Why 8 million WON’T get the full 8.5% boost to their state pension this month

Here’s how to work out if YOU’VE been short-changed...

THIS week’s state pension rise was billed as one of the biggest ever seen. But Money Mail can reveal that less than a third of pensioners were given the full 8.5 pc increase on their entire income.

Two in three — up to eight million — received a smaller annual increase. This is due to little-known rules that penalise older pensioners most and that have been branded ‘ unfair’ by a former pensions minister.

In the worst cases, pensioners have missed out on more than £192 a year.

The triple lock, which ensures the state pension rises year on year, is a key tenet of the Tory Party manifesto, and one that the Government has proudly said will protect the income of all pensioners.

The pledge guarantees that the core part of the state pension rises by the highest out of inflation, wage growth or 2.5 pc each April. This year, the triple lock meant that the state pension rose by the rate of wage growth, which was 8.5 pc. This represents the second-largest rise since the mechanism was introduced in 2010.

The bumper rise was expected to provide a much-needed boost to retired households after a period of high inflation. But legacy rules mean that certain parts of the state pension payment, predominantly received by older retirees, are not bound by the triple lock and instead rise by inflation each year.

This year’s inflation figure, 6.7 pc, is lower than the triple lock rise of 8.5 pc. This means more than eight million pensioners out of 12 million have been left short on part of their state pension.

Older pensioners will be left most out of pocket as a result, warns former pensions minister Baroness Ros Altmann. This is because they are most likely to receive parts of the state pension that are not covered by the triple lock.

She says many people will be left confused by this week’s rise.

‘The triple lock is a political trick which is meant to be politicians’ shorthand for saying ‘we will look after pensioners’, and the Government gets away with it because it is complicated and outdated,’ she says. ‘It gives the biggest rises to the youngest pensioners, which is the wrong way round.

‘It’s long overdue that we review how we protect pensioners. Particularly the oldest, who tend to be poorer and need it most.’

By denying the full increase to all pensioners, the Government will save more than £350 million, analysis of official data has found.

Here, Money Mail explains how to work out if you’re affected. First of all, what does the triple lock promise? The triple lock applies to the core part of the state pension, which is based on how many years of National Insurance (NI) contributions you have made. In place for more than a decade, the Conservative government has pledged to maintain it should it win the next General Election. Labour has hinted that it is likely to keep the policy.

On Monday, the triple lock meant that the new state pension — paid to those who reached pension age after 2016 — increased by £902.20 a year to £11,502.40, or £221.20 a week.

It also pushed up the basic state pension — paid to those who reached pension age before 2016 — from £156.20 to £169.50. This equates to £8,814 a year.

So which parts of the state pension were excluded?

The old state pension, paid to those who reached pension age before 2016, was comprised of two parts. The first, the basic state pension, is where your NI record determined how much income you would get. The second, or ‘additional state pension’, took into account your earnings and whether you claimed benefits.

The triple lock applies only to the basic state pension, not the additional state pension element.

Most of those who retired before 2016 on the old state pension built up entitlement to this additional earnings-related element. It is this part which will only ever rise by inflation. This means it will go up by 6.7 pc, September’s rate of annual inflation, not 8.5 pc.

This additional element was called Serps ( state earningsrelated pension scheme) then the State Second Pension (S2P).

For some, Serps makes up more than half of their state pension. Some receive as much as the full basic pension of £169.50 a week plus a maximum Serps pension of £185.90 a week.

Of the 7.6 million pensioners receiving Serps, the average person gets £2,542.25 a year — or £48.90 a week, according to analysis of official figures.

Anyone getting the graduated retirement benefit, a previous version of earnings-related state pension top-up that operated between 1961 and 1975, will also just receive an inflation-linked increase to this component of their income.

The maximum additional state pension you can receive in the 2023/24 tax year is £204.68 a week. This includes any entitlement you might have to both Serps and S2P, and any additional state pension you might inherit from a spouse.

Someone receiving the maximum additional state pension last year would now be £192.25 a year better off if their whole state pension had risen under the triple lock rate of 8.5 pc this year.

Many are wondering if some people on the new state pension will be affected.

Retirees who opted to receive an enlarged state pension by deferring when they hit state pension age will also lose out. This applies whether you deferred under the old or new state pension.

You can delay your state pension by a minimum of nine weeks and get more money when it begins. Under the system in place since

Older retirees will be left most out of pocket

‘I’m furious it won’t go up by the full amount’

2016, your weekly income rises by 1 pc for every nine weeks you defer, which adds up to 5.8 pc for every year you push it back.

Because deferred payments rise with inflation not the triple lock, pensioners will miss out this year on an extra £11 for each year they pushed it back.

When the new state pension arrived in 2016, some pensioners would have been better off under the old system. This is because they would have benefited from the likes of Serps.

To ensure that they did not lose out under the new system, these old entitlements were protected. These ‘protected payments’ top up the new state pension to the position they would have been in under the old one.

But protected payments are also not protected by the triple lock, according to Steve Webb, also a former pensions minister and now a partner at consultancy LCP.

This is the first time in three years that the quirk in the triple-lock rules means pensioners have been shortchanged. For the past two years, the state pension has increased by inflation and, therefore, all elements have risen in tandem.

‘I’m furious my pension won’t rise by the full amount,’ says David Salisbury, from Northampton, who was surprised and confused to find his pension would go up by less than the widely advertised rate.

Rather than rising the full 8.5 pc, his pension will grow by 8.18 pc, he says.

This is because the 69-year-old, who receives the new state pension, also gets a protected payment on top. This portion will rise by just 6.7 pc, rather than the full 8.5 pc.

had his entire pension increased by the full amount, he would be £40 a year better off.

he says: ‘I’m not missing out on a fortune but it’s the principle, and compound interest means that over the years I will be poorer and poorer. Politicians have been highly misleading and are letting us down by being so penny-pinching.

‘It is unfair that our entire state pensions aren’t increasing by the amount they are proudly waffling on about.’

It’s a double blow for retirees such as David, who were snubbed in the Government’s recent tax cuts. Chancellor Jeremy hunt handed workers a 2p cut in National Insurance for the second time in six months during his Spring Budget in March. however, the tax cuts, which are worth £900 for the average worker, will not help pensioners as they do not pay NI.

Baroness Altmann says: ‘Pensioners may well feel that things are focused against them rather than for them at the moment.’

Many also face a growing tax burden. More than half a million pensioners will be hit with income tax bills for the first time in retirement after the state pension rose this week. And over the next four years, up to 1.6 million more pensioners will pay income tax as a result of the stealth tax heist, the house of Commons Library predicts.

A Department for Work and Pensions spokesperson said: ‘ Both the basic and new state pension are protected by the triple lock, meaning from this week the full yearly basic state pension is worth over £3,700 more, in cash terms, than in 2010.

‘It is right however that the earnings-related additional state pension component is, like most occupational pension schemes, linked to inflation, which is the same as most private pensions, to protect against inflation.’

‘Politicians have let us down by penny-pinching’