Report by the government actuary on the draft social security benefits up-rating order 2010 and on the determination not to lay a draft Social Security (Contributions) (Re-rating) Order 2010

2010·1.1 MB·English

by  Great Britain. Government Actuary's Department

5828_GAD_Up-rating Covers10b:5828_GAD_Up-rating Cov10 21/01/2010 14:35 Page 1
Report by the Government Actuary
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Report by the Government Actuary on the draft Social Security
Report by the Government Actuary on the draft Social Security
Benefits Up-rating Order 2010 and on the determination not to lay a
Benefits Up-rating Order 2010 and on the determination not to lay a
draft Social Security (Contributions) (Re-rating) Order 2010
draft Social Security (Contributions) (Re-rating) Order 2010

Presented to Parliament pursuant to 142(1) and 150(8) of the Social Security
APdremsiennistteradt itoon P Aacrlti a1m99e2n ta psu arsmueanndt etod 1b4y2 t(h1e) Sanodc ia1l5 S0(e8c)u orift yth Ceo Snotrcibiaul tSioencsu rity
(ATdramnisnfiesrtr oaft ioFnu nAcctito 1n9s9, 2e tacs ) aAmcte 1n9d9e9d by the Social Security Contributions
(Transfer of Functions, etc ) Act 1999

J anuary 2010

London: The Stationery Office £14.35
To: The Right Hon. Yvette Cooper MP, Secretary of State for Work and Pensions

The Right Hon. Stephen Timms MP, Financial Secretary to the Treasury

! Crown Copyright 2010

The text in this document (excluding the Royal Arms and other departmental or agency logos) may
I am pleased to present my report on the likely effects on the National Insurance Fund of the
be reproduced free of charge in any format or medium providing it is reproduced accurately and not
proposed Social Security Benefits Up-rating Order 2010 and on the determination not to lay a
used in a misleading context. The material must be acknowledged as Crown copyright and the title
draft Social Security (Contributions) (Re-rating) Order 2010.
of the document specified.

This report is made in accordance with sections 142(1) and 150(8) of the Social Security
Where we have identified any third party copyright material you will need to obtain permission from
Administration Act 1992, as amended by the Social Security Contributions (Transfer of
the copyright holders concerned.
Functions, etc.) Act 1999. Section 142(1) of the act requires that, even where HM Treasury
has determined not to lay a draft order amending Part I of the Contributions and Benefits Act
For any other use of this material please contact the Office of Public Sector Information,
Information Policy Team, Kew, Richmond, Surrey TW9 4DU 1992 dealing with National Insurance contributions, I make a report on that determination.
or e-mail: [email protected].
The report contains estimates for the National Insurance Fund of receipts and payments for
ISBN: 9780108508905 the years 2009-10 to 2014-15. The estimates are based on a number of assumptions which
are described in the report. Relevant assumptions disclosed in HM Treasury’s Pre-Budget
Printed in the UK by The Stationery Office Limited Report in December 2009 have been used. Otherwise, we have based our assumptions on
on behalf of the Controller of Her Majesty’s Stationery Office the consensus view of values from independent forecasters.

ID P002345944 01/10
On the basis of my estimates, the balance in the National Insurance Fund at 31 March 2011

is expected to be greater than 1/6th of the amount of benefit payments in 2010-11. This
Printed on paper containing 75% recycled fibre content minimum.
exceeds the minimum level that has been recommended for the last 15 years to ensure that

a reasonable working balance is maintained. In my view it should not therefore be necessary
for any Treasury grant to be made to the National Insurance Fund in 2010-11.

Trevor Llanwarne
Government Actuary
January 2010
To: The Right Hon. Yvette Cooper MP, Secretary of State for Work and Pensions

The Right Hon. Stephen Timms MP, Financial Secretary to the Treasury

! Crown Copyright 2010

The text in this document (excluding the Royal Arms and other departmental or agency logos) may
I am pleased to present my report on the likely effects on the National Insurance Fund of the
be reproduced free of charge in any format or medium providing it is reproduced accurately and not
proposed Social Security Benefits Up-rating Order 2010 and on the determination not to lay a
used in a misleading context. The material must be acknowledged as Crown copyright and the title
draft Social Security (Contributions) (Re-rating) Order 2010.
of the document specified.

