Millions to miss out on bumper rise in pensions

THE state pension is set for its largest increase on record next year but millions of pensioners will get thousands of pounds less than the headline amount.

While the new state pension could pay a maximum £10,340 a year from April 2023, those who retired on the old state pension stand to get a staggering £2,400 less.

The new state pension is paid to anybody who reached retirement age after April 6, 2016, but those born earlier receive the old basic state pension, which is notably lower.

Many have contacted the Daily Express to say they feel aggrieved, and warn the gap between the old and new state pensions will increase over time.

Under the triple lock, the state pension increases each year by earnings, 2.5 per cent or September’s inflation figure, whichever is higher.

On Monday, Chancellor Rishi Sunak confirmed that he would apply the triple lock to the 2023/24 state pension.

This could hand pensioners a bumper pay rise of 7.4 per cent, which is the expected inflation figure in September.

The Government’s renewed commitment to the triple lock offers some reassurance to state pensioners, said Steven Cameron, pensions director at Aegon: “Many were left severely disappointed when the Government broke its manifesto commitment and temporarily replaced the state pension triple lock with a less generous ‘double lock’.” As a result, the state pension will rise by just 3.1 per cent this April.

A 7.4 per cent inflationary uplift would lift the income of those who get the full new state pension to £198.85 a week, or £10,340 a year, from April 2023.

However, those who retired on the old state pension will get just £152.35 a week, which works out as £7,922 a year. That is an incredible £2,418 less, leaving many feeling unfairly treated.

Canada Life technical director Andrew Tully said there are winners and losers in both systems, and how much people get in practice rests on factors such as the number of qualifying NI contributions they made during their working lifetime.

Becky O’Connor, head of pensions and savings at Interactive Investor, said the new state pension is not always better. “Some will do better under the old state pension system because they benefit from the old state earnings related pension scheme, known as Serps, which is paid on top.”

O’Connor said one reason some appear to get a lower income from the basic state pension is they contracted out, which means they paid less NI when they were working. “In theory, they should have more private pension savings to make up for it.” Many will get below the headline rate on both systems because they did not make enough qualifying NI contributions, she added.

The controversy looks set to grow, as the gap between the two pensions will continue to widen with each inflationary increase, as the new state pension has a higher starting point.