The full state pension is expected to rise to almost £12,000 a year – but not all recipients will get that much and even those who do still face a big shortfall in their living costs
Millions of older people face a battle to make ends meet despite a likely £460 jump in the state pension, experts have warned.
The new full state pension is expected to rise to just under £12,000 a year from next April. It follows Office for National Statistics figures showing average wage growth – the most likely trigger under the government’s “triple lock” pension pledge – stood at 4 per cent.
Yet research by life insurer Royal London found only half the 3.5 million of state pension recipients were paid the full weekly amount of £203.85 last year, due to gaps in their National Insurance record. Even those getting the near £12,000 a year from next April will still struggle to get by.
The Pensions and Lifetime Savings Association says older people need £14,857 a year, before tax, for a minimum standard of living. The Joseph Rowntree Foundation puts the figure higher, at £17,200 a year, for dignity in retirement for a singled retired person living alone.
The increase in the state pension also threatens to push more older people into paying tax over time. That is because most people have to start paying tax when their incomes goes above £12,570 a year. The government is hoping the state pension increase offsets fury over its decision to strip the £300 winter fuel payment from millions of pensioners.
Myron Jobson, senior personal finance analyst at the platform Interactive Investor, said: “While the £460 increase in the state pension may seem like a welcome boost on the surface, many pensioners won’t feel any richer thanks to the double whammy of inflation, which continues to erode the real value of any pension increment, and the loss of the £300 Winter Fuel Payment, which is now means-tested.
“Our calculations offer a stark reminder that while the state pension is a vital component of retirement income, it falls short of covering even the minimum income needed to enjoy a comfortable retirement. Worryingly, our research has exposed a looming national pension emergency, with people at the crunch stage of their retirement planning not saving enough into their pensions to secure a comfortable living standard in retirement.”
Becky O’Connor, director of public affairs at online firm PensionBee, said: “It’s important to recognise that many pensioners do not receive the full amount and so will not get this headline increase of £460 a year. It’s also vital to bear in mind that many pensioners are completely dependent on the state pension and do not receive any other form of income – and can no longer work.
“Cuts to the winter fuel allowance are likely to affect some of the poorest pensioners, who are on lower amounts of state pension. This group of pensioners need all the support they can get.”
Think tank the Resolution Foundation says the rise in the state pension is likely to be around twice the size of the increase in working-age benefits next April, which are set by the consumer prices index measure of inflation in September which, according to the Bank of England, is forecast to be just 2.1%.
Under the “triple lock” guarantee, the state pension increases every April in line with whichever is the highest of average total earnings growth in the year from May to July of the previous year, CPI inflation in September of the previous year, or 2.5%.