This report is made in accordance with sections 142(1) and 150(8) of the Social Security
Where we have identified any third party copyright material you will need to obtain permission from
Administration Act 1992, as amended by the Social Security Contributions (Transfer of
the copyright holders concerned.
Functions, etc.) Act 1999. Section 142(1) of the act requires that, even where HM Treasury
has determined not to lay a draft order amending Part I of the Contributions and Benefits Act
For any other use of this material please contact the Office of Public Sector Information,
Information Policy Team, Kew, Richmond, Surrey TW9 4DU 1992 dealing with National Insurance contributions, I make a report on that determination.
or e-mail: [email protected].
The report contains estimates for the National Insurance Fund of receipts and payments for
ISBN: 9780108508905 the years 2009-10 to 2014-15. The estimates are based on a number of assumptions which
are described in the report. Relevant assumptions disclosed in HM Treasury’s Pre-Budget
Printed in the UK by The Stationery Office Limited Report in December 2009 have been used. Otherwise, we have based our assumptions on
on behalf of the Controller of Her Majesty’s Stationery Office the consensus view of values from independent forecasters.

ID P002345944 01/10
On the basis of my estimates, the balance in the National Insurance Fund at 31 March 2011

is expected to be greater than 1/6th of the amount of benefit payments in 2010-11. This
Printed on paper containing 75% recycled fibre content minimum.
exceeds the minimum level that has been recommended for the last 15 years to ensure that

a reasonable working balance is maintained. In my view it should not therefore be necessary
for any Treasury grant to be made to the National Insurance Fund in 2010-11.

Trevor Llanwarne
Government Actuary
January 2010
1 Executive summary

Table of Contents
1.1 This report has been prepared under the Social Security Administration Act 1992
(SSA92). It considers the expected effects on the National Insurance Fund of:

> the draft Social Security Benefits Up-rating Order 2010 (the Up-rating Order)
1 Executive summary 3
> the determination by HM Treasury not to lay a draft Social Security
2 Introduction 5
(Contributions) (Re-rating) Order 2010 (the Re-rating Order).
3 Proposed changes to benefits and contributions 6
This report also includes the effects on the National Insurance Fund of the changes
4 Assumptions and methods used to project receipts and payments 8 proposed in the draft Social Security (Contributions) (Amendment) Regulations 2010
and the draft Social Security Pensions (Low Earnings Threshold) Order 2010.
5 Estimates of receipts, payments and fund balance 9
1.2 Estimates of National Insurance Fund income and outgo have been made for
6 Estimates for 2009-10 10
2009-10 to 2014-15. Detailed figures are given for 2010-11, along with updated
7 Estimates for 2010-11 10 figures for 2009-10.
8 Sensitivity of estimates 12 1.3 The updated estimates of benefit payments and contribution receipts in 2009-10 are
£75.7 billion and £78.1 billion, respectively. Some provisional data from
9 Conclusion 14
HM Revenue & Customs suggest that contribution receipts may be somewhat lower
Appendix 1: Main rates of benefit provided from the National Insurance Fund 15 than this estimate.
Appendix 2: Main features of the contribution system 17 1.4 The financial effects of the draft orders on projected benefit payments and
contribution receipts for 2010-11 (compared to the projected situation had there
Appendix 3: Methods and assumptions 19
been no changes in benefit rates and contribution rates and limits for that year) are
Appendix 4: Estimated payments from the National Insurance Fund for benefits estimated as follows:
and the effect of benefit up-rating on payments in 2010-11 24
> The proposed Up-rating Order would increase the rates at which some
Appendix 5: Estimated effects of the determination not to lay a draft Re-rating benefits are paid from April 2010. The standard rate of retirement pension
Order and of the Contribution Amendment Regulations on contribution receipts would increase by 2.5% from £95.25 a week to £97.65 a week. Estimated
in 2010-11 25 benefit payments excluding redundancy payments in 2010-11 would increase
by £1.4 billion from £76.8 billion to £78.2 billion as a result of the order.
Appendix 6: Analysis of contribution receipts and occupational pension scheme
contracted-out rebates by fund and contributor class 26 > The determination by HM Treasury not to lay a draft Re-rating Order leaves
rates of National Insurance contributions unchanged. Projected receipts of
Appendix 7: Estimated contracted-out rebates 28
National Insurance contributions with no changes to rates and limits are £80.0
Appendix 8: 2009-10 estimates – current and in Cm 7537 (January 2009) 29 billion.
Appendix 9: Projections of the National Insurance Fund to 2014-15 31 > The proposed Social Security (Contributions) (Amendment) Regulations 2010
would increase the lower earnings limit from £95 to £97 a week and leave the

