£10,600 state pension hike is here yet millions are denied full sum

Baroness Hoey: It is 'quite awful' to discover rise in State Pension age

They will get less than the rate headlined in all of the papers, leaving them struggling despite what looks like a generous double-digit increase.

While some will get up to £1,000 a year more, money that’s urgently needed given the cost-of-living crisis, others will only get a few hundred pounds.

Worse, those who miss out tend to be the oldest, poorest pensioners.

It’s a long-running cause of resentment but many feel aggrieved as it is rarely highlighted, while others don’t understand why it happens.

Each year, the state pension increases on the first Monday after April 6, which this year means Monday April 10.

The state pension triple lock, which increases the pension each year by inflation, earnings or 2.5 percent, whichever is highest, has been restored.

Last September’s inflation figure will apply because it’s the highest of the three, giving around 12million pensioners a hefty 10.1 per cent increase, by far the largest hike ever.

This will increase the state pension to a maximum of £203.85 a week, which adds up to £10,600.20 a year. Yet many will get much, much less.

That’s because there are two state pensions, and which one pensioners qualify for will depend on their retirement date.

The two-tier system has caused confusion for years and this may worsen as the gap between the two pensions widens.

The new state pension was introduced for those retiring from April 6, 2016, and was designed to simplify the system by rolling the old basic state pension, State Second Pension (S2P) and the state earnings-related pension scheme (Serps) into a single benefit.

To get the full amount, retirees much make 35 years of qualifying National Insurance (NI) contributions during their working lifetime.

Pensioners who retired before April 6, 2016 continue to get the basic state pension, which will increase from £7,376.20 a year to £8,121.20.

That’s a staggering £2,479 below the maximum new state pension of £10,600.20.

Men who retired before 2010 will find that particularly unfair because they had to make 44 years of NI contributions to get the full amount, while woman needed 39 years. This was cut to 30 years for the final six years of the old scheme.

While both new and old state pension increase by the same percentage each year, that is worth more for the new scheme, as it has a much higher starting point.

This also means that the difference between the two will steadily widen over time.

Next week’s hike adds £1,059.06 to the full new state pension, but just £754 to the full basic state pension. That’s a difference of £305.06 a year.

Steve Lowe, group communications director at later life specialist Just Group, said the difference between the two state pensions can seem “staggering”, but the reality is complex.

What people get in practice depends on the individual, Lowe said. “Men actually get slightly more under the old state pension, once S2P and Serps are included.”

However, women do notably worse under the basic state pension, because they are less likely to have earned additional state pension.

In fact, the new state pension was introduced to help them, and there are signs that it has done its job as those in the new state pension do better.

But it leaves many older women and men struggling on a pittance and claiming any state benefits they can, just to get by.

The two-tier state pension system will continue to cause confusion and resentment, but Lowe said the big underlying problem is that neither pays enough. “People need income from other sources such as company and personal pensions to make ends meet in retirement.”

That’s especially the case today, as inflation was 10.4 percent in February, ahead of Monday’s increase. With luck it will be falling by the end of the year.

In a further blow, the age at which you can claim the state pension will continue to rise, while the triple lock remains under threat. “Our research shows most UK adults lack confidence that the state pension will exist at its current value when they come to retire,” Lowe said.

In a further twist, S2P and Serps do no benefit from triple lock protection but instead rise with inflation, said Andrew Tully, technical director at Canada Life. 

“That is fine this year but a blow when inflation falls below earnings or 2.5 percent, as S2P and Serps will then grow at a slower rate than the new state pension.”

The perception that the oldest pensioners are being poorly treated will prove hard to dislodge and worse, this will continue for life.

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