I am coming on to that because it is important to understand that these reforms are designed to make the state pension system affordable and sustainable over the long term. We have an ageing population and an increasing number of expected future pensioners, which is good news. The proposal and the overall framework of our pension reforms, taken together, are to ensure that the state pension system is sustainable. Over the years from 2030 and certainly from the 2040s onwards, the general level of the state pension will be set at a base of around £8,000 a year in today’s money. On top of that, people will be expected to have built up a private pension under the auto-enrolment reforms. It is true that in the 2030s and mainly from the 2040s onwards, the general level of the state pension will not be as generous as it would have been if the current system had been sustained. However, the current system is not sustainable. That is expected to be combined with a better private pension to ensure adequate pension provision—indeed, better pension provision—for more pensioners in future because the state pension system will not penalise private savings in the way it currently does for those who are going to end up in the bottom half of the pensioner income distribution in later life.
The new framework, with a base level of state pension that is not earnings-linked, topped up by a good private pension that comes from auto-enrolment, with help from the employer, which will be earnings-linked, is meant to make our system more sustainable and affordable. Having said that, as the noble Lord rightly said, there will be people who will need a safety net; for example, because they do not have the full 10 years required for any state pension and so end up with no state pension, or for other reasons. They will still have access to the means-tested pension credit, but that will be set below the full rate of the new state pension to maintain the incentive.
The question about the 5p differential between the pension credit minimum guarantee and the full rate of the new state pension was relevant to this point. We are committed to ensuring that the new state pension is above the pension credit standard minimum guarantee, but it is also important to remember that the 2012-13 illustrative rate for the new state pension was £144 a week, while the pension credit standard minimum guarantee for a single person was expected to be £142.70 a week. Since then, we have increased the pension credit standard minimum guarantee by the full cash increase given to the basic state pension, so that the poorest pensioners benefit from the triple lock as well. That means that the pension credit standard minimum guarantee has grown faster than the new state pension illustrative rate.
As far as the savings credit is concerned, it is true that the savings credit maximum rate is being reduced, but this should be more than offset by the increase in the basic state pension, and the triple lock. As well as being catered for, depending on what happens to each individual element of a pensioner’s income, the fact that the maximum savings credit is falling by approximately £2 a week will be more than offset by the £4 or £3.35 increase. Our forecasts are that pensioners will, on average, still be £2 a week better off in cash terms. I am assured that there will be absolutely no cash losers from this. The expectation is that the poorest pensioners will still see an increase in their overall income.
The noble Lord also asked about the rebate savings from contracting out. It is true that the additional national insurance revenue raised by the withdrawal of the contracting-out rebate will be received by the Government. However, it will be received by the Treasury; it will not flow to the DWP. It is not expected to be spent on the state pension; otherwise, it would mean that significantly more would be spent on new, rather than existing, pensioners, which was never the intention of these reforms. It is a matter for the Treasury how it allocates the departmental funds that it raises after the removal of the rebate and how that revenue is subsequently spent.
I think that that covers the points raised, if I am not mistaken.