Martin Lewis answers question about state pension
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That’s because they will get a much smaller increase than those who retired from April 2016 on the more generous new state pension.
Reports suggesting that state pensioners will get £10,600 a year from next April will anger millions of older retirees who will receive a lot less than that in practice.
There are two state pensions, and how much people receive depends on the date they retired.
The so-called new state pension was introduced for those retiring from April 6, 2016, in a bid to simplify the system. In practice, it has only spread confusion and resentment.
The new state pension combines additional state pension such as State Second Pension (S2P) and the state earnings-related pension scheme (Serps) into a single payment.
Currently, that gives a maximum of £9,627.80 a year to a man or woman who has made 35 years of National Insurance contributions during their working lifetime.
If the government does pass on the triple lock inflation increase of 10.1 percent, that will increase to £10,600.20.
By contrast, the basic state pension currently pays a maximum of just £7,376.20 a year.
An increase of 10.1 percent would lift that to £8,121.20. This would give someone on the full basic state pension a staggering £2,479 a year less.
Worse, those who retired before 2010 had to make 44 years of NI contributions to get the full amount, falling to 39 years for women.
That was only cut to 30 years in the final six years of the old scheme.
So it’s hardly surprising that millions of older pensioners feel badly treated. They worked longer for less.
While a 10.1 percent increase is worth £1,059.06 to someone on the full new state pension, it is worth just £754 on the old scheme.
That’s £305.06 a year less and the gap will widen over time, as the same percentage increase is applied to a smaller sum.
The two-tier system causes fury among older pensioners. Express.co.uk reader flatroofer said it’s a poor return after a lifetime of working. “I have worked 64 years, no benefits, paid in 50 NI payments, and punished with the lower pension.”
Another reader, Michael06, retired on the old state pension after making 44 years of NI contributions. He said: “Those on the new pension do better and pay in less. Life is unfair! And so is the triple lock.”
Reader trig worked for 49 years only to see his pension shrink every year relative to the new pension. “This is pure robbery.”
Paula_Boo said the system is unfair: “A two-tier state pension is scandalous …. We should ALL be on the same rate if we qualify.”
Many who receive the basic state pension will get that topped up by S2P and Serps.
Yet these two additional state pensions do not benefit from triple lock protection, which increases the state pension either by earnings, inflation or 2.5 percent, whichever is highest.
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Instead, they rise by inflation. That is good news for older pensioners this year (assuming the triple lock remains in force), as S2P and Serps will both rise by 10.1 percent from next April.
However, in years when earnings are higher, S2P and Serps will rise at a slower rate than the new state pension, further widening the gap between the two.
In practice, the average man on the new state pension gets £8,866 a year, official figures show. That is actually £111 less than the average man who retired on the old state pension. He gets £8,977, once additional state pension is included.
However, this gap will narrow over time due to the differing inflationary increases.
By contrast, women do much, much better under the new state pension, getting £8,567 a year, up from £7,585.24 on the old one.
That’s £981.76 extra income.
Women on the old state pension do worst of all. With the system unlikely to change, many will continue to feel cheated for life.
“They’re just waiting for us oldies to die off,” said reader Charlie9.
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