.
However, estimates suggest that approximately 1.5 million pensioners (around 20 per cent.) will receive payments from the Minimum Income Guarantee when it is introduced in April 1999. On the basis of unchanged policies (ie. not taking into account the effects of our other proposals in the Green Paper) approximately 3.5 million pensioners (1 in 3) in 2050 could rely on the Minimum Income Guarantee. Even if no behavioural changes are assumed, the new insurance contract for pensions will mean that these estimates are reduced to approximately 2.5 million pensioners (1 in 4) receiving income from the Minimum Income Guarantee in 2050, and a lower proportion in years after 2050.
As an illustration of the possible impact of the behavioural effects of the proposals in "Partnership in Pensions", if all those in work saved an additional 5 per cent., the figure would fall to approximately 2 million in 2050.
§ Mr. CousinsTo ask the Secretary of State for Social Security if he will estimate the numbers of pensioners who would be entitled to(a) existing income support and (b) the future minimum pension guarantee if (i) a pension disregard of (1) £10 per week and (2) £20 per week were introduced and (ii) if the disregard were confined to pension income paid to widows and widowers. [66460]
§ Mr. TimmsThe tables show the number of pensioners who would be newly entitled to benefit under the proposed disregards.
Estimated number of pensioners who would float onto benefit Existing Income Support gainers in 1998–99 Future Minimum Income Guarantee gainers in 1999–2000 £10 occupational pension disregard 30,000 35,000 £20 occupational pension disregard 75,000 80,000
Estimated state pension received £ Current system Proposed system Earnings a(£s per year) Basic state pension SERPS Total Basic state pension State second pension Total £3,000 29 2 31 29 43 72 £6,000 31 14 44 31 50 80 £9,000 31 25 55 31 50 80 £12,000 31 36 67 31 56 86 £15,000 31 46 76 31 61 91 £18,000 31 53 83 31 64 94 £21,000 31 57 87 31 67 97 £24,000 31 59 89 31 68 98 Notes:
1. Assumes a full working life of 49 years from April 2002. Figures shown in constant 1998 earnings, and rounded to the nearest £1—totals may not sum due to rounding. The State Second Pension Scheme as described on page 45 of "A New Contract for Welfare; Partnership in Pensions", with the exception of the upper earnings band, which is assumed to be £20,000 (in 1998 earnings).
2. Although someone earning £3,000 is below the current LEL, their earnings would eventually exceed the LEL, as the £3,000 is assumed to grow in real terms by 1.5 per cent. per year, and the LEL stays constant. 232W
Estimated number of widowed pensioners who would float onto benefit Existing Income Support gainers in 1998–99 Future Minimum Income Guarantee gainers in 1999–2000 £10 occupational pension disregard 20,000 20,000 £20 occupational pension disregard 50,000 55,000 Notes:
1. The data are taken from the 1997 Quarterly Statistical Enquiries and 1995–96 Family Resources Survey, with administrative data adjustments. Figures are uprated to 1998–99 for Income Support and 1999–2000 for the Minimum Income Guarantee.
2. Estimates are rounded to the nearest 5,000.
3. The figures given are of pensioner benefit units (the individual pensioner or at least one of the couple is of state pension age or above), rather than individual pensioners.
§ Mr. FlynnTo ask the Secretary of State for Social Security in what respects, other than the rate of accrual on annual earnings below £18,000 and the crediting-in of carers and disabled people, the state second pension is planned to differ from SERPS. [67887]
§ Mr. TimmsCompared with SERPS, the new State Second Pension will improve the entitlements of lower paid employees, give extra help to moderate earners and for the first time provide credits to carers and the long-term disabled with broken work records.
Ultimately, we expect the State Second Pension to become a flat rate scheme for those on lower earnings, with moderate and high earners joining a funded pension.
§ Mr. FlynnTo ask the Secretary of State for Social Security if he will publish(a) the information in Chart 5 of "A New Contract for Welfare: Partnership in Pensions", for persons with annual earnings of (i) £3,000, (ii) £6,000, (iii) £9,000, (iv) £12,000, (v) £15,000, (vi) £18,000, (vii) £21,000 and (viii) £24,000 and (b) the income support rates for pensioners in 2050, in earnings-equivalent terms, if they rise in line with earnings between 1999 and 2050. [67886]
§ Mr. TimmsInformation is not available in the from requested. Such information as is available is shown in the table.
233W(b) If the rates for the Minimum Income Guarantee were to increase broadly in line with the growth in average earnings between 1999 and 2050, they would be £75 in April 2050 for a single pensioner and £117 for a pensioner couple in constant 1999 earnings terms.
