Labour chancellor Rachel Reeves is trying to grab the glory for next April’s supposedly bumper state pension triple lock increase, but she’s pulling a fast one. She’s desperate to justify her cruel and unnecessary decision to axe the Winter Fuel Payment for 10million pensioners, but we can’t let her get away with it.
The majority of pensioners will end up poorer in real terms next year, rather than better off as she claims.
So forget all the stuff you read about the state pension rising by more than £450 to almost £12,000 next April. Millions will get much less than that in practice.
Plus they’ll lose their Winter Fuel Payment, too.
The state pension is insanely complicated, so please bear with me. I’ll try to keep this as simple as possible.
Under the triple lock, the state pension rises each year in line with earnings, inflation or 2.5%, whichever is highest.
It will most certainly rise in line with earnings next year, based on average wage growth between May and July, which came in yesterday at 4%.
The triple lock inflation element is based on September’s figure, published soon. But given that inflation was just 2.2% in August, the 4% earnings element will almost certainly apply.
This would increase the full new state pension from £11,502 a year to £11,963, a hike of £469.
That’s an extra £8.86 a week.
Reeves claims this more than makes up for her disastrous decision to axe the Winter Fuel Payment, worth up to £300 a year.
But she isn’t comparing like for like.
Former pensions minister Sir Steve Webb said £250 of next year’s increase will simply allow pensioners “to stand still”.
Losing the Winter Fuel Payment will wipe out the rest of it.
Kate Smith, head of pensions at Aegon, said that as a result, the triple lock hike offers only cold comfort. “Ten million pensioners will still be out of pocket and out in the cold.”
It gets worse.
State pension headline figures are misleading because what people get in practice depends on factors such as how many national insurance contributions they made during their lifetime.
Of the nation’s 12.5million pensioners, only a couple of million will get the full £8.86 a week increase. Most will get a lot less.
Half of the 3.5million pensioners on the so-called new state pension won’t get the full amount.
Instead of an extra £8.85 a week, they may get as little as £4 or £5 a week more. Plus most will lose their Winter Fuel Payment, which is paid at a flat rate.
And it gets worse still.
Around nine million pensioners get the old basic state pension, paid to those who retired before April 6, 2016.
Today, this pays a maximum of £8,814 a year. If the 4% increase in applies, this will rise to just £9,168 next April. That’s well below the full new state pension.
That’s an increase of £354 a year instead of £462. It works out as just £6.78 a week extra for those who get the full amount.
Or just 10p per day. Hardly riches.
Someone who has lost a £300 Winter Fuel Payment will only be £54 a year better off. After inflation, they’ll be worse off.
Especially since last year’s Pensioner Cost of Living payments won’t be coming through, which will strip the poorest of up to £900.
Incredibly, it gets even worse.
Many on the basic state pension do not get the full amount either, especially older women who stopped work to raise families, as most did in those days.
So they will get well below that 10p per day increase. Their state pension increase will be measured in pennies.
And while many maybe be able to claim means tested Pension Credit to plug the gap, almost a million fail to do so.
Many on the basic state pension get their income topped up by additional state pension, primarily the state second pension (S2P) or state-earnings related pension scheme (Serps).
But there’s a catch here, too.
In a little-known rule, S2P and Serps do not benefit from the triple lock and only rise with inflation each year.
As a result, recipients will get less than the 4% headline increase.
Labour didn’t make the triple lock rules, so that’s not their fault. But Reeves is wrong to take the glory for a pay rise that isn’t half as good as she’s making out.
And may not be worth anything at all once the Winter Fuel Payment is deducted.
