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State pensions: will you lose out?

Paul Lewis / 31 March 2021

Britain’s State pension is undergoing significant reform at the moment. So how could these changes affect you?

Savings jar holding money
How will you be affected by pension changes?

The annual rise in the state pension has been saved by the triple lock. With inflation just 0.5% and earnings growth negative – average pay shrank – the state pension could have risen by just 65p a week for most pensioners this April. But the Government’s triple lock policy sets a minimum rise in the pension of 2.5%. So from 12 April the basic state pension will rise by £3.35 a week to £137.60 and the new state pension for younger pensioners by £4.40 a week to £179.60.

The difference between ‘younger’ pensioners who reached state pension age on 6 April 2016 or later, and older ones is growing. The basic state pension is £7,155 a year but the new state pension is £9,339, which is £2,184 a year more just because of your date of birth. Women born before 6 April 1953 and men born before 6 April 1951 get the lower amount.

Of course, nothing in the state pension is quite as simple as it seems. Older state pensioners can also have extras added on to their pension. What we used to call SERPS – the State Earnings Related Pension Scheme – can add a great deal to the basic amount, taking it well above the new state pension in many cases. And some younger pensioners do not get the full new state pension – many get little more than the old basic pension. They include people with fewer than 35 years of national insurance contributions and others who have 35 years of contributions but also paid into a good company pension scheme or in some cases a personal pension. They paid lower NI contributions and now get a lower new state pension, leaving their company or personal pension to provide the extra. It does not always do that.

About a million people who could claim pension credit do not do so

Even the April increase in the pension is not straightforward. Only the standard amounts of the basic and new state pension rise by the 2.5% of the triple lock. Any extras, such as additional pension (including SERPS), increments for deferring your pension, and the small graduated pension (on contributions paid from 1961 to 1975), will only rise with inflation, which is 0.5%. That will mean an increase of just pence per week in those amounts.

Pension top-up and pension credit

About one and a half million people over the age of 66 claim extra money through pension credit. It tops your income up if it is low.

If you just get the guarantee bit of pension credit (younger pensioners, which is roughly men under 70 and women under 68 in April, can only get this part) then it will rise by just under 2%, taking your weekly income up to £177.10 from £173.75 (single) or to £270.30 from £265.20 for a couple.

If you are older and get the savings credit as well, the sums are more complicated but the rise in your income may only be a pound or two per week, a rise of less than 1%. In other cases it could be an increase of £3 a week or so, around £5 for a couple, a rise of around 2%.

About a million people who could claim pension credit do not do so. If you are a younger pensioner and your weekly income is less than £177.10 (single) or less than £270.30 for a couple – both must be aged 66 or more – then please claim. Pension credit should top it up to those amounts. If you are an older pensioner the calculation is more complicated. From April, if your weekly income is up to £212.10 (single) or £309.50 (couple), you may still get some pension credit. Even a few pence a week can help you claim other things – including a free TV licence when you reach 75.

If your savings exceed £10,000 (between you for a couple) then your pension credit will be reduced. If you have a disability you may be able to qualify with higher incomes and get more. Try the free benefits calculator at turn2us to see what you can get. It will also show you council tax reduction and, if you are a tenant, help with paying your rent.

If you have a disability

Tens of thousands of disabled people over 65 are facing a big cut in their benefits. They were born on 9 April 1948 or later and get a benefit called Disability Living Allowance (DLA). After a long delay, the Government is moving them from DLA to another benefit called Personal Independence Payment (PIP), even though their DLA was said in the past to be a ‘lifetime’ or ‘indefinite’ payment.

Not only will they be poorer, many will also be stuck without transport

There are two parts to DLA. The care component and the mobility component. Those on the lowest rate of care component – £23.70 a week from April 2021 – will not get PIP as it does not have a lowest rate. Those who get the extra mobility help may lose it as the test to qualify is harder in PIP than in DLA. Those who fail will lose up to £62.55 a week. That money is often used to buy an adapted car through the Motability Scheme. So not only will they be poorer, many will also be stuck without transport. Some who do not qualify for PIP at all should claim another benefit called Attendance Allowance instead.

Other people on disability benefits will only get tiny increases. The 0.5% inflation rise will add for example 45p a week to Attendance Allowance, 35p a week on Carer’s Allowance, and 60p a week to Widow’s Pension for people whose husband died before 6 April 2017 – less than the price of a second-class stamp. The Bereavement Support Payment for married or civil partnered men and women under state pension age whose spouse or partner died on 6 April 2017 or later has been frozen since it was introduced that year. A parent with children who is bereaved from April will get payments which are £700 lower per year in total than if they had risen each in line with other benefits.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.