§ Mr. FlynnTo ask the Secretary of State for Social Security if the statement on page 14 of "A New Contract for Welfare: Partnership in Pensions", that by 2025 well over half those reaching retirement age could have to rely on income-related benefits refers to income support or to all income-related benefits; and what would be the corresponding proportion if the link between the basic pension and average earnings were restored, assuming that income support rose in line with(a) prices and (b) earnings. [67889]
§ Mr. TimmsThe statement on page 14 of "A New Contract for Welfare: Partnership in Pensions" refers to the estimated number of recently retired pensioners in 2025 who might expect to rely on any income related benefit at some point during their retirement.
Assuming that the maximum rate of basic State pension were increased from the current level in line with average earnings growth from April 1999, (b) less than half of recently retired pensioners in 2025 might expect to rely on an income related benefit if income related benefits are uprated in line with average earnings growth, and (a) less than 1 in 10 if income related benefits are assumed to be uprated in line with prices. On current policies, less than a quarter of recently retired pensioners in 2025 might rely on an income related benefit during their retirement if income related benefits were uprated in line with prices.
These estimates have been made using the PENSIM model. Due to the number of assumptions used in PENSIM, and the uncertainty surrounding estimates so far in to the future, estimates should be considered as broad brush, and as showing the likely order of magnitude of estimated figures.
§ Mr. FlynnTo ask the Secretary of State for Social Security what rate of real increase in average earnings is assumed in the illustrative pension forecasts on pages 89 and 104–105 of "A New Contract for Welfare: Partnership in Pensions"; and if he will provide comparable figures based on a real annual increase of 2 per cent. [67888]
§ Mr. TimmsThe pension forecast shown on page 89 of "A New Contract for Welfare: Partnership in Pensions" is illustrative, and based on an individual who has already completed most of their working life. No assumptions have been made concerning the future growth in real average earnings for this illustration.
The hypothetical examples on pages 104–105 are based on real growth in average earnings (and individual earnings in each example) of 1.5 per cent. per year. The effects of assuming 2 per cent. real growth in average earnings (and in individual earnings in each example) are given in the tables. 234W
Example 1: Mechanic Current system (per week) New system (per week) State Pensions: £43 State Pensions: £76 Private Pensions: nil Private Pensions: nil Total: £43 Total: £76
Example 2: Office Manager Current system (per week) New system (per week) State Pensions: £25 State Pensions: £35 Private Pensions: £62 Private Pensions: £71 Total: £87 Total: £106
Example 3: Laboratory Assistant Current system (per week) New system (per week) State Pensions: £25 State Pensions: £25 Private Pensions: £107 Private Pensions: £149 Total: £133 Total: £149 Notes:
1. Figures shown in constant 1998 earnings, and rounded to the nearest £1—totals may not sum due to rounding.
2. The State Second Pension Scheme is as described on page 45 of "A New Contract for Welfare: Partnership in Pensions". Full details of the life histories assumed are on pages 104–105.
§ Mr. FlynnTo ask the Secretary of State for Social Security what assumptions are made in "A New Contract for Welfare: Partnership in Pensions", regarding the uprating of the lower and upper earnings limits for national insurance contributions between 1999 and 2050; and what the limits are expected to be in 2050, in terms of 1999 earnings. [67891]
§ Mr. TimmsThe 1998–99 lower earnings limit of £64 a week and upper earnings limit of £485 a week were used for the costings in the Green Paper. These limits are increased in line with prices. On this basis and on the assumption that real earnings would grow by 1.5 per cent. a year, in 2050–51 the lower earnings limit would be £31 a week and the upper earnings limit £235 a week in terms of 1999–2000 earnings.
§ Mr. FlynnTo ask the Secretary of State for Social Security how the £30 billion cost of raising the basic pension in line with earnings, quoted in "A New Contract for Welfare: Partnership in Pensions", was calculated, including the period to which it relates and the assumptions made; and what would be the resulting reduction in the cost of means-tested benefits. [67890]
§ Mr. TimmsThe Government Actuary's Department estimate that by 2030–31 the annual cost of uprating Retirement Pension and other National Insurance benefits paid to people over State Pension Age in line with earnings would be of the order of £33 billion.
This estimate is in 1998–99 benefit rates, assumes a start date of April 1999 and is based on assumed real earnings growth of 1.5 per cent. Full details of the assumptions underlying the estimate will be available in the forthcoming Quinquennial Review which is prepared by the Government Actuary's Department.
Income-Related Benefit offsets might be of the order of £8 billion, assuming earnings uprating of Income Support.
235WEstimates such as these are subject to broad margins of error because of the long time period under consideration.