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.
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19 December 2014
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