Pensions: DWP publishes State Pension claimant figures and more

Contents:

• DWP publishes State Pension claimant figures
• Updated guidance - new State Pension, transition and contracting-out, and GMP
• Igniting an investment big bang: A challenge from the Prime Minister and Chancellor to the UK’s institutional investors
• TPR issues AE guidance for new employers
• PASA publishes supplemental guidance on transfer payments

 

DWP publishes State Pension claimant figures

(AF3, FA2, JO5, RO4, RO8)

The DWP have published updated figures on the take up of State Pensions and other benefits.

The headlines: 

The main headline figures for the DWP benefits in this report.

In the year to February 2021:

• the number of people receiving the State Pension fell by 1% to 12.4 million;
• Jobseeker’s Allowance increased by 57% to 260,000 claimants;
• Employment and Support Allowance fell to 1.8 million claimants;
• Income Support fell to 250,000 claimants.

In the year to May 2021:

• Housing Benefit fell to 2.8 million claimants.

The periods covered by this release were affected by the coronavirus (COVID-19) pandemic.

Universal Credit has been replacing some older-style Working Age benefits. The latest Universal Credit Official Statistics show:

• there were 5.9 million Universal Credit claimants at June 2021.

People can claim more than one DWP benefit at a time. Experimental Benefit Combination statistics show:

23 million people claimed some combination of DWP benefits in February 2021 (of the benefits included in these statistics). Of whom:

• 12.5 million were of State Pension Age, 29% of whom were claiming more than one benefit;
• 9.9 million were of Working Age, 31% of whom were claiming more than one benefit;
• 550,000 were under the age of 16 and in receipt of Disability Living Allowance as a child.

State Pensions

People receiving State Pension by type to February 202

 

It can clearly be seen that the number of those claiming State Pensions have been reducing, this is at least in part due to the increase in the State Pension Age above 65 since December 2018. The State Pension Age for all has been 66 since October 2020, but will begin to rise again from 2026.

The proportion of those in receipt if the New State Pension which came into force in April 2016 has again increased, which is to be expected. A further 400,000 are in receipt of the New State Pension than a year earlier.

New State Pension Vs Basic State Pension

The New State Pension average weekly payments can be seen to be significantly higher for females in comparison to the old Basic State Pension, although this isn’t the same for males with a slight reduction of the average.

 

State Pension type	Male	Female
New State Pension	£166.34	£160.11
Pre-2016 State Pension	£169.21	£141.98

The gap between average payments between males and female has significantly reduced, which clearly shows that the New State Pension is a fairer system. There are currently fewer females receiving the New State Pension, so we expect the difference to reduce further. 

 

Updated guidance - new State Pension, transition and contracting-out, and GMP

(AF3, FA2, JO5, RO4, RO8) 

The DWP has published two factsheets about the impact of contracting out on entitlement to the new State pension:

• The new State Pension transition and contracting-out (effectively how the Foundation Amount is calculated)
• Guaranteed Minimum Pension (GMP) and the effect of the new State Pension.

The new State Pension transition and contracting-out factsheet explains the effect on the new State Pension of someone previously having been contracted-out of SERPS. These schemes are collectively called ‘additional State Pension’ and comprise SERPS and S2P.

Most people reaching State Pension age in the first couple of decades of the new State Pension, which started on 6 April 2016, will have been contracted-out of the additional State Pension (SERPS or S2P) at some point. When people were contracted-out they either paid National Insurance contributions at a lower rate, or some of the National Insurance contributions they paid were used to contribute to a private pension instead of their additional State Pension. They will have been contracted-out through an occupational pension scheme where their pension was linked to their salary (defined benefit (DB)); or through an occupational or personal pension scheme where contributions were invested and the final pension was determined by the outcome of those investments (defined contribution (DC)). Most people – over 80% - would have received the full rate of new State Pension or more if their state pension had not been adjusted to take account of contracting-out.

The rules of contracting-out are very complex and the way they are reflected in the new State Pension is in line, in most respects, with these rules as they have stood from 1978. This note describes:

• how contracted-out amounts are treated in the transition from the current scheme to the new State Pension and how National Insurance records up to 2015/16 are valued to create a Starting Amount;
• how contracted-out pensions are revalued from the point that someone leaves their contracted-out employment until they reach their State Pension age;
• the effect that the ending of the current scheme has on the uprating of additional State Pension and the Contracted-out Deduction.

