Wednesday 14 October 2015




Figures revealed by the Office for National Statistics on 13 and 14 October will be used to set the level of the state pension and other benefits from the week of Monday 11 April 2016.

State pension
Under the current triple lock rules the basic state pension - paid to those who reach pension age before 6 April 2016 - will rise by prices, earnings, or 2.5% whichever is the highest. Prices are measured by the September CPI which was published on 13 October. It was -0.1%.

The earnings rise is measured by the annual increase in pay across the whole economy from May to July 2014 to the same period in 2015. The final revised figure was published on 14 October and confirmed an annual rise of 2.9%. As that is above 2.5% then under the triple lock that earnings figure will be used to increase the basic state pension from April 2016.

A 2.9% rise means the basic state pension will increase by £3.35 from £115.95 to £119.30 a week. The same 2.9% rise will apply to the basic pension even for those who get less than that - married women who still get the Category B pension or those who basic pension is reduced because of lower contributions.

However, all the extra bits of the state pension - SERPS, State Second Pension, Graduated Retirement Benefit, extra pension from deferring, and the additional pension from purchasing the new Class 3A contributions - are linked to the CPI. It was -0.1% so they will not rise in April. A negative CPI means there is no rise, rather than a reduction.

Pension Credit
The means-tested benefit Pension Credit guarantees that no-one over pension age will have an income below a set amount known as the standard minimum guarantee (SMG). In 2015/16 that was £151.20 a week. Under existing law that also be increased by the rise in earnings over the previous 12 months. So that 2.9% rise will take the SMG to £155.60 a week. The Government has now confirmed that amount.

The government had already decided that other means-tested benefits would be frozen for the next four years 2016/17 to 2019/20. But it has has gone ahead with the full rise for pension credit. To do anything else would have meant changing the law.

New State Pension
The Government is committed to setting the full rate of the new State Pension above the SMG. That is achieved by setting it at least 5p a week more (the standard amounts of all these benefits are rounded to the nearest 5p). And it's announcement late on 20 November means that the new State Pension will be £155.65. Theoretically it could be set at more than that. But the poor economic datat also published on 20 November make that very unlikely.

Only a minority of those reaching pension age in 2016/17 will get that full amount. My latest estimate based on DWP figures is that less than one in four women (22%) and half of men who reach state pension age from 6 April 2016 will get the full new State Pension or above in 2016/17. 180,000 of the rest will get a pension which is at the same level as they would have got under the old pension system. In most cases, the balance of £36.35 is supposed to be made up by the company or private pension they paid into. That will not be true for everyone.

Pension Credit Savings Credit
The savings credit of pension credit is not available to anyone who reaches state pension age from 6 April 2016. For older people who already get it, the rates are likely to be frozen as they have been in previous years, meaning that many will see very small rises in their weekly income as the extra £3.35 on their state pension will be largely offset by a cut in their pension credit. Those rates will be announced in the first week of December.

Other benefits and tax credits
The government has already decided that most benefits would be frozen for the next four years 2016/17 to 2019/20. Now the CPI has come in at -0.1% that freeze will in effect apply to all benefits bar the basic state pension and pension credit. So benefits for disabled people, carers, war veterans, and widows will all stay the same in April.

Tax credits may be subject to a series of cuts in April which would reduce the amount paid considerably. The final decision on that is expected to be announced on 25 November. If those cuts are made less severe than planned, cuts in housing benefit may be used to save the money instead.

Official confirmation
The Government announced the 2016/17 pension rates at 2200 on 20 November 2015. Changes to tax credits will be announced in the Autumn Statement on 25 November. Details of other benefit rates - which will probably all be frozen - should be formally announced in the first few days of December.

21 November 2015
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