APPENDIX 63
Memorandum submitted by Deborah R Cooper,
Fellow of the Institute of Actuaries, and Mercer Human Resources
Consulting Ltd. (PEN 79)
ESTIMATE OF
COST OF
PROVIDING MINIMUM
INCOME GUARANTEE
AND BASIC
STATE PENSION
The calculations were based on men retiring
aged 65 now (2003) and in 2050. The annuities are based on their
single life only and make no allowance for survivor benefits.
The benefits valued were:
— The Minimum Income Guarantee (MIG),
which is currently £98.15 per week and is assumed to increase
in line with earnings.
— The full single person's Basic State
Pension (BSP), which is currently £75.50 per week and assumed
to increase in line with prices.
— At retirement in 2050 a State Second
Pension (S2P) of £113 per week (in today's prices). This
assumes S2P becomes flat rate from 2009-10 (the original intention
was that it becomes flat rate from 2006-7).
ASSUMPTIONS:
Mortality:
— For retirement in 2003, PMA92 (Born
1935).
— For retirement in 2050, PMA92 (Born
1985).
Interest rates:
— Discount rate 4.42% net of expenses.
— Real earnings growth 2%.
Retirement in 2003:
— The cost of purchasing an annuity
equal to the MIG would be £97,000.
— The cost of purchasing an annuity
equal to the BSP would be £60,000.
Retirement in 2050:
— The cost of purchasing an annuity
equal to the MIG would be £282,000.
— The cost of purchasing an annuity
equal to the BSP would be £68,000.
— The cost of purchasing an annuity
equal to the assumed S2P would be £119,000.
3 March 2003
|