A GMP is a minimum pension that a workplace pension scheme normally provides. It only applies to people who were contracted out of the Additional State Pension from 6 April 1978 to 5 April 1997. The GMP from a workplace pension scheme is usually the same, or more than, the Additional State Pension the individual would have got if they had not been contracted out.

The GMP factsheet explains how private or public sector pensions affect an individual’s GMP and how an individual could build up more pension under new State Pension.

 

Igniting an investment big bang: A challenge from the Prime Minister and Chancellor to the UK’s institutional investors

(AF3, FA2, JO5, RO4, RO8)

That was the title of a joint letter from the prime Minister and the Chancellor to UK pension schemes in the hope of creating a “big bang” to kick start the UK economy as we now seem to be coming out of COVID restrictions. The key points of the letter, include:

• Over 80% of UK defined contribution (DC) assets are invested in listed securities, which represent around 20% of the UK’s assets.
• Politicians chasing more investment in long-term, illiquid UK assets to boost economic recovery.
• Investors should remain focused on picking low cost, diversified investments that fit with their goals and appetite for risk.

The Prime Minister and the Chancellor of the Exchequer said that UK institutional investors should “seize the moment” and use their “hundreds of billions of pounds” to back assets that often carry a longer-term payback such as infrastructure.

They also suggested that British pensioners are missing out on “better retirements” after investors focused too heavily on the returns from stock market listed companies. The letter added: “It's time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth and prosperity across our country... UK institutional investors are under-represented in owning UK assets.

The ABI agreed that the insurance and pensions sector has a significant role to play in the UK’s economic recovery. ABI Director of Regulation Charlotte Clark said in their Press Release: “Analysis has shown that up to £95bn could be freed to boost the UK economy and help tackle climate change if reforms are made to Solvency II. We look forward to working further with the Government to loosen this overly-prescriptive regime so that our industry can do more to help.”

Nest Chief Investment Officer Mark Fawcett said that opening up private markets for long-term investors like pension schemes is a “win-win”. He said in their Press Release: “It allows schemes to access potentially strong, steady returns for decades, while helping to support economic growth and job creation that should ultimately also benefit our savers... We support the Government looking at innovative ways to help other schemes access similar return opportunities.”

PLSA Chair Richard Butcher supported the Government’s ambition to make sure that pension funds have the opportunity to invest in the widest range of assets to deliver good outcomes for savers. He said in their Press Release: “It is important to recognise, though, that the UK pensions sector, which looks after over £2trn of assets on behalf of tens of millions of savers is not homogenous. Each fund will, by law, have its own prudently-managed, well-diversified investment strategy and an approach designed to suit its members' particular needs. Above all else, trustees’ primary duty is to look after the saver first. It is therefore welcome to also see the Prime Minister and Chancellor acknowledge there is no single ‘right answer’ when it comes to how much pension fund trustees should invest in long-term UK assets.”

 

TPR issues AE guidance for new employers

(AF3, FA2, JO5, RO4, RO8

The Pensions Regulator (TPR) has issued a range of guidance, designed to help those who would like to start their own business. Guidance is available for new employers and for business advisors.

Regardless of whether these are individuals who are setting up and running a business for the first time, or who already have other businesses, they will need to ensure that they are compliant with their Automatic Enrolment (AE) duties. These duties include assessing staff to establish whether they’re eligible for a workplace pension, placing them into a suitable pension scheme, and communicating this to them in writing. 

 

PASA publishes supplemental guidance on transfer payments

(AF3, FA2, JO5, RO4, RO8)

The cross-industry GMP Equalisation Working Group, chaired by the Pensions Administration Standards Association (PASA), has published Supplemental Guidance on Transfer Payments. The guidance provides an update to the Methodology Guidance issued in 2019 (see Perspective News: 30 September 2019) and reflects the 2020 judgment concerning the Lloyds Bank pension schemes.

Duncan Buchanan, Chair of the Methodology sub-group, said: “We always knew our original guidance on methods would need updating once the Lloyds 2020 judgment was issued. It quickly became apparent to us [that the] Lloyds 2020 [judgment] leaves many issues unanswered for both schemes which have paid transfer values and those which received them.” Louise Sivyer, Head of Policy at TPR, commented: “The November 2020 judgment confirmed that schemes will need to revisit historical individual transfers to check if additional value is due to savers as a result of GMP equalisation. This is a complex exercise, and we welcome the guidance from the industry GMP equalisation working group, which aims to assist schemes and advisers to find a pragmatic approach to equalising past transfers.”

 

 

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