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Wednesday, 19 October 2016

BENEFITS AND PENSION UPRATING APRIL 2017

Inflation hit 1% in September (CPI) and the revised rise in earnings May to July (KAC3) was 2.4%. So unless the new Government changes the rules or modifies the policy benefits and pensions will be uprated by four different rates from Monday 10 April 2017. The rates will be 0%, 1% and 2.5% with a fourth rate for pension credit, probably 2.4% for the guarantee credit but less for the savings credit. All amounts are rounded so may be slightly more or less than the stated rate of increase.

These figures are my estimates on the current rules. The Government could change the rules. The actual amounts will be announced around the time of the Autumn Statement which is on 23 November.

Frozen
Some benefits will be frozen. The Summer Budget 2015 listed the working age benefits that would be frozen for four years from 2016/17 to 2019/20. They are
  • Child Benefit
  • Jobseekers’ Allowance
  • Employment and Support Allowance
  • Income Support
  • Housing Benefit under women’s state pension age
  • Local Housing Allowance rates
  • Child Tax Credit
  • Working Tax Credit
  • Universal Credit
Any disability premiums or extras paid with any of these benefits will NOT be frozen. They will rise by 1%.

It is likely that in England council tax support, paid by local authorities, will also be frozen for people under women’s state pension age. In Scotland and Wales that may not be true.

Women’s state pension age at April 2017 will be 63 years and 9 months.

Rise by 1%
Benefits which are not frozen will rise by the rate of CPI inflation for September 2016 which was 1%.

They include
  • Attendance Allowance - up by 80p a week for higher rate and 55p a week for lower rate
  • Personal Independence Payment - up by 80p a week for higher rate and 55p for lower rate
  • Disability Living Allowance - up by 80p, 55p, or 20p a week for lowest rate
  • Carer’s Allowance - up by 60p a week
  • Bereavement Allowance - up by £1.15 a week
  • Maternity Allowance - up by £1.40 a week
  • Statutory Maternity/Paternity etc Pay - up by £1.40 a week
  • Statutory Sick Pay - up by 88p a week
  • All parts of the state pension which are NOT Basic State Pension or New State Pension. Details below.

Employment and Support Allowance falls partly under frozen benefits and partly under benefits that will be raised by 1%. The basic ESA of £73.10 a week is frozen. The extra paid to those who cannot work - the support component - will rise by 35p a week, an increase of 0.3%.

Rise of 2.5%
The basic state pension and the new state pension will rise by 2.5%. They are covered by the so-called triple lock which guarantees an increase in line with prices measured by the Consumer Prices Index, earnings, or 2.5% whichever is the highest. CPI was 1%, earnings rose by 2.4%, so they will increase by 2.5%.

That will mean
  • a rise in the basic pension of £3.00 from £119.30 to £122.30
  • a rise in the full new State Pension of £3.90 to £159.55.
Any extras paid with the basic pension – SERPS, State Second Pension (both known as additional pension), graduated retirement benefit, and extra pension for deferring a claim will rise by 1% in line with the CPI.

Any amount of the new State Pension which was above £155.65 in 2016/17 will also rise by only 1%.

It is worth noting that the Triple Lock only adds 15p a week to the state pension rise. The law currently provides for them to rise by the increase in earnings, That was 2.4% and would have resulted, after rounding, in a basic state pension of £122.15 and a new state pension of £159.40.

Rise by a different amount
Pension Credit is an anomaly in the benefit system. There are two parts to it.
  • Guarantee credit paid to men and women who are aged from women’s state pension age to 65.
  • Savings credit paid to men and women aged 65 or more who reached state pension age before 6 April 2016. Savings credit is NOT paid to anyone who reached state pension age from that date. in 2016/17 or later.
Based on past years,
  • The guarantee credit must rise by at least the rise in earnings and that was 2.4% (KAC3 May-July revised) which would add £3.75 a week to the single rate and £5.70 to the couple rate. It is conceivable but less likely that it could increase by the £3.90 a week rise in the new State Pension which would be a 2,5% increase.
  • The savings credit will almost certainly rise by a smaller percentage in order to claw back some of the increase in the guarantee credit.
We will not know the rates of Pension Credit until late November.

Compared with April 2016
In April 2016 all benefits except the state pension were frozen. Some by the decision announced in the Summer 2015 Budget and others because CPI inflation in September 2015 was -0.1% which led to a zero rise. So for those benefits that will increase in April 2017 it will be their first rise for two years.

The basic state pension rose by 2.9% in line with earnings. That £3.35 increase was more than the £3.00 expected in April 2017. The extras paid with the basic state pension were frozen.

version 1.20
1 November 2016