State pension to increase next April
The state pension will increase by 5% from 6 April to take into account the higher cost of living.
From 2009, someone on full state pension will see their weekly income go up from £90.70 to £95.25. This is the biggest increase since 2001, and comes on top of Christmas bonuses and increased winter fuel payments announced in the pre-Budget report.
Pension credit will also increase from £124.05 to £130 per week, while national insurance benefits will rise by 5% and most income-related benefits will rise by 6.3%.
The government updates the basic state pension people receive each April, at the start of the new tax year, usually in-line with the previous September’s Retail Price Index rate of inflation. In September 2008, this hit 5%.
Rosie Winterton, minister for pensions and the ageing society, says: "In these tough times, the government will continue to give real help to pensioners.”
The increase will be welcomed by the majority of pensioners, many of whom are estimated to be struggling with personal inflation levels of 9.2% for a single male pensioner, 9.1% for a single female pensioner and 7.7% for retired couples.
And with inflation forecast to fall sharply next spring, the increase in the basic state pension could have an even more positive effect on many pensioners.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. To qualify for the state pension, individuals need 30 years’ of full NI contributions.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).