§ Ms HarmanTo ask the Secretary of State for Social Security (1) what are the costs of implementing the basic pension plus proposal for each year from 1998 to 2040, in today's prices; [19639]
(2) if he will estimate the cost of the £9 rebate in the basic pension plus proposal for each year from 1998 to 2040 in today's prices; [19643]
(3) how much will be spent on (a) the basic pension guarantee and (b) income support for each year from 2040 to 2060; [19640]
(4) when, under the basic pension plus proposal, he estimates total expenditure on the basic state pension will start falling; and how large the reductions in spending on the basic state pension are for each year after that. [19625]
§ Mr. HealdThe net effects on revenues of basic pension plus will rise on average by £160 million in each year following implementation, reaching a maximum of about £7 billion a year by 2040 or later. Thereafter, there would be a rapid decline in expenditure on state pensions.
Initially, the £9 rebate will represent half or more of the total cost of new rebates under basic pension plus, depending on the starting age limit, falling gradually to a little over a third by 2040.
The first people to retire under basic pension plus will do so after 2040. Basic pension guarantee payments will build up thereafter to a broadly assumed level of £10 billion a year by 2070. We do not expect income support expenditure to rise as a result of basic pension plus.
Under basic pension plus, expenditure on state retirement pension will start to fall when people in the new scheme start to retire after about 2040. Savings will build rapidly and will reach about £40 billion a year in the longer term.
It would not be appropriate to give precise figures for each year, since the exact costs will depend on when the scheme is introduced, what the initial age limit is, and other details to be considered during the consultation.
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§ Ms HarmanTo ask the Secretary of State for Social Security what will be the expected income under the Government's basic pension plus proposal, on retirement for an individual who works for(a) 44 years, (b) 34 years and (c) 24 years, for (i) a male and (ii) a female on (1) average and (2) half average earnings; and if he will express these figures as a percentage of average earnings in 2040. [19641]
§ Mr. HealdThe precise details of the new basic pension plus are yet to be decided. The figures in the table are for illustration only. They assume retirement soon after 2040 and they give the pension payable around 2040, in 1996–97 prices, on the assumptions listed. The figures are calculated on the basis of the minimum contributions only and that the yield on investment does not exceed that assumed by the Government Actuary in setting rebates.
Pension per week £ Pension as a percentage of final earnings Males on average male earnings 24 years contributions 125 12.3 34 years contributions 153 15.1 44 years contributions 184 18.1 Females on average female earnings 24 years contributions 121 16.5 34 years contributions 145 19.7 44 years contributions 168 22.9 Males on half average male earnings 24 years contributions 104 20.4 34 years contributions 121 23.9 44 years contributions 138 27.2 Females on half average female earnings 24 years contributions 89 24.3 34 years contributions 101 27.4 44 years contributions 112 30.5 Notes:
1. The figures shown in the table depend significantly on the assumptions made in the calculations. In particular they will depend on the real rate of investment return, the real state of earnings growth, the expenses, precisely when in the working life the contributions are made and the rate at which the lump sum at retirement can be converted into pension.
Assumptions:
1. Real investment returns of 4.25 per cent. per annum in excess of prices.
2. Real earnings increases of 2 per cent. per annum in excess of prices.
3. Expenses of 6 per cent. of each contribution, 0.8 per cent. of the fund each year and 2 per cent. of the fund at retirement.
4. The pension in payment will increase in line with prices each year.
5. Average earnings for males on full-time adult earnings in 1996–97 are £400 a week.
6. Average earnings for females on full-time adult earnings in 1996–97 are £290 a week.
7. The accrued lump sum at retirement at age 65 can be converted into an annual pension equal to 7 per cent. of the lump sum.
8. Any shortfall between the current basic state pension and the pension provided by the accumulation of the £9 per week rebate is made up by the guarantee. For this purpose it has been assumed that in all cases there will be a sufficient record based on actual or credited contributions to entitle the person to the full rate of basic state pension of £61.15 per week.