upper earnings limit unchanged at £844 a week. The primary and secondary
thresholds for Class 1 National Insurance contributions would also be
unchanged, both at £110 a week. It is estimated that these changes would
increase net contribution receipts to the National Insurance Fund in 2010-11
by £32 million, leaving it at £80.0 billion after rounding. This is because the
changes work to decrease contracted-out rebates, while leaving gross
contributions unchanged. This includes the effects of the Social Security
Pensions (Low Earnings Threshold) Order 2010 on contracted-out rebates.
1.5 The balance in the fund at 31 March 2011 is estimated at £50.2 billion, or 63.8% of
the estimated benefit payments (including redundancy payments) of £78.7 billion in
the year 2010-11.
1.6 The balance in the fund at 31 March 2011 is expected to be comfortably above the
recommended level of 1/6th of annual benefit expenditure, and would remain so even
if the estimated balance at 31 March 2010 was reduced by up to 15% as a result of
lower contribution receipts. Therefore no Treasury grant is expected to be needed
during the year 2010-11.
3
1 Executive summary

Table of Contents
1.1 This report has been prepared under the Social Security Administration Act 1992
(SSA92). It considers the expected effects on the National Insurance Fund of:

> the draft Social Security Benefits Up-rating Order 2010 (the Up-rating Order)
1 Executive summary 3
> the determination by HM Treasury not to lay a draft Social Security
2 Introduction 5
(Contributions) (Re-rating) Order 2010 (the Re-rating Order).
3 Proposed changes to benefits and contributions 6
This report also includes the effects on the National Insurance Fund of the changes
4 Assumptions and methods used to project receipts and payments 8 proposed in the draft Social Security (Contributions) (Amendment) Regulations 2010
and the draft Social Security Pensions (Low Earnings Threshold) Order 2010.
5 Estimates of receipts, payments and fund balance 9
1.2 Estimates of National Insurance Fund income and outgo have been made for
6 Estimates for 2009-10 10
2009-10 to 2014-15. Detailed figures are given for 2010-11, along with updated
7 Estimates for 2010-11 10 figures for 2009-10.
8 Sensitivity of estimates 12 1.3 The updated estimates of benefit payments and contribution receipts in 2009-10 are
£75.7 billion and £78.1 billion, respectively. Some provisional data from
9 Conclusion 14
HM Revenue & Customs suggest that contribution receipts may be somewhat lower
Appendix 1: Main rates of benefit provided from the National Insurance Fund 15 than this estimate.
Appendix 2: Main features of the contribution system 17 1.4 The financial effects of the draft orders on projected benefit payments and
contribution receipts for 2010-11 (compared to the projected situation had there
Appendix 3: Methods and assumptions 19
been no changes in benefit rates and contribution rates and limits for that year) are
Appendix 4: Estimated payments from the National Insurance Fund for benefits estimated as follows:
and the effect of benefit up-rating on payments in 2010-11 24
> The proposed Up-rating Order would increase the rates at which some
Appendix 5: Estimated effects of the determination not to lay a draft Re-rating benefits are paid from April 2010. The standard rate of retirement pension
Order and of the Contribution Amendment Regulations on contribution receipts would increase by 2.5% from £95.25 a week to £97.65 a week. Estimated
in 2010-11 25 benefit payments excluding redundancy payments in 2010-11 would increase
by £1.4 billion from £76.8 billion to £78.2 billion as a result of the order.
Appendix 6: Analysis of contribution receipts and occupational pension scheme
contracted-out rebates by fund and contributor class 26 > The determination by HM Treasury not to lay a draft Re-rating Order leaves
rates of National Insurance contributions unchanged. Projected receipts of
Appendix 7: Estimated contracted-out rebates 28
National Insurance contributions with no changes to rates and limits are £80.0
Appendix 8: 2009-10 estimates – current and in Cm 7537 (January 2009) 29 billion.
Appendix 9: Projections of the National Insurance Fund to 2014-15 31 > The proposed Social Security (Contributions) (Amendment) Regulations 2010
would increase the lower earnings limit from £95 to £97 a week and leave the

