State pension to hit £10,600 but older pensioners will get ‘staggering’ £2,500 less | Personal Finance | Finance
Those who retired on the old basic state pension are set to get thousands of pounds a year less than younger pensioners on the new scheme. Many will feel hard done by as a result.
Reports suggesting that state pensioners will get £10,600 a year from April 2023 will confuse millions of older pensioners who will receive a lot less than that.
That’s because there are two state pensions, and how much people receive depends on the date they retired.
The new state pension was introduced for those retiring from April 6, 2016, and was designed to simplify the system.
It rolled the basic state pension, State Second Pension (S2P) and the state earnings-related pension scheme (Serps) entitlement into a single benefit.
Currently, that pays a maximum of £9,627.80 a year to somebody who has made 35 years of qualifying National Insurance (NI) contributions during their working lifetime.
After Hunt’s budget, this will rise by 10.1 percent to £10,600.20 a year from next April.
However, those who retired before that date will get a lot less.
READ MORE: Pensioners to see additional £300 boost next year to help with bills
Next April’s increase is worth £1,059.06 to somebody on the full new state pension, but a maximum of just £754 to someone on the basic state pension.
So the pay rise is worth £305.06 a year less on average for older pensioners.
In practice, many who receive the basic state pension will get that topped up by S2P and Serps.
These two additional state pension schemes do not benefit from triple lock protection, which increases the state pension either by earnings, inflation or 2.5 percent, whichever is highest.
Typically, they rise by inflation, which is good news for older pensioners this year.
However, in years when earnings rise faster than prices, S2P and Serps will rise at a slower rate than the new state pension, further widening the gap between the two.
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Steve Lowe, group communications director at later life specialist Just Group, said the difference between the two state pensions can seem “staggering”, but much depends on the individual.
Some who retired on the old state pension actually get more.
The average man who retired on the old state pension gets £8,977 a year, once additional state pension is included.
In contrast, the average man on the new state pension gets £8,866 a year, or £111 less.
However, women who retired on the old state pension suffer.
They currently get just £7,585.24 on average from the old basic state pension, while those on the new state pension get £8,567 a year.
That’s £981.76 extra income.
Many on the old state pension feel aggrieved by the two-tier state pension system.
They will fall even further behind with each annual increase.
