How will inflation affect my state pension?

Paul Lewis / 06 March 2018

Every April, state pensions and benefits for older people are increased to help them pay for the rising cost of food, energy and other essentials. But this year the amount paid to around two million of the poorest pensioners will not keep up with rising prices, as the Government quietly breaks the link between pension credit and the new state pension



The poorest pensioners are those who get pension credit, a means-tested benefit that brings the income of a single pensioner up to the level of the new state pension less a few pence. Currently the full new state pension is £159.55 a week and pension credit is £159.35. So almost everyone who does not get an income at the level of the new state pension can get extra means-tested assistance to bring it up to within 20p of that rate.

From April 2018 that relationship will change. The new state pension will rise by £4.80 to £164.35 a week but the pension credit will increase by just £3.65, giving recipients £163 a week. That is an increase of 2.3%, which is well below the 3% rate of inflation used to raise the new state pension. This rise of 2.3% will also apply to means-tested help with rent and council tax paid to people over 65.

The Government says the £3.65 increase in pension credit is the same as the cash increase in the old basic state pension (paid to people who reached pension age before 6 April 2016). That will go up from £122.30 a week to £125.95 a week. The Government says that fulfils a legal requirement to raise pension credit at least in line with earnings.

However, it cannot escape the fact that the poorest pensioners will get a lower percentage rise than the vast majority of pensioners who do not rely on pension credit or other means-tested benefits.

Almost all other parts of the state pension will rise by 3%, which includes the basic state pension, plus the State Second Pension (or SERPS). It also covers the extra state pension paid to those who have deferred claiming it at state pension age. The only exceptions – as ever – are the 25p a week extra at the age of 80 and the £10 Christmas Bonus – both frozen. They are paid only to people who reached state pension age before 6 April 2016.

Should you defer your state pension?

The big freeze

New benefits were introduced this year for widows and widowers and bereaved civil partners who lost their partner from 6 April 2017 or later. As widely predicted at the time of their introduction, these Bereavement Support Payments have been frozen and will not rise in line with inflation from April 2018. The new benefits are lower than the ones they replace, saving the Government about £100m a year. Existing payments to widows and others who were bereaved before 6 April 2017 will rise by 3%, increasing the maximum bereavement allowance by £3.40 a week to £117.10. Industrial Injuries Benefits will rise by 3% and it is expected that rise will also apply to benefits paid under the War Pensions Scheme.

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Benefits paid to people under pension age who are looking for work or who cannot work for family or health reasons will be frozen in April for the third year running. These include Universal Credit, Jobseeker’s Allowance, Employment and Support Allowance, housing benefit, council tax support, income support and tax credits – but any disability premium paid with them will rise by 3%. Stand-alone disability benefits will also rise by 3%, adding £2.50 to the higher rate of attendance allowance, which will increase to £85.60 a week, and Carer’s Allowance will go up by £1.90 to £64.60 a week. All these changes happen in the week of 9 April 2018.

Altogether the Department for Work and Pensions has confirmed that 182 out of 401 amounts listed in its annual uprating statement will not change from April. That number excludes the frozen tax credits and child benefit paid by HM Revenue & Customs, which are not in the list. If they are included, around half of all the benefit rates and amounts that are related to them are frozen, despite the steady rise in UK inflation.





State pension age

This year will see the end of different state pension ages for men and women. Women born before 6 December 1953 will reach pension age on 6 November 2018 – which might be up to a month before their 65th birthday. But any woman born on 6 December 1953 or later will reach state pension age on the same date as a man with the same date of birth. The first group – born 6 December 1953 to 5 January 1954 – will reach state pension age on 6 March 2019. The age will then rise in stages to reach 66 for anyone born 6 October 1954 up to 5 April 1960. After that it will rise in stages to 67 and then 68.

Further information

To check your state pension age, go to gov.uk and search ‘state pension age’. For benefit rates from 2018, go to gov.uk and search ‘proposed benefit and pension rates’. To find out whether you can get means-tested help, go to entitledto.co.uk.


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