HL Deb 24 March 2003 vol 646 cc54-6WA
Lord Oakeshott of Seagrove Bay

asked Her Majesty's Government:

What is their estimate, in respect of the most recent year for which figures are available, of how many members of defined benefit pension schemes retired with a starting pension of:

  1. (a) £50,000–£60,000;
  2. (b) £60,001–£70,000;
  3. (c) £70,001–£80,000;
  4. (d) £80,001–£90,000;
  5. (e) £90,001–£100,000; and
  6. (f) £100,000. [HL2059]

Lord McIntosh of Haringey

The information is not available in the format requested. However, available estimates are given in the following table. They are derived from theSurvey of Personal Incomes 2000–01 and show the total number of taxpaying individuals in receipt of any kind of private pension in the specified bands. For completeness, those with a private pension of less than £50,000 and the total number have also been included.

It is not possible to identify separately whether the private pension is derived from membership of a defined benefit or defined contribution scheme, nor to identify individuals retiring in the year.

Number of taxpaying individuals1 in receipt of a private pension in 2000–01
Private pension amount2 (lower limit) Number of individuals (thousands)
Less than £50,000 5,340
£50,000 8
£60,000 5
£70,000 3
£80,000 2
£90,000 1
£100,000 or more 4
Total 5,370
1 Total individuals in receipt of a private pension is estimated at around 7½ million (Family Resources Survey 2000–01)
2 The pension in payment recorded is net of any tax-free lump sum drawn from the fund in the year of retirement.

However, maximum tax-approved pensions available to people under the 1989 occupational tax regime are limited to two-thirds of the earnings cap, currently £97,200—ie £64,800. This covers around two-thirds of all occupational pension scheme members and potentially covers the remaining third if they change employment. Current estimates suggest that about 10 per cent of the pre-1989 group move out of this group each year. Therefore the number shown with pensions over £70,000 may not be a good indicator for future levels of tax-approved pension income.

Lord Oakeshott of Seagrove Bay

asked Her Majesty's Government:

Whether they will estimate, under the present taxation arrangements and annuity rates, for:

  1. (a) a woman aged 60,
  2. (b) a woman aged 65,
  3. (c) a man aged 60, and
  4. (d) a man aged 65,
what starting pension could be purchased today with a capital lump sum of £1.4 million, less the maximum permissible lump sum allowed to be drawn tax-free on retirement today, working on the assumption that the starting pension can provide for a surviving spouse pension to be payable at half the rate of the person retiring today and with both pensions uprated annually in line with the retail prices index; and what annuity rates have been used in making these estimates. [HL2060]

Lord McIntosh of Haringey

The following table shows for a number of age groups the income derived from a fund of £1.4 million built up in a personal pension. The table shows what income could be derived from both a joint life level annuity escalating annually with the retail prices index and with a 50 per cent survivor's pension; and additionally the income from a single life level annuity—the most common form of annuity purchased. These are based on annuity rates quoted by the Annuity Bureau in March 2003 and all assume that the maximum lump sum of £350,000 has already been drawn from the fund.

Income and annuity rates for a £1.4 million fund built up in a personal pension scheme
Joint life escalating* Single life level
Purchaser Spouse Initial annual income (£) Annuity rate (%) Initial annual income (£) Annuity rate (%)
Female. 60 60 40,341 3.8 61,740 5.9
65 41,444 3.9
Female, 65 65 47,576 4.5 70,350 6.7
70 49,098 4.7
Male, 60 55 40,278 3.8 67,200 6.4
60 42,378 4.0
Male, 65 60 47,513 4.5 77,490 7.4
65 50,537 4.8
* Note that as the expected value of the income stream to be paid out by the annuity provider depends on the life expectancy of joint lives; the annuity rate depends upon their age differential. If the joint lives are of the same age and the man purchases, the annuity rate is higher than if the woman bought the annuity. This is because he is not expected to live as long as a woman purchaser and therefore a full annuity income is expected to be paid out for a shorter period than if the woman had purchased. Annuity rates are rounded to one decimal place.

However, the maximum tax-approved pension available to those who have joined their scheme since 1989, approximately two-thirds of all occupational scheme members, is two-thirds of the earnings cap, currently £97,200. The maximum benefits under the 1989 tax regime for occupational pensions are also dependent on annuity rates. So, for example, a man retiring at a scheme's normal retirement age of 65, on a salary of at least £97,200 and sufficient service to give a pension of two-thirds of capped final remuneration, could have a pension of no more than £64,800 if no lump sum were taken. If the maximum lump sum of £145,800 is taken, his actual pension income would then be reduced to £58,239, assuming an annuity rate of 4.5 per cent is used to calculate the necessary reduction to the pension in respect of the lump sum.