Over 12million retirees are expected to see their income rise by 4.5% starting April 2025. They were previously hoping to get 5.7%, however, those hopes have rapidly been crushed as their initial pension increase will be cut by £11.50 a month.
State Pension Increase to Cause Widespread Confusion
With the triple lock, the UK state pension increases every year by the highest of inflation, earnings growth or 2.5%.
In April of last year, pensioners were able to enjoy a 10.1% increase due to inflation, but this April their raise was 8.5%,based on earnings growth.
Each year's triple lock raise is determined by consumer price inflation rate from September of the previous year, and earnings growth from May to July.
Inflation was 2.2% in July, while earnings rose by 4.5% from April to June. As a result, the earning's element from the triple lock will likely determine next year's state pension increase.
If earnings continue to increase by 4.5% in the three months leading up to July, the state pension is likely to rise by that same amount when the decision is confirmed in mid-September.
This will make the new state pension rise from £11,502 to approximately £12,020 for those eligible for the full amount.
Nevertheless, millions of pensioners may get significantly less, leaving to widespread confusion.
Rising Disparity Between New and Old State Pensions Causes Concern
The issue originates from the existence of two state pensions: the single-tier new state pension for those who retired after April 6, 2016, and the basic state pension for those who retired before then.
Both pensions are subject to the triple lock, but the basic state pension begins at a lower level, making each year's increase less valuable to those receiving it. The gap is widening year after year.
In April this year, the new state pension climbed by £901 while the standard state pension grew by just £690.
The disparity between the two expanded by £211 in just one year to an astounding £2,688.
Next April, the new state pension is set to rise by £517. The old basic state pension, however, will only rise by £396.
The gap will have increased by an additional £122 to £2,810.
Many people feel it is unjust that retiring just a day before April 6, 2016, could lead to getting £2,810 a year less compared to someone who retired afterwards. That equals £54 weekly.
The amount someone can get depends on the number of years of qualifying National Insurance (NI) contributions or credits they have. However, a more significant factor is involved.
The state earnings-related pension plan (Serps) or state second pension (S2P) boost the standard state pension for many older pensioners.
This is not included in the basic state pension figures.
Since the additional state pension relies on earnings, men often accumulate far more than women. Women receive more than men on the new state pension.
Last year, male basic state pensioners received an average of £9,291 per year, slightly higher than the new state pension of £9,128.
Women receiving the basic state pension earned just an average of £7,951. Women earn more on the new state pension, with an average of £8,872.
Women benefit more from the new state pension than men do. However, there are many variables involved.
Pensioners with modest incomes may be eligible for Pension Credit, which provides a minimum annual income of £11,343.80 for singles and £17,313 for couples. However, nearly a million of the most impoverished individuals do not file claims.
