Autumn Statement 2015: state pension to see biggest real term increase for 15 years
In Wednesday's Autumn Statement, chancellor George Osborne said the so-called triple lock on pensions will be retained for pensioners, which means they receive an extra £3.35 per week - a total £119.30 per week.
This is the largest increase in real terms since 2001, and a rise of around £570 a year for the 2016/17 tax year, for those already receiving state pension or set to start drawing it before April 2016.
The triple lock - introduced by the previous coalition government in 2010 - means that the state pension rises every year by the highest of price inflation, earnings growth or 2.5 per cent. Pension age will be linked with increases in life expectancy ensure it can be kept.
Canada Life has recently carried out an analysis of pension data from the Office for National Statistics.
Protecting the pensioners’ incomes
"The move by the chancellor will protect the incomes of pensioners, helping cement the rapid income gains they have enjoyed of late.
"In the last 20 years, retired households have seen their incomes climb to record highs, up by 77 per cent in real terms,' says Richard Priestley, executive director of retirement incomes at Canada Life.
In the Autumn Statement the chancellor also confirmed a new rate of £155.65 for the new single tier state pension, which will be introduced from April 2016 for new pensioners. The government claims this will ensure the new rate is higher than the current means-tested benefit for pensioners on the lowest incomes.
However, many people will not qualify for the full amount of the new pension, in part because they were contracted out of the second state pension in return for lower national insurance contributions.
According to Chris Wagstaff, head of pensions at Columbia Threadneedle, the generous increase in the current state pension "means 80 per cent of those reaching state pension age in 2016 will be worse off with the new state pension".
Saga Investment Services points out that there is much confusion among those approaching state pension age as to how much they will actually get on retirement under the new system.
"The current system is horribly complicated, and the new single-tier will eventually wave away this complexity. But next year's generation of state pensioners need more help understanding what they're entitled to," says Gareth Shaw, head of consumer affairs at Saga Investment Services.
"A third of over 50s have no idea if they'll be better off or worse under the new state pension, while less than one in 10 (7 per cent) of over 50s know how to boost their pension before they finally claim it. The government must do more to help the over 50s properly plan for retirement."
In addition, there was no mention of any transitional arrangements for the tranche of women born in the 1950s and disadvantaged by the acceleration of women's state pension age from 60 to 66 between 2010 and 2020.
Wagstaff describes the failure to take any remedial measures as "very unfair".
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. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of 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).