Friday 5 December 2014


A million low income pensioners will get a rise in their state pension benefits of just 87p a week in April 2015. That is less than a third of the £2.85 a week increase in the basic state pension. Six hundred thousand pensioners who are married or live as a couple will do even worse, typically with an increase of just 60p each.

The increase for these poorer pensioners in their state pension benefits is 0.68%. Lower than the 2.5% increase in the basic state pension. Lower than the 1.2% increase in most disability benefits. And lower than the 1% rise in working age benefits and child benefit.

So they will be getting the lowest percentage rise and one of the lowest cash rises of any of the benefit changes which begin in the week of 6 April 2015.

Who gets the 87p rise?
The 1.6 million pensioners who will get the very small rise in their pensions have a low income. They get that topped up by a benefit called pension credit. That comes in two parts. The guarantee credit which tops up income to £148.35 a week for a single person. And a savings credit which adds a bit more this year for any single person aged 65 or more who has an income between £120.35 and £190.35. It is that middle group on savings credit who will get this low rise usually of 87p. For couples the income figures are higher – £192 and £278.25 – and the typical rise is £1.20 between them, 60p each.

The arithmetic
Mary is 68. She worked all her life and gets a full state pension of £113.10. She also gets another £40 a week from an annuity she bought with a small pension pot she paid into. So this year her income is £153.10. That is topped up by £14.90 pension credit savings credit making a total of £168.00 a week.

From April her basic state pension will rise by £2.85 to £115.95. Her annuity will remain at £40. And her savings credit will be cut by £1.98 to just £12.82. So her total income will be £168.87. An increase of 87p and a rise in her total income of just 0.52%.

In summary, this group will get a rise in the basic state pension of £2.85 but their pension credit will be cut by £1.98, leaving them with a net rise of just 87p, an increase of around 0.5% in their income.

The 87p rise will apply to everyone with a full basic state pension and a fixed income on top of it from £10.55 to £72.30. In other words those with incomes before pension credit of between £126.50 and £188.25. Others with incomes slightly lower and slightly higher than that will get a bit more. And those with an income below £123.20 and above £190.35 will get the full £2.85 rise. So the very poorest and those who are better off – including the very well off – will get the full £2.85 rise in their state pension. It is just the 1.6 million in this band of income who will get the restricted rise as the left hand of the DWP pays them another £2.85 and the right hand takes away £1.98. Leaving the small change of 87p. They are poor but not the poorest.

Why is it happening?
It is happening because the Government is cutting savings credit. It will not be paid at all to anyone who reaches state pension age from 6 April 2016. And for those currently getting it the amount they are paid is being squeezed down year by year. This year the maximum savings credit that can be paid is £16.80. From April that maximum will be cut to £14.82. It was £20.52 in April 2010. Since then the basic state pension has risen 19% from £97.65 to £115.95 while the maximum savings credit has fallen by 28%.

What about the triple lock?
The Government is committed to the so-called ‘triple lock’ for rises in the basic state pension. This means it will rise each year in line with earnings, prices, or 2.5% whichever is the highest. Earnings are rising by less than 1%, prices by 1.2%, so the 2.5% rise is applied raising the basic state pension of £113.10 a week to £115.95 from April. But this triple lock only applies to the basic pension. It does not apply to other parts of the state pension which will rise with prices by 1.2%. And it does not apply to pension credit at all. Both the Conservatives and the Liberal Democrats have promised to keep the triple lock for the next Parliament if they are in power.

Didn’t Labour get into trouble over a small pension rise?
In April 2000 the basic state pension went up by just 75p – from £66.75 to £67.50. That rise was announced in November 1999 and made bad headlines across the press. The pension increase was in line with the rules, rising by 1.1% which was the inflation rate in September 1999. However, the political damage was so great that an early version of the triple lock was put in place by Gordon Brown, guaranteeing that the state pension would rise by at least 2.5% even if prices rose by less than that.

Government defends
The Government justifies this shift as protecting the poorest by ensuring they get the full £2.85 a week rise in the guarantee credit which other wealthier pensioners get. But to pay for that policy the nearly poorest band pensioners are being squeezed. This year the squeeze is particularly hard because under the standard formula for pension credit the guarantee credit would only rise in line with earnings by 0.6% or 89p. In order to raise it by £2.85 the savings credit is being cut by £1.98.

When presenting the pension rise in the House of Commons on 4 December 2014, Pension Minister Steve Webb glossed over the change in these words. 

"resources needed to pay the above-earnings increase to the standard minimum guarantee will be found by increasing the savings credit threshold, meaning that those with higher levels of income may see less of an increase than they would otherwise have done."

Nowhere does he mention the 87p rise. But in a hostage to fortune he does say 

"we will not repeat the mistakes of the past such as the 75p rise in 2000."

Departmental comment
The Department for Work and Pensions responded to this story by saying “Your analysis is correct” and then gave this statement

“In order to protect the poorest pensioners, the Government has again taken the decision to raise the standard minimum guarantee for Pension Credit in line with the cash rise in the basic State Pension.

“The cost of this measure is being offset by an increase in the Savings Credit threshold. In the current economic climate the Government believes it is right to target resources to protect the income of our poorest pensioners.”

Because all circumstances are different the rise for any particular pensioner or couple will be individually worked out and may be different from the amounts quoted here. They are typical amounts and will apply to most of those affected.

version 1.01
19 December 2014