upper earnings limit unchanged at £844 a week. The primary and secondary
thresholds for Class 1 National Insurance contributions would also be
unchanged, both at £110 a week. It is estimated that these changes would
increase net contribution receipts to the National Insurance Fund in 2010-11
by £32 million, leaving it at £80.0 billion after rounding. This is because the
changes work to decrease contracted-out rebates, while leaving gross
contributions unchanged. This includes the effects of the Social Security
Pensions (Low Earnings Threshold) Order 2010 on contracted-out rebates.
1.5 The balance in the fund at 31 March 2011 is estimated at £50.2 billion, or 63.8% of
the estimated benefit payments (including redundancy payments) of £78.7 billion in
the year 2010-11.
1.6 The balance in the fund at 31 March 2011 is expected to be comfortably above the
recommended level of 1/6th of annual benefit expenditure, and would remain so even
if the estimated balance at 31 March 2010 was reduced by up to 15% as a result of
lower contribution receipts. Therefore no Treasury grant is expected to be needed
during the year 2010-11.
3
1.7 In 2010-11, the deficit is forecast to be £520 million. The surplus or deficit generated 2 Introduction
in a year is the difference between receipts and payments. As these are two large
numbers, comparatively small changes in these numbers will produce a 2.1 This report has been prepared under the Social Security Administration Act 1992. It
proportionally large change in the surplus or deficit. considers the expected effects on the National Insurance Fund of:
1.8 The key assumptions underlying these estimates are those for employment and > the draft Social Security Benefits Up-rating Order 2010 (the Up-rating Order)
unemployment levels, and the rate of increase in earnings. In order to consider what
Section 150(8) of the Social Security Administration Act 1992 requires the
assumptions to use, I felt it appropriate, where possible, to use the same
Secretary of State for Work and Pensions to lay a report by the Government
assumptions as those adopted by HM Treasury for the Pre-Budget Report on
Actuary before Parliament with drafts of any orders which alter the rates of benefits
9 December 2009. Where it is not HM Treasury policy to disclose assumptions, we
made under that section of the Act.
have based our assumptions on the consensus view of values from independent
forecasters, as published by HM Treasury in December 2009. In summary, the > the determination by HM Treasury not to lay a draft Social Security (Contributions)
principal assumptions I have adopted are: (Re-rating) Order 2010 (the Re-rating Order)
> the number of jobs in the UK, including the armed forces but excluding the
Section 142(1) of the Social Security Administration Act 1992, as amended by the
self-employed, is assumed to be 26.8 million in 2009-10 and 26.7 million in
Social Security Contributions (Transfer of Functions, etc.) Act 1999, requires
2010-11
HM Treasury to lay a report by the Government Actuary before Parliament with
> the number unemployed and claiming benefit in Great Britain is assumed to be drafts of any orders which alter the rates of contributions made under those
1.72 million on average in 2009-10 and 1.91 million in 2010-11, and sections of that Act, or with the report that HM Treasury is required under section
> the increase in average earnings is assumed to be 1.4% over the year 141(6) of the Act to lay before Parliament should it determine not to lay a draft
2009-10 and 2.4% over the year 2010-11. order in a tax year.
1.9 Varying these assumptions would change the estimates for benefit payments and 2.2 This report also includes the effects on the National Insurance Fund of the changes
contribution receipts, and in turn the estimated fund balance. The effects of this are proposed in the draft Social Security (Contributions) (Amendment) Regulations 2010
shown in Section 8 of this report. Similarly, aligning the model results with the and the draft Social Security Pensions (Low Earnings Threshold) Order 2010.
provisional contributions receipts data for 2009-10 would affect the estimated fund
2.3 This report is confined to the National Insurance Fund in Great Britain. It does not
balance at the end of the year and at the end of 2010-11. However, only an extreme
consider the separate Northern Ireland National Insurance Fund or the effects of the
change in the assumptions would affect the conclusion that the fund balance at the
corresponding orders on that fund.
end of 2010-11 will be above 1/6th of benefit expenditure in the year.

