 |
| The basic state pension can seem tiny unless you get additional pension on top (Image: Getty) |
If the triple lock is maintained for the 2024/25 tax year it could end up handing more than 12 million pensioners the second bumper pay rise in a row. This will offer some relief as inflation rages, although rising food and energy prices mean many will still be poorer in real terms.
Those who retired after April 6, 2016, and qualify for the full new state pension currrently get £10,600 a year.
Next April that will rise again in line with the triple lock, which means it will increase either by earnings, inflation, or 2.5 percent, whichever is highest.
The inflation element is most likely to apply, based on this September’s figure.
In May, inflation was 8.7 percent. Forecasters reckon it will dip to around seven percent by September, but that will still boost the new state pension by another £742 a year to £11,342.
There's a problem, though.
That's a much bigger increase than many older pensioners on the basic state pension will get.
The triple lock applies to the basic state pension but the annual increase is worth less in real terms because the older scheme pays a lower income than the new one.
Today, the basic state pension pays a maximum of £8,122 a year to those who retired before April 6, 2016.
The same seven percent uplift would increase pensioner incomes by just £569 a year at most.
This will increase the basic state pension to £8,691 a year, a staggering £2,651 less than the new one.
Many will find that doubly unfair because pensioners who retired before 2010 had to make 44 years of NI contributions to get the full sum, falling to 39 years for women.
That was cut back to 30 years for the final six years of the old scheme.
That sounds like a complete rip-off, but it isn’t the full story.
Many on the basic state pension while get additional state pension on top, such as the state second pension (S2P) or state earnings-related pension scheme (Serps).
In a large number of cases, this will increase the total state pension above the maximum new pension, particularly for men who worked all their lives in the UK.
Many will get much less, though, while women who gave up work to raise children are particularly vulnerable to a shortfall.
Another issue is S2P and Serps do not benefit from triple lock protection, but typically increase by inflation every year.
That isn't a problem today but in times when inflation falls below earnings or 2.5 percent, S2P and Serps will rise at a slower rate than the new state pension.
Either way, the gap between the new and basic state pension will steadily widen with each annual percentage-based increase, as the latter starts from a lower base.
The new state pension was designed to boost women's incomes and has had some success.
Others feel aggrieved, though.
READ MORE: Bank of England adviser warns triple lock ‘can’t last much longer’
Source link
