The new state pension is projected to exceed £12,000 next April due to the triple lock system. However, many retirees will receive thousands of pounds less. This discrepancy largely affects older retirees who retired before April 6, 2016.
They continue to receive the basic state pension, which is significantly lower. Over 12 million retirees are on track to receive a 4.5% pay rise from April 2025. They had initially expected a 5.7% increase.
Last year’s pension increase was based on a 10.1% inflation rate. This year it was an 8.5% rise tied to earnings growth. Next year’s increase is likely to be 4.5%, based on current earnings growth from April to June 2024.
The new state pension currently stands at £11,502. It will rise to approximately £12,020 for those eligible for the maximum amount. However, millions of pensioners may receive significantly less.
This is causing widespread confusion and dissatisfaction. The issue arises from having two state pension systems. Anyone who retired after April 6, 2016, gets the new single-tier state pension.
Those who retired before that date receive the basic state pension. It starts from a lower baseline and results in smaller annual increases. In April this year, the new state pension increased by £901.
The basic state pension only rose by £690.
State pension disparities spark frustration
This widened the gap between the two by £211 to a total of £2,688.
Next year, the new state pension is slated to increase by £517. The basic state pension will only rise by £396. This will further increase the difference by another £122 to £2,810.
Many state pensioners feel unfairly treated, particularly those who retired just one day before the April 6, 2016, cut-off. The calculations of state pension entitlements are complex. They factor in the number of years of qualifying National Insurance (NI) contributions or credits.
Additionally, older pensioners receiving the basic state pension often get supplementary income from other schemes. These are earnings-related and traditionally more beneficial for men than women. Last year, the average male basic state pensioner received £9,291 annually.
This was slightly more than the £9,128 average for those on the new state pension. However, women on the basic state pension averaged a meager £7,951. Those on the new state pension received £8,872.
Pensioners with low incomes can claim pension credit to guarantee a minimum income. This is £11,343.80 a year for singles and £17,313 for couples. However, nearly a million of the poorest retirees fail to claim this benefit.
The new state pension system aimed for simplicity but has yielded both winners and losers. This leaves many feeling aggrieved. The state pension discrepancies highlight the ongoing issues within the pension system.
They are causing frustration among retirees who feel shortchanged by the differences in their entitlements.
- Express.”Basic state pension confusion as older retirees get £2,800 a year less from April”.
- Telegraph.”‘Retirement tax’ to hit 400,000 more pensioners”.
- DailyRecord.”Retirement expert warns frozen Personal Allowance will see New State Pension exceed tax threshold”.