A new analysis shows that around seven million pensioners aged over 65 will not receive the full 4 percent increase in state pension.
Many pensioners are left with lower incomes than expected due to the disparity between “old” and “new state pension systems.
Starting April 2025, the “triple lock” system, which guarantees that the state pension increases annually by the highest of inflation or wage growth, or 2.5%, will increase the “new” state retirement pension by PS460 per year to PS11962 per annum. The adjustment, which is in line the current wage growth rate of 4 percent will benefit around three million retirees who retired after April 2016
The 8.5 million retirees who were covered by the “old” system of state pension will see a lower increase. Their state pensions will increase by 4 percent. This will result in an additional PS354 to their annual pension, which is now PS9,167. A significant number of retirees, around 7.2 million people, also depend on a earnings-related pension known as Serps. This only increases in line with inflation.
Many older retirees will only receive about half the increase to their earnings-related pension. They could be missing hundreds of pounds in comparison with younger retirees.
Pensioners with the lowest incomes will be hit by winter fuel payment cuts
Many pensioners will also lose their winter fuel payments if the state pension increase is not increased. Pensioners over 80 receive PS300 for energy costs while those below 80 get PS200. Around 10 million pensioners may lose this benefit under the new means-tested winter energy payments system introduced by Chancellor Rachel Reeves. This could have a negative impact on their financial well-being.
Steve Webb is a former pensions Minister and consultant at LCP. He cautioned, that although headlines indicate a 4 percent rise in pensions, many pensioners on the old system won’t see the full benefits. Webb stated that the headline figures of 4 percent rise in pensions will not be true for most pensioners under the old state system.
Real Impact of Pension Increase
Experts warn that inflation is likely to significantly reduce the value of this increase. The PS460 increase will be reduced by PS250 due to rising prices. This leaves pensioners with only PS210 in real terms. Many pensioners may feel worse off financially despite the increase.
Rachel Reeves claimed that Labour policies would make pensioners PS1,700 richer. However, critics claim that this promise will not be fulfilled for all pensioners. Around 20% of pensioners receive their entire income from the state pension, but many don’t. About half of the 3.4m pensioners who are on the new system get less than the full amount. Around 150,000 receive less than PS100 per week.
Support
Becky O’Connor of PensionBee highlighted the growing gap between pensioners, and those of working age, pointing out that many retirees are not receiving the full amount from the state pension, and are completely dependent on it. She said that cuts to winter fuel allowances could be the most devastating for the poorest pensioners, and stressed the importance of supporting those in the greatest need.
A Department for Work and Pensions spokesperson defended the government’s commitment to protecting pensioners, emphasising the role of the <a href="https://www.cipd.org/uk/about/press-releases/pensions-set-to-rise-half-million-young-people-out-of-work/#:~:text=Pensioners%20are%20set%20to%20receive,likely%20to%20be%20much%20lower. The triple lock was used to secure a PS 1,700 increase in pensions over the current parliament. They also confirmed that Serps would be linked to the inflation rate rather than to the triple lock.
As April 2025 approaches, there are increasing concerns that older retirees may face a difficult year financially.