9. Where 44 years contributions are made it is assumed that the missing five years are all at the youngest ages.
196W10. Where 34 years contributions are made it is assumed that the 15 missing years comprise 10 at the youngest ages and 15 at the oldest ages.
11. Where 24 years contributions are made it is assumed that the 25 missing years comprise 15 at the youngest ages and 15 at the oldest ages.
12. Where the person has been assumed not to be working in the final years up to age 65, the pension as a percentage of earnings has still been expressed as a percentage of the earnings at age 65 rather than the earnings when the person ceased working.
Source:
Government Actuary's Department.
§ Ms HarmanTo ask the Secretary of State for Social, Security if he will estimate(a) the state earnings-related pension scheme pension payable on retirement to an individual who works for (i) 44 years, (ii) 34 years and (iii) 24 years, on average male earnings and (b) the basic state pension plus SERPS payable on retirement to an individual who works for (1) 44 years, (2) 34 years and (3) 24 years, on average male earnings. [19645]
§ Mr. HealdSince no-one who has already worked for 44 years has a full entitlement to SERPS, it is assumed that the question relates to the pension payable to someone starting their working life around the year 2000. Accordingly, the table sets out the pension payable after 2040, in 1996–97 prices, on the assumptions listed.
Basic pension per week£ SERPS pension per week£ Total of basic pension plus SERPS per week£ Males on average male earnings 24 years contributions 61.15 57.20 118.35 34 years contributions 61.15 81.80 142.95 44 years contributions 61.15 106.80 167.95 Females on average female earnings 24 years contributions 61.15 54.40 115.55 34 years contributions 61.15 75.20 136.35 44 years contributions 61.15 94.80 155.95 Assumptions:
1. Real earnings increases of 2 per cent. per annum in excess of prices.
2. Average earnings for males on full-time adult earnings in 1996–97 are £400 a week.
3. Average earnings for females on full-time adult earnings are £290 a week.
4. Where less than 44 years contributions have been paid it has been assumed that sufficient credits will be available to secure the full basic state pension of £61.15 a week.
5. Where 44 years contributions are made it has been assumed that the five missing years are all at the youngest ages.
6. Where 34 years contributions are made it has been assumed that the 15 missing years comprise 10 at the youngest ages and five at the oldest ages.
7. Where 24 years contributions are made it has been assumed that the 25 missing years comprise 15 at the youngest ages and 10 at the oldest ages.
Source:
Government Actuary's Department.
§ Ms HarmanTo ask the Secretary of State for Social Security what assumptions he has made about the number of people who will be members of basic pension plus in(a) 2000, (b) 2010, (c) 2020, (d) 2030 and (e) 2040. [19647]
§ Mr. HealdIn drawing up our proposals, it has been assumed that basic pension plus will apply to all new entrants to the labour market and those aged up to their early twenties once the scheme begins. Over a working 197W lifetime, the whole of the labour force will be covered. The precise details of the scheme will be decided in light of the consultation on the Green Paper.
§ Ms HarmanTo ask the Secretary of State for Social Security if the pension generated by the basic pension plus for(a) men and (b) women will be based on the same actuarial assumption; and if the same assumptions will apply to the £9 a week rebate to pay for the basic state pension and the 5 per cent. rebate on earnings subject to national insurance contributions to pay for the second tier pension. [19649]
§ Mr. HealdAnnuities bought from any funds accumulated under basic pension plus would be subject to the same annuity rates for men and women.
§ Ms HarmanTo ask the Secretary of State for Social Security what will be the additional tax payable over a 44-year working life under the tax regime set out in the basic pension plus proposal. [19638]
§ Mr. HealdFuture tax rates are a matter for the Government of the day and we shall be consulting on the pensions tax regime proposed under basic pension plus.
§ Ms HarmanTo ask the Secretary of State for Social Security what is the average pensioner income on retirement for the most recent year, expressed in cash terms at today's prices, and as a percentage of average earnings. [19642]
§ Mr. HealdThe information is not available in the format requested. Such information as is available is as follows.
