Almost seven million older retirees will not see the full benefit of next year’s state pension increase, despite the Government’s “triple lock” guarantee, new analysis shows.
The triple lock commits the state pension to rise each April by whichever is higher: inflation, average earnings, or 2.5 per cent. This year, pay growth of 5 per cent looks set to drive the increase.
If confirmed, the “new” state pension will rise by £599 to £12,572 a year, while those on the older system would see their annual payout climb to £9,634.
But the uplift will not apply evenly. Around 6.9 million pensioners also receive a second, earnings-linked top-up known as Serps, which is tied only to inflation. With July’s inflation figure at 3.8 per cent, that part of their income will rise by less than the basic state pension, leaving them hundreds of pounds worse off compared to younger retirees.
The precise increase will be set in October, once September’s inflation rate is published.
Experts warn the discrepancy highlights a “hidden” problem in retirement incomes. The Office for Budget Responsibility has already projected that maintaining the triple lock alongside rising life expectancy could push the state pension bill to £200bn by 2073.
The state pension age is due to climb from 66 to 67 by 2028 and to 68 by 2046. But some analysts believe the pressure on public finances could eventually force far more drastic changes.
Jack Carmichael, of Barnett Waddingham, warned the cost could mean “either waiting until 80 to retire, or paying 50 per cent more in National Insurance contributions by the 2070s.”
Steve Webb, former pensions minister and now a partner at LCP, told The Telegraph: “It often comes as a surprise that different elements of the state pension can rise at different rates. The additional pension has always been pegged to inflation, while the basic state pension has had the more generous triple lock since 2011.”
Becky O’Connor of PensionBee added: “It’s tempting to think pensioners as a group are cushioned by these annual rises. In reality, millions don’t get the full increases, and that creates a hidden layer of pensioner poverty.”
The Treasury has been approached for comment.
