It does. It includes the £160 starting point for the single-tier pension. The figure is £160 in 2016, but in the paper we converted all the figures to today’s earnings terms, so it looks slightly lower. However, if you roll it forward to 2016, it will be £160. We have assumed that it will be just over £1 a week higher than the figure that is used in the UK, although that will be subject to what is determined by the UK Government in the run-up to April 2016. There is nothing on the face of the Pensions Act 2014 that says exactly what the level will be.
We have assumed that the single-tier pension would be triple locked in both those scenarios on the basis that there is a commitment from the Scottish Government to do that for at least the first five years. Although the UK Government has not yet made such a commitment, some political parties are starting to get there, and the impact assessment in the 2014 act also uses that assumption, which is why we used it. We have also included—and this is one of the potential differences—the retention of savings credit beyond 2016 for individuals who reach state pension age after 2016, which is another proposal that the Scottish Government made last year.
Savings credit is a very interesting issue, which has two impacts. We felt that it was important to highlight that savings credit being in place means that people who reach state pension age will have higher pensioner benefits, which drives some of the figures that we have seen elsewhere on pensioner benefit expenditure per individual of working age. That is partly because people who reach state pension age in Scotland would retire under a more generous system and have higher incomes in retirement, all other things being equal. That is particularly important for lower earners, who are only entitled to a single-tier pension and very small amounts of other pension. Savings credit could be a very important top-up to their income, above and beyond the single-tier pension level, if that is retained in the future. The individuals that we are talking about will reach state pension age in the mid-2030s—2037 or so.
Interestingly, the median-earning man illustrates the other side of savings credit, which is that after a period of five years or so he would become entitled to savings credit, which would provide a further boost to his income. Under the single-tier proposals that have been put forward by the Scottish Government, there is a difference of around £1 a week for that individual, but it goes up to around £2 to £3 a week because of savings credit, once savings credit kicks in.
The only difficulty with savings credit is the impact of means testing on private pension saving. That has been debated heavily in a UK context over the past 10 years, especially with the introduction of automatic enrolment. There is a concern that, historically, people have found any reason not to save, which is why automatic enrolment has been introduced. However, if you look at the issue in economic terms, there are probably two different impacts: an income effect and a substitution effect. The higher the income that people get from the state, the less likely they are to save on top of that. However, the lower the additional benefit of saving, the less people will save. The issue that we are discussing works in both those areas. It means, for example, that, if the median earner did not save and opted out of automatic enrolment, he would not lose all the value of his pension saving, because he would receive £15 a week of pension credit instead. He could get almost half of what he gains from saving from not saving, so that reduces the incentive for him to save.
It is difficult to say, in aggregate terms, what impact that would have on levels of saving. You could argue that, given that the number of people who opt out of automatic enrolment at the moment is low—across the UK, it is less than 10 per cent of all the individuals who have been automatically enrolled since October 2012—the issue might have only a relatively small effect. However, with regard to the way in which individuals make saving decisions, as other research that we have done has highlighted, saving the minimum amount through automatic enrolment is not enough, and people will have to find some way of putting more into pensions saving. That could be more difficult in a situation in which savings credit exists, as it reduces the extra value of saving.
There is a definite bonus in terms of getting a more generous income on retirement or during retirement for people who go on to savings credit later in their life, but there is a potential impact on the level of saving that people make.