Basic state pensioners will get a sub-inflation increase on additional top-ups (Image: Getty)
Many state pensioners will get a much smaller increase. Their income will rise by less than inflation, which means it’s shrinking in real terms.
That’s down to a quirk in complicated rules, that successive governments have refused to correct.
And there’s no sign that Labour will sort this one out either.
So what’s going on?
The is made up of several different elements, but the doesn’t apply to all of them.
The single-tier new , paid to those who retire from April 6, 2016, benefits from full protection. That means it rises each year either with inflation, earnings or 2.5% each year, whichever is highest.
In April, it will line with rise with earnings, which grew 4.1% in the year to September. By contrast, consumer price inflation (CPI) rose just 1.7% that month.
As a result of the earnings link, the full new will climb from today’s £11,502 to around £11,974 a year.
Some 4.4 million get the new , while around 8.6million older retirees get the basic .
This is where things get tricky.
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The basic itself also increases by the . But there are two catches.
The first is that the full basic is lower at just £8,814 a year right now.
The 4.1% increase will lift it to £9,175 a year. But that’s still £2,799 below the maximum new .
The gap between the two widens every year. Both rise by the same percentage, but the new starts from a higher base so the hike is worth more.
This doesn’t mean older pensioners are being completely ripped off.
Many get additional on top, such as the state earnings-related pension scheme (Serps) or state second pension (S2P).
As a result, they get more pension in total, particularly men who built up Serps and S2P while working.
Women on the basic often struggle, though, as they typically built up less additional after giving up work to raise a family or care for loved ones.
The new was designed to put that right. But there’s a second catch.
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For some weird reason the doesn’t apply to Serps and S2P, or lesser-known elements such as Graduated Pension, Increments and Protected Payment.
Instead, they increase by inflation, based on September’s figure.
That wasn’t a problem during the recent inflation spike, but it’s a big issue today as earnings rise fastest of the three elements.
Stephen Lowe, a director at the retirement specialist Just Group, said it’s “impossible to understand the logic” of this two-tier uprating system. “The upshot is a further widening of the gap between the basic and new .”
Andrew Tully, technical services director at Nucleus Financial, said with inflation forecast to hit 3.7% by the summer, the additional will actually shrink in real terms. “Millions of older pensioners will feel worse off, especially if they’ve lost the too.”
The gap between the new and basic state pensions will continue to widen, until everyone gets the new in the 2040s. Until then, millions of older pensioners will feel hard done by.