UK: Seven million retirees to miss out on full state pension increase

Nearly seven million retirees in the United Kingdom will not receive the full state pension increase next April, according to new analysis.

The “triple lock” guarantees that the state pension rises each year by the highest of inflation, wage growth, or 2.5%.

Latest data shows wage growth at 4.6%, which would raise the full “new” state pension by £551 to £12,524 a year. Around 8.4 million people on the “old” state pension would see their annual income increase to £9,634.

However, 6.9 million of these older pensioners also receive payments from the additional earnings-related pension, known as Serps. This element only increases in line with inflation, which was 3.8% in July. As a result, these pensioners are likely to receive only about 80% of the uplift for that part of their pension.

This means many older pensioners could lose out on hundreds of pounds compared to those on the new scheme.

Triple lock rises are calculated using the previous September’s inflation rate and average wage growth from May to July, so the figure for April’s increase will be confirmed in October.

Experts warn this gap is creating a “hidden layer” of pensioner poverty, despite the rising cost of the state pension.

The Office for Budget Responsibility (OBR) has projected that longer life expectancy and the triple lock could push the annual pension bill to £200bn by 2073. The state pension age is already set to rise from 66 to 67 by 2028, and then to 68 by 2046.

Jack Carmichael of Barnett Waddingham said the rising cost could eventually force workers to delay access to their state pension until 80 or pay 50% more in National Insurance contributions by the 2070s.

Steve Webb, former pensions minister and now partner at LCP, said: “It often comes as a surprise to people that the different elements of their state pension can rise by different amounts each year.

“The additional state pension, often called Serps, has always been linked to inflation, whereas the old basic state pension has benefited from a more generous formula since 2011.

“Next April, the additional state pension will simply be linked to inflation as usual, but the basic pension will rise by the higher of inflation or wages growth – and until October, we will not know for sure which will be the key number.”

Becky O’Connor of PensionsBee said: “It’s tempting to fall into the trap of thinking all older people are going to benefit disproportionately from state pension increases compared to working people.
“But the state pension system is complicated, and in fact, millions of older people do not get the increases and this falls below the radar.

“There is a hidden layer of pension poverty, and the majority of pensioners who rely on basic state pension are susceptible to. Headline increases to the new state pension hide the reality for millions.”

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