Two-Tier Pension System Leaves Retirees Puzzled
Paul Lewis explains why your pension might not increase as much as you expect in April.
Around the end of February, pensioners should get a letter from the Department for Work and Pensions setting out how much their pension will be from the second week in April, when it is increased. If you look at the figures and get out your calculator you may be puzzled. The Chancellor promised that the state pension would rise with the increase in average earnings last September, under the so-called triple lock. These rose by 8.5 per cent. But your pension may well have gone up by less than that. Because this year there is a two-tier rise.
The basic state pension – the old one paid to people who reached state pension age before 6 April 2016 – will go up by the full 8.5 per cent, rising by £13.30 a week to £169.50. And the standard amount of the new state pension for younger pensioners will also go up by 8.5 per cent – a rise in their case of £17.35 to £221.20 a week, just over £11,600 a year. But most old state pensioners get extras added on to their pension, such as State Earnings Related Pension Scheme (Serps) or additional pension – or graduated retirement benefit (earned between 1961 and 1975) and an extra amount if they deferred their claim beyond pension age. None of these extras are covered by the triple lock. Instead they’ll just rise with prices, which increased by 6.7 per cent last September. It is the first time since April 2021 that the whole pension will not rise by the same percentage.
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More than six million people on the old state pension receive more than the basic pension – some get over £300 a week. Although their basic pension will rise as promised by 8.5 per cent, all those extra amounts on top will, again, increase by just 6.7 per cent. Only around a quarter of new state pensioners get anything extra on their state pension – but if they do, those amounts will also rise by just 6.7 per cent. Teachers, nurses, police officers and others who worked in the public sector may also be disappointed. The pension they get from their job will go up by 6.7 per cent because the triple lock does not apply to these pensions. But with inflation around four percent – and expected to fall – that could still be a generous rise.
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