Tuesday, 26 August 2014

Packaged bank account mis-sales

Do you pay for your current account? More than 10 million of us do. But it may have been mis-sold, especially if it was sold to you before April 2013. If it was then you may be able to get compensation.

A packaged current account is one which comes bundled with insurance products, such as mobile phone cover or a car breakdown service, and other benefits such as access to airport lounges. Some give better deals on overdrafts or loans.

In 2011 the regulator investigated these accounts because of concerns about the cost, the claims that were made about their value, and the suitability of the insurance products included. As a result it introduced strict new rules from 31 March 2013 to improve the way they were sold. Since those rules began several banks have stopped selling packaged accounts at all and others have changed their offers.

If you have a packaged account – especially it was sold to you before that date, as millions were – you may find that the account was mis-sold and you can claim compensation.

The banks are resisting such claims. In 2013/14 complaints about packaged accounts to the Financial Ombudsman Service more than trebled to 5667. Every one of these cases had already been rejected by the bank concerned. The Ombudsman upheld more than three out of four of these complaints reporting that many people were sold deals that did not meet their needs or with inadequate information.

You may be one.

Check your bank account and whether you do pay for it – it will be shown on your monthly statement. The Ombudsman found some people were not even aware they had a packaged account. If that is you then it was probably mis-sold

Then look back to when it was sold to you.
  • Were you told that taking the packaged account was a condition of getting another bank product or service such as a loan or mortgage? That may have been a mis-sale.
  • Were you sold the packaged account without being told that a free alternative was available? That may have been a mis-sale.
  • Did the monthly fee cause you financial hardship? That may have been a mis-sale.
  • The most common problems are with the insurance policies bundled with the account.
  • Were the separate insurance policies explained to you? If not that may have been a mis-sale.
  • Were the policies suitable? For example:
  • Was travel insurance included without asking about pre-existing medical conditions or age which may mean you could not claim on it anyway. That may have been a mis-sale.
  • If car breakdown insurance was included did you have a car? If not that may have been a mis-sale. If you did was it already covered by you? That may have been a mis-sale.
  • If mobile phone insurance was covered was your phone already covered by your home insurance policy? If so, that may have been a mis-sale.
Those are just examples. If the packaged account was sold to you without full disclosure and information about all the separate products you were paying for or without your full understanding of the products and the conditions attached to them then you may have a valid complaint for mis-selling.

Write to the bank setting out your complaint. Ask for the account to be cancelled and for a full refund of all the fees paid to date. Make it clear that if you do not get compensation you will be taking the matter to the Financial Ombudsman. If you do not get a satisfactory result then go to the Ombudsman. You can talk to the Ombudsman service on can be reached on 0300 123 9 123 or 0800 023 4 567.

This article was first published on the saga.co.uk/money website

Tuesday, 3 June 2014

DWP FOI on first use of phrase 'spare room subsidy'.

This is the full response to my request for an internal review of an earlier FOI on this topic.

Department for Work and Pensions

Website: www.dwp.gov.uk

Your Reference: IR202                           

Date: 3 June   2014.

Dear Mr Lewis

I am making a formal FOI request for any documents which cast light on the origin of the phrase ‘Spare Room Subsidy’ and ‘Removal of’ or ‘Ending’
the Spare Room Subsidy. It is now used by the DWP as the name for the policy of reducing housing benefit in public sector rented accommodation where there are more bedrooms than the regulations prescribe. The regulations came into force on 1 April 2013.”

You replied

“The first public use of the term “removal of the spare room subsidy” was made by the Minister of State for Pensions during an opposition day debate on the  27 February 2013 about “Housing Benefit (under occupation penalty)”.

That statement is not true. The first public use of the phrase I enquired about which I have traced was ten days earlier than that and was by fellow Cabinet Minister Grant Shapps on BBC Radio 4 World At One on 17 February
2013 when he said

13:12:10 Labour have very cleverly deemed this to be a tax of course it’s exactly the opposite to a tax…. It’s a spare room subsidy that’s being paid through the benefits system on a million empty...bedrooms which makes no sense…we’re not using the housing that we have in this country in a proper way…it’s accurate to call it a spare room subsidy that’s the point.