1.10 Using the assumptions adopted by HM Treasury in the Pre-Budget Report, the
effects of the Up-rating Order and Contribution Amendment Regulations are:
> the proposed Up-rating Order would increase benefit payments in 2010-11 by
£1.4 billion from £76.8 billion to £78.3 billion
> the Contribution Amendment Regulations would increase estimated
contribution receipts to the National Insurance Fund in 2010-11 by £32 million,
leaving it at £79.7 billion after rounding.
The projected balance in the National Insurance Fund at 31 March 2011 on this
basis is £49.7 billion, or 63.2% of the estimated benefit expenditure, still comfortably
above the recommended level.
1.11 Estimates for the period up to 2014-15, based on the assumptions mentioned in
paragraph 1.8, suggest that the National Insurance Fund will start to grow again
from 2011-12, reaching over 90% of estimated annual benefit payments by
31 March 2015, with no Treasury grant required during this period. On the
assumptions used by HM Treasury for the Pre-Budget Report this result is broadly
similar.
1.12 This report is required to be laid by the Secretary of State for Work and Pensions
before Parliament under section 150(8) of SSA92 in respect of the Up-rating Order,
and by HM Treasury under section 142(1) in respect of the determination not to lay a
draft Re-rating Order.
1.13 This report is confined to the National Insurance Fund in Great Britain. It does not
consider the separate Northern Ireland National Insurance Fund.
4 5
1.7 In 2010-11, the deficit is forecast to be £520 million. The surplus or deficit generated 2 Introduction
in a year is the difference between receipts and payments. As these are two large
numbers, comparatively small changes in these numbers will produce a 2.1 This report has been prepared under the Social Security Administration Act 1992. It
proportionally large change in the surplus or deficit. considers the expected effects on the National Insurance Fund of:
1.8 The key assumptions underlying these estimates are those for employment and > the draft Social Security Benefits Up-rating Order 2010 (the Up-rating Order)
unemployment levels, and the rate of increase in earnings. In order to consider what
Section 150(8) of the Social Security Administration Act 1992 requires the
assumptions to use, I felt it appropriate, where possible, to use the same
Secretary of State for Work and Pensions to lay a report by the Government
assumptions as those adopted by HM Treasury for the Pre-Budget Report on
Actuary before Parliament with drafts of any orders which alter the rates of benefits
9 December 2009. Where it is not HM Treasury policy to disclose assumptions, we
made under that section of the Act.
have based our assumptions on the consensus view of values from independent
forecasters, as published by HM Treasury in December 2009. In summary, the > the determination by HM Treasury not to lay a draft Social Security (Contributions)
principal assumptions I have adopted are: (Re-rating) Order 2010 (the Re-rating Order)
> the number of jobs in the UK, including the armed forces but excluding the
Section 142(1) of the Social Security Administration Act 1992, as amended by the
self-employed, is assumed to be 26.8 million in 2009-10 and 26.7 million in
Social Security Contributions (Transfer of Functions, etc.) Act 1999, requires
2010-11
HM Treasury to lay a report by the Government Actuary before Parliament with
> the number unemployed and claiming benefit in Great Britain is assumed to be drafts of any orders which alter the rates of contributions made under those
1.72 million on average in 2009-10 and 1.91 million in 2010-11, and sections of that Act, or with the report that HM Treasury is required under section
> the increase in average earnings is assumed to be 1.4% over the year 141(6) of the Act to lay before Parliament should it determine not to lay a draft
2009-10 and 2.4% over the year 2010-11. order in a tax year.
1.9 Varying these assumptions would change the estimates for benefit payments and 2.2 This report also includes the effects on the National Insurance Fund of the changes
contribution receipts, and in turn the estimated fund balance. The effects of this are proposed in the draft Social Security (Contributions) (Amendment) Regulations 2010
shown in Section 8 of this report. Similarly, aligning the model results with the and the draft Social Security Pensions (Low Earnings Threshold) Order 2010.
provisional contributions receipts data for 2009-10 would affect the estimated fund
2.3 This report is confined to the National Insurance Fund in Great Britain. It does not
balance at the end of the year and at the end of 2010-11. However, only an extreme
consider the separate Northern Ireland National Insurance Fund or the effects of the
change in the assumptions would affect the conclusion that the fund balance at the
corresponding orders on that fund.
end of 2010-11 will be above 1/6th of benefit expenditure in the year.

