Pensions Bill (Hansard, 5 April 1995)

§ Mr. Arbuthnot

The main effects on the national insurance fund of the Pensions Bill[Lords] and amendments to it in another place were set out in the explanatory and financial memorandum to the Bill published on 21 March 1995.

The estimated expenditure effects of the amendments to paragraph 5 of schedule 4 assume that "the best 44 years" rule in the calculation of SERPS is intended to operate in the same way as the original "best 20 years" rule. This amendment would have no effect on the national insurance fund before 2022. Thereafter, costs would rise to reach around £1 billion in 2030, £1.9 billion in 2040 and £2.5 billion in 2050. Versions of tables 1 and 2 from the Govnerment Actuary's report on the Bill allowing for this amendment are given in the table.

As drafted, the actual effect of the clauses providing for the treatment of pension rights on divorce would depend on how they are interpreted by the courts. The estimate of £25 million in 2010–11 given in the financial memorandum to the Bill represents the maximum possible increase in the cost of NI benefits resulting from these amendments. Given this uncertainty, the figure is not included in the table.

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Table 1 Estimated cost of National Insurance benefits
(£ billion at 1994–95 prices)
	2000–01	2010–11	2020–21	2030–31	2040–41	2050–51
Widows' benefits:
Flat-rate	0.7	0.6	0.6	0.5	0.5	0.5
Earnings-related	0.2	0.1	0.1	0.1	0.1	0.1
Incapacity benefits:
Flat-rate	5.1	6.2	6.6	6.3	5.9	6.0
Earnings-related	0.6	0.1	—	—	—	—
Other benefits	1.7	1.7	1.8	1.8	1.8	1.8
Total	42.2	51.7	63.4	74.2	76.0	74.2
AFTER PROPOSED CHANGES
Retirement pensions:
Basic Pension	29.8	33.6	35.2	41.9	44.5	42.3
Earnings-related pension	4.2	8.4	10.9	13.0	12.1	12.4
Widows' benefits:
Flat-rate	0.7	0.6	1.2	1.1	0.9	1.0
Earnings-related	0.2	0.1	0.1	0.1	0.1	0.1
Incapacity benefits:
Flat-rate	5.1	6.2	7.2	6.9	6.4	6.5
Earnings-related	0.6	0.1	—	—	—	—
Other benefits	1.7	1.7	1.8	1.8	1.8	1.8
Total	42.2	50.8	56.4	64.8	65.8	64.2

Note:

Individual components may not sum to totals due to rounding.

Table 2 Estimated financial effect on the National Insurance Fund of the proposed changes
(£ billion at 1994–95) prices
	2000–01	2010–11	2020–21	2030–31	2040–41	2050–51
Benefit changes
Changes to state pension age:
Basic retirement pension	—	-0.2	-4.7	-5.0	-3.9	-4.3
SERPS	—	-0.03	-1.7	-1.9	-1.8	-2.6
Widow's pension	—	+0.02	+0.6	+0.6	+0.5	+0.5
Incapacity benefit	—	+0.03	+0.6	+0.6	+0.5	+0.6
Other NI benefits	—	0.0	+0.1	+0.1	+0.1	+0.1
Changes to graduated retirement benefit increments and dependency conditions	—	0.0	+0.1	+0.1	+0.1	+0.1
Inclusion of family credit and disability working allowance in earnings factors	0.0	0.0	+0.01	+0.06	+0.1	+0.1
Changes to SERPS calculation	0.0	-0.6	-1.3	-1.5	-1.0	-0.2
Changes to contracting out SERPS expenditure	0.0	-0.1	-0.7	-2.4	-4.7	-4.2
NI contribution changes
SPA change	—	0.0	-0.1	-0.1	-0.1	-0.1
Changes to contracting out:
assuming 4.6 per cent. rebate	+0.4	+0.6	-0.1	-0.8	-1.1	-1.1
assuming 4.95 per cent. rebate	+0.9	+1.1	+0.4	-0.3	-0.6	-0.6

Notes:

1. The above figures break down the total change in benefit expenditure shown in Table 1 into the effect of each separate proposal in the Bill. The sum of these changes may not agree with the total change in Table 1 due to rounding.

2. Positive figures denote higher expenditure or lower contribution income. Negative figures denote lower expenditure or higher income. The estimates therefore show the effect on the financial position of the National Insurance Fund.

3. All figures for future years should be read in conjunction with paragraphs 32 to 33 of the Government Actuary's Report regarding uncertainty.

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