He also used the phrase on his twitter account before going on air that day.

So your first answer was not a correct response to my question and I am asking for an internal review of it.
I am also asking for an internal review of your statement

“There are no details before this statement which use the wording ‘removal of the spare room subsidy’”

I originally asked if there were any documents which use that phrase or anything similar before 27 February 2013. Given that the Minister used it on that day and that his colleague used it ten days earlier I want you to check if there is no document using it on 27 February or earlier.”

Thank you for your request for an internal review of the response provided for FOI 485.

You asked whether there were any documents which use the phrase “removal of the spare room subsidy or other similar phrases before 27.2.2013.

The earliest public use of the phrase “removal of the spare room subsidy” in official  Departmental publications issued to local authorities can be found in A11/2013 dated 28.3.13.

There are no references to this phrase prior to this date in electronic or word documents.

Housing Benefit or Subsidy Circulars issued prior to A11.2013 used the phrase “social sector size criteria” or “size criteria” which mirrors what is specified in the relevant legislation dealing with the introduction  of the policy. .

The secondary legislation which introduced this policy is S.I.2012/3040.
Housing Benefit Amendment Regulations 2012.

Additional links relating to the statutory legislation are contained in the annex.

Other phrases had been adopted previously. These include  “under occupation penalty” as well as social sector size criteria.;.

Regarding your query about the first public use of the term “removal of the spare room subsidy”.

The first use of the term “removal of the spare room subsidy” by a Minister of the Department for Work and Pensions, namely the Minister of State for Pensions  was during an opposition day debate on the  27 February 2013 about “Housing Benefit (under occupation penalty)”. 
A link to the relevant Hansard section is enclosed below for reference.
[27 February 2013, Official Record, Column 334 ]

This term was later formally adopted as the name for the policy within Departmental publications after this public statement in Parliament by a Minister of the Department.    

The Department would not be aware that the term was used by the Right Hon Member of Parliament for Welwyn Hatfield in his political capacity as [Conservative Party Chairman and Minister without Portfolio ] in a Radio Interview at an earlier date.

This would be regarded as a party political issue as debated between the Conservatives and her Majesty’s official Opposition, which would not be for the Department to comment on.

Yours sincerely

DWP FOI Central Information Team.


Your right to complain under the Freedom of Information Act

If you are not happy with this response you may request an internal review by e-mailing freedom-of-information-request@dwp.gsi.gov.uk or by writing to DWP, Central FoI Team, Caxton House, Tothill Street, SW1H 9NA. Any review request should be submitted within two months of the date of this letter.

If you are not content with the outcome of the internal review you may apply directly to the Information Commissioner’s Office for a decision. Generally the Commissioner cannot make a decision unless you have exhausted our own complaints procedure. The Information Commissioner can be contacted at: The Information Commissioner’s Office, Wycliffe House, Water Lane, Wilmslow Cheshire SK9 5AF www.ico.gov.uk

Saturday, 5 April 2014


The tax year starts on 6 April and runs through to the following 5 April. To find out why we need to go back a l o n g way.

This year is the 2000th anniversary of the death of the first Roman Emperor Augustus in AD 14. Among his many legacies was the calendar we use today. 

It was initially devised by his predecessor Julius Caesar. By the time Gaius Julius came to power the Roman calendar was in a mess. One reason was that it was a secret religious document controlled by the priest class and not subject to outside scrutiny. Their job was to make the calendar work and determine the dates of religious holidays, festivals, and the days when business could and could not be conducted. But they had done it badly for many years and Caesar inherited a calendar that was out of step with the seasons by a quarter of a year. 

He called in an Egyptian astronomer Sosigenes and decided to put things right. He added 90 days to the year 46 BC to bring the calendar into line with the seasons so that the spring equinox was on 25 March and the year began on 1 January as it was supposed to do. Caesar decreed that in future the calendar would follow the solar year of 365.25 days divided into twelve months of 30 or 31 days apart from the 28 day February to which would be added the leap day every fourth year. 

Two years later, on the Ides of March 44 BC (15 March), Julius Caesar