Some better news at last for pensioners - 5.2% increase for state pension confirmed
- Pension age to rise to 67
- Still no good news for savers
- Major headlines
- State pension uprated in line with 5.2% September cpi
- Both Basic and State Second Pension increased by full September cpi
- Pension Credit increased by £5.35 (3.9% rise, well above 2.8% earnings rise)
- No change to pensions tax relief or tax free lump sum
- Increase in state pension age to 67 by 2028
The Chancellor has delivered an astute political budget, and has finally been kinder to pensioners. He has not done anything for savers though!
Amid the economic gloom, with lower growth and rising unemployment, at least the worst predictions for pensioners have not materialised. They will receive the full September inflation uprating, 5.2%, which is only right given that pensioner inflation - even on the official ONS measures - has been much higher than average national inflation. ONS pensioner inflation is running at over 6% and the poorest pensioners have suffered from the huge rises in costs of food and fuel. These form a large part of many pensioners' budgets and have caused enormous hardship for many of the oldest pensioners in particular.
State pension uprating - full 5.2% September cpi uprating
The Basic and Second State Pension will both increase by 5.2% next April, so the Basic State Pension will rise from £102.15 to £107.45. The fears that the Chancellor would choose a lower cpi measure by averaging the inflation figures over a number of months have proved unfounded, which is good news for all those benefit recipients who have been struggling with the high levels of inflation all through 2011. That means that the 'triple lock' has been fully honoured. Of course, this is the first year that the uprating has been tied to cpi rather than rpi. Last year the Basic State Pension went up by rpi, while the Second State Pension increased only by cpi. This time, they will go up by the same amount.
Pension Credit to increase by more than earnings - extra £5.35pw is a 3.9% rise
Once again, the Chancellor has decided to increase the Pension Credit by the same monetary amount as the Basic State Pension. The statutory requirement is to increase Pension Credit in line with earnings, which would have been a 2.8% rise, but the poorest pensioners will now see a rise of 3.9% instead, as Pension Credit Guarantee Credit increases by £5.35 per week from £137.35 to £142.70.
But Savings Credit reduced to pay for extra uprating
Pension Credit comes in two parts, the Guarantee Credit and the Savings Credit. In order to fund the extra rise in the Guarantee Credit (i.e. an increase above earnings inflation) the Chancellor has decided to reduce the top level of Savings Credit. This is effectively transferring money from the poorer pensioners with savings, to the poorest pensioners without any savings.
Nothing in the budget to help suffering savers
The Chancellor has failed to offer help for savers. The impact of high inflation coupled with low interest rates is a huge double blow for savers. Increasing the ISA allowances would at least help them earn their meagre levels of interest without being taxed as well. Negative interest rates are bad enough, without adding the tax insult to savers' injury.
State pension age increase to 67 starting from 2026
As life expectancy is rising it is inevitable that the state pension age will increase. Pension ages everywhere are rising. Today's announcement that Britain's state pension age will increase to age 67 starting from 2026 is not far out of line with other nations. Around that time, the US, Netherlands, Germany, Denmark and Spain will all be increasing pension ages to 67 and Ireland's pension age will be 68. It also does give people around 15 years' notice which is fair, however it is really quite scandalous that the Government refused to use some of the money saved to delay the original rise to age 66 that has just been passed into law. That change has hit hundreds of thousands of women very hard, denying them their state pension without giving them enough time to prepare for this change. They received between 5 and 7 years' notice of up to a one and half year pension age increase, which is clearly unfair.
Business Finance Partnership - using pension fund assets to fund growth
Government has agreed with pension funds to invest in infrastructure projects, 'British Savings for British Jobs'! This is a sensible idea and long overdue. UK economic growth needs boosting both short-term and long-term. There are hundreds of billions of pounds of assets sitting in UK pension funds - in fact we have more money in our pension funds than the whole of the rest of Europe put together. At the moment, these huge pools of long-term assets are being encouraged to pile into gilts. But gilt yields are at record low levels and do not offer sufficient returns even to keep up with inflation, let alone to keep up with rising pension liabilities. Therefore, pension funds urgently need new ways of earning good income - in particular they are looking for long-term stable, inflation-linked income. That makes infrastructure projects a potentially very attractive prospect for pension fund investments.
The budget was better than feared for pensioners, especially given our weak economy, but it is far more a budget for borrowers not savers - when will we get some good news for savers?