This is obviously Second Reading, but we will have further discussions on that subject. We know that it needs addressing and my hon. Friend the Minister of State is already aware of that. Although we will not cover it on Second Reading, we will, I suspect, tackle it during the passage of the Bill. If my hon. Friend the Member for Amber Valley (Nigel Mills) wants to be on the Committee, now is the time to volunteer. Volunteering in this place is always dangerous, but, none the less, I urge him to do that.
Even with auto-enrolment, it is critical that people understand what they get from the state and are able to save with some confidence. I recognise that that is the biggest area, and it is what the single-tier pension is all about. Auto-enrolment on its own without single tier would be difficult, but single tier underpins auto-enrolment, making it all the more important. The single tier will be all about setting a basic level of pension above the means test.
Let me give an illustrative example: 2012-13 prices would mean a single tier of £144 a week, a basic state pension of £107 and pension credit of £142. Under single tier, every individual would therefore qualify for a pension in their own right. The full rate payable for 35 years of national insurance contribution—the right hon. Member for Birkenhead has made the point about contributing to one’s future wealth—reflects that we are combining both the basic pension, based on contributions for more than 30 years, and the state second pension, based on 49 or 50 years of contributions. We are merging the two together. Yet even as we abolish the whole complicated system of the additional state pension on the one hand and contracting out on the other, we will still recognise people’s existing contributions. This is an important matter which has been raised with us a number of times. For example, someone who reaches state pension age in 2016 under single tier who is due £160 under the current system in whatever form will still get that pension of £160, so it is locked in.
Workers who were contracted out at implementation will start to pay full national insurance contributions, as 70% of those who are in work already do. In return, we believe they can build towards a pension at full single rate. Rather than today’s much lower basic state pension, they will get a reward for that effort to save, as I said earlier, referencing the already existing auto-enrolment. As a result, the vast majority, some 90% in the first two decades, will receive enough extra over their retirement through a single-tier pension to more than offset the higher contributions. Let us take a 40-year-old in 2016
contributing an extra £6,000 of national insurance before reaching state pension age in 2043. Over their retirement they would receive £24,000 more in state pension—a net gain of £18,000. That is the point that I was trying to illustrate earlier.
We must honour the past and deal with its complexity. That is the key. Going forward, whether previously contracted out or not, people will become entitled to the single-tier pension in the same way. This is an important feature.