The pensioners' incomes series 1994–95 shows that the average gross weekly income, before housing costs, for recently retired pensioner units is estimated at £235.60, in July 1994 prices. This figure is equivalent to £248.70 in July 1996 prices, which is 70 per cent. of the average gross weekly earnings of full-time employees in July 1996.
Sources: The pensioners' income series 1994–95 and the "Abstract of Statistics for Social Security Benefits and Contributions and Indices of Prices and Earnings", 1996 edition.Notes
1. Figures are rounded to the nearest £0.10 and 1 per cent.
2. A pensioner unit is defined as a single person over state pension age or a couple where the man defined as the head is over SPA. A recently retired pensioner unit is defined as a pensioner unit where the head of the benefit unit is less than five years older than SPA.
§ Ms HarmanTo ask the Secretary of State for Social Security if he will publish the Government Actuary's advice on(a) the £9 a week rebate and (b) the 5 per cent. rebate proposed in the basic pension plus proposal. [19644]
§ Mr. HealdThe Government Actuary's advice on the rebates for basic pension plus is incorporated in the technical note and is consistent with his review of certain contracting-out terms, Cm 3221.
§ Ms HarmanTo ask the Secretary of State for Social Security what are the projected national insurance rates until 2050 under(a) the most recent Government Actuary projections taking into account the effects of the Pensions Act 1995 and (b) the basis pensions plus proposal. [19646]
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§ Mr. HealdThe most recent projections on national insurance rates are contained in table 3 of "Pension Bill 1994. Report by the Government Actuary on the Financial Provisions of the Bill on the National Insurance Fund", Cm 2714.
It will be for the Government of the day to decide the future balance between different taxes, charges and borrowing.
The proposals will not require a change in the rates of national insurance contributions especially since existing tax rates would yield far more than they do now.
§ Mr. Frank FieldTo ask the Secretary of State for Social Security if he will ask the Government Actuary to cost the additional net increase in public expenditure for the period during which workers are building up the contributions to their own accounts under his proposed benefit pension plus proposal. [19660]
§ Mr. HealdWe have already done so. The results are in my right hon. Friend the Secretary of State's announcement of 5 March 1997 and "Basic Pension Plus—A technical note", copies of which are in the Library.
§ Mr. FieldTo ask the Secretary of State for Social Security if he asked the Government Actuary to cost the impact on public expenditure of his basic pension plus proposal before they were published. [19661]
§ Mr. HealdThe figures on the impact of basic pension plus on public expenditure in the technical note, a copy of which is available in the Library, are based on projections by the Government Actuary.
§ Mrs. Anne CampbellTo ask the Secretary of State for Social Security what rate of return on investments in state pension funds under his new proposals is predicted by the Government Actuary; on what basis this prediction is made; and how increases in this expected rate of return affect national insurance contribution rebates. [19623]
§ Mr. HealdThe Government Actuary's assumed rates of return on investments for basic pension plus are a real rate of 4.25 per cent. per annum net of prices pre retirement, and 3.75 per cent. per annum net of prices post retirement. These assumptions are as in his calculation of age-related rebates for Appropriate Personal Pensions, as set out in "Occupational and Personal Pension Schemes Review of Certain Contracting-Out Terms", Cm 3221, which sets out the factors taken into account in setting these assumptions.
§ Mrs. CampbellTo ask the Secretary of State for Social Security what was the assumed level of charges which the Government Actuary used in calculating the expected returns in relation to the Government's basic pension plus proposal. [19624]
§ Mr. HealdThe Government Actuary's assumed level of charges is the same as allowed for in the Government Actuary's calculation of the rebates from SERPS which come into force next month, Cm 3221—i.e. 6 per cent. of the rebate, a 0.8 per cent. reduction in the annual rate of return before retirement, and a 2 per cent. loading on the annuity purchase price.
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