1.10 Using the assumptions adopted by HM Treasury in the Pre-Budget Report, the
effects of the Up-rating Order and Contribution Amendment Regulations are:
> the proposed Up-rating Order would increase benefit payments in 2010-11 by
£1.4 billion from £76.8 billion to £78.3 billion
> the Contribution Amendment Regulations would increase estimated
contribution receipts to the National Insurance Fund in 2010-11 by £32 million,
leaving it at £79.7 billion after rounding.
The projected balance in the National Insurance Fund at 31 March 2011 on this
basis is £49.7 billion, or 63.2% of the estimated benefit expenditure, still comfortably
above the recommended level.
1.11 Estimates for the period up to 2014-15, based on the assumptions mentioned in
paragraph 1.8, suggest that the National Insurance Fund will start to grow again
from 2011-12, reaching over 90% of estimated annual benefit payments by
31 March 2015, with no Treasury grant required during this period. On the
assumptions used by HM Treasury for the Pre-Budget Report this result is broadly
similar.
1.12 This report is required to be laid by the Secretary of State for Work and Pensions
before Parliament under section 150(8) of SSA92 in respect of the Up-rating Order,
and by HM Treasury under section 142(1) in respect of the determination not to lay a
draft Re-rating Order.
1.13 This report is confined to the National Insurance Fund in Great Britain. It does not
consider the separate Northern Ireland National Insurance Fund.
4 5
3 Proposed changes to benefits and contributions Second Pension (S2P) and graduated retirement benefit) and additional pensions for
those on incapacity benefit would not be increased.
Up-rating Order
3.6 The financial effects of the benefit up-ratings are shown in Appendix 4.
3.1 The Up-rating Order proposes increasing the rates of some social security benefits

paid from the National Insurance Fund, from the week beginning 6 April 2010.
Increases in benefit rates have in past years generally been aligned to either the
increase in the Retail Prices Index (RPI) or the Rossi index in the year to the
Re-rating and the Contributions Amendment Regulations
previous September. In the 2001 Pre-Budget Report the Government pledged to
3.7 HM Treasury has determined not to lay a draft Re-rating Order in the 2009-10 tax
increase the basic state retirement pension by the greater of the increase in RPI or
year. This leaves the rates of National Insurance contributions unchanged in
2.5% from April 2002 onwards.
2010-11, compared to 2009-10, for Classes 2, 3 and 4 for self-employed people and
3.2 The most significant benefits paid from the National Insurance Fund, in terms of
voluntary contributors, the small earnings exception for Class 2 contributions, and
benefit expenditure, are retirement pensions, incapacity benefit and contribution-
the lower and upper Class 4 profit limits.
based employment and support allowance and contribution-based jobseeker’s
3.8 The proposed Social Security (Contributions) (Amendment) Regulations 2010 would
allowance.
increase the lower earnings limit (LEL) for Class 1 contributions from £95 to £97 a
3.3 The annual percentage change in RPI in September 2009 was negative at -1.4%.
week and leave the upper earnings limit unchanged at £844 a week. The proposed
The percentage increase in the Rossi index over the same period was 1.8%. The
increase to the LEL is broadly in line with the proposed increase to the basic state
Up-rating Order proposes increasing the basic state retirement pension by 2.5% in
retirement pension. There are no proposed changes to the primary and secondary
April 2010, in line with the 2001 Pre-Budget Report statement, and contribution-
thresholds, which remain at £110 a week for weekly-paid employees and £476 for
based jobseeker’s allowance, incapacity benefit and contribution-based employment
monthly-paid employees.
and support allowance by 1.8%.
3.9 The proposed Social Security Pensions (Low Earnings Threshold) Order 2010 would
3.4 Table 1 below shows the proposed changes in the benefit rates for the most
increase the low earnings threshold (LET) from £13,900 to £14,100 in 2010-11. The
significant benefits. Appendix 1 details the principal rates of all benefits provided
LET affects the amount of State Second Pension being accrued and, for people in
from the National Insurance Fund before and after the proposed changes.
appropriate personal pensions (APPs) and contracted-out stakeholder pensions, the
level of contracted-out rebates. The effects of this proposed order have been
Table 1 – Changes to the major benefits rates
allowed for in this report as far as they are relevant.
Weekly Proposed Weekly rate
3.10 The changes described in paragraphs 3.7 and 3.8 are shown in Appendix 2. The
rate in increase in proposed from
financial effects of these changes are shown in Appendix 5.
2009-10 weekly rate 6 April 2010

Retirement pension – person
claiming on their own or their
£95.25 £2.40 £97.65
deceased spouse’s NI contributions –
standard rate
Retirement pension – person
claiming on their spouse’s NI £57.05 £1.45 £58.50
contributions – standard rate
Contribution-based jobseeker’s
£64.30 £1.15 £65.45
allowance single person over 25
Incapacity benefit long-term main rate £89.80 £1.60 £91.40
Employment and support allowance
personal allowance age 25 or over
£89.80 £1.60 £91.40
including work-related activity
component

3.5 The Up-rating Order proposes increasing bereavement benefits by 2.5%, in line with
the increase in the basic state retirement pension. Earnings-related additional
pensions (under the State Earnings Related Pension Scheme (SERPS), State
6 7
3 Proposed changes to benefits and contributions Second Pension (S2P) and graduated retirement benefit) and additional pensions for
those on incapacity benefit would not be increased.
Up-rating Order
3.6 The financial effects of the benefit up-ratings are shown in Appendix 4.
3.1 The Up-rating Order proposes increasing the rates of some social security benefits

paid from the National Insurance Fund, from the week beginning 6 April 2010.
Increases in benefit rates have in past years generally been aligned to either the
increase in the Retail Prices Index (RPI) or the Rossi index in the year to the
Re-rating and the Contributions Amendment Regulations
previous September. In the 2001 Pre-Budget Report the Government pledged to
3.7 HM Treasury has determined not to lay a draft Re-rating Order in the 2009-10 tax
increase the basic state retirement pension by the greater of the increase in RPI or
year. This leaves the rates of National Insurance contributions unchanged in
2.5% from April 2002 onwards.
2010-11, compared to 2009-10, for Classes 2, 3 and 4 for self-employed people and
3.2 The most significant benefits paid from the National Insurance Fund, in terms of
voluntary contributors, the small earnings exception for Class 2 contributions, and
benefit expenditure, are retirement pensions, incapacity benefit and contribution-
the lower and upper Class 4 profit limits.
based employment and support allowance and contribution-based jobseeker’s
3.8 The proposed Social Security (Contributions) (Amendment) Regulations 2010 would
allowance.
increase the lower earnings limit (LEL) for Class 1 contributions from £95 to £97 a
3.3 The annual percentage change in RPI in September 2009 was negative at -1.4%.
week and leave the upper earnings limit unchanged at £844 a week. The proposed
The percentage increase in the Rossi index over the same period was 1.8%. The
increase to the LEL is broadly in line with the proposed increase to the basic state
Up-rating Order proposes increasing the basic state retirement pension by 2.5% in
retirement pension. There are no proposed changes to the primary and secondary
April 2010, in line with the 2001 Pre-Budget Report statement, and contribution-
thresholds, which remain at £110 a week for weekly-paid employees and £476 for
based jobseeker’s allowance, incapacity benefit and contribution-based employment
monthly-paid employees.
and support allowance by 1.8%.
3.9 The proposed Social Security Pensions (Low Earnings Threshold) Order 2010 would
3.4 Table 1 below shows the proposed changes in the benefit rates for the most
increase the low earnings threshold (LET) from £13,900 to £14,100 in 2010-11. The
significant benefits. Appendix 1 details the principal rates of all benefits provided
LET affects the amount of State Second Pension being accrued and, for people in
from the National Insurance Fund before and after the proposed changes.
appropriate personal pensions (APPs) and contracted-out stakeholder pensions, the
level of contracted-out rebates. The effects of this proposed order have been
Table 1 – Changes to the major benefits rates
allowed for in this report as far as they are relevant.
Weekly Proposed Weekly rate
3.10 The changes described in paragraphs 3.7 and 3.8 are shown in Appendix 2. The
rate in increase in proposed from
financial effects of these changes are shown in Appendix 5.
2009-10 weekly rate 6 April 2010

Retirement pension – person
claiming on their own or their
£95.25 £2.40 £97.65
deceased spouse’s NI contributions –
standard rate
Retirement pension – person
claiming on their spouse’s NI £57.05 £1.45 £58.50
contributions – standard rate
Contribution-based jobseeker’s
£64.30 £1.15 £65.45
allowance single person over 25
Incapacity benefit long-term main rate £89.80 £1.60 £91.40
Employment and support allowance
personal allowance age 25 or over
£89.80 £1.60 £91.40
including work-related activity
component

3.5 The Up-rating Order proposes increasing bereavement benefits by 2.5%, in line with
the increase in the basic state retirement pension. Earnings-related additional
pensions (under the State Earnings Related Pension Scheme (SERPS), State
6 7