Figures don’t add up
NEXT month millions of pensioners will learn how much the state pension will go up in April 2023, as hopes rise for a record-breaking increase.
Yet the headline figure can be misleading, because how much they get depends on whether they retired on the new or old state pensions.
The oldest and poorest pensioners have least protection from today’s terrifying inflation, because of how the state pension triple lock is calculated.
The triple lock was introduced by the Coalition government in 2011 to reduce pensioner poverty.
It increases both state pensions each year by earnings, inflation or 2.5 per cent, whichever is highest.
The Government controversially broke a Conservative Party manifesto pledge by refusing to pass on an 8.3 per cent increase in earnings for the 2022/23 tax year, claiming the figure had been “skewed and distorted” by the pandemic.
It handed millions of pensioners a pay rise of 3.1 per cent instead, just as inflation rocketed.
From April 2023, the state pension is likely to increase by September’s inflation figure, which could be as high as 10 or 11 per cent.
A hike of 11 per cent would lift the maximum new state pension from today’s
£9,627.80 a year to £10,686.86, a rise of £1,059.06.We will know for sure when the figure is published on October 18.
That is good news for pensioners who retired after April 6, 2016, yet those who retired before that date on the old basic state pension will feel aggrieved.
It currently pays a maximum of just £7,376.20 a year, which is £2,251.60 less than the new state pension.
So an 11 per cent increase would give them just £811.38 a year extra, lifting their income to £8,187.58.
That is £2,499.28 less, so the gap between the two pensions will widen by £247.68 in just one year.
Many on the basic state pension also get income from the state second pension or state earnings related pension scheme (Serps) on top.
However, former pensions minister and political campaigner Baroness Ros Altmann said S2P and Serps do not enjoy triple lock protection. Instead, they increase with inflation.
When earnings are higher or both figures are lower than 2.5 per cent, S2P and Serps will rise at a slower pace.
The triple lock does not apply to means-tested benefit Pension Credit, which tops up pensioner incomes to a minimum £182.60 a week.
Last year, the Government suspended the law that said Pension Credit would rise in line with earnings, despite a House of Lords rebellion led by Altmann. “This left the poorest pensioners without earnings protection they had before.”
Pension Credit should rise by inflation from April unless the Government uses the earnings figure to grant a lower increase.
Altmann said the triple lock has reduced pensioner poverty but could have done so much more. “It has serious shortcomings.”
It recently came under attack from
The Institute of Fiscal Studies (IFS), which warned that it costs the country too much.
The state pension currently costs around £100billion a year, so a 10 per cent increase would add another £10billion to government spending.
Altmann said there is a case for scrapping the “arbitrary” 2.5 per cent element of the triple lock, but otherwise it should be extended rather than cut. “Our state pension is still about the lowest in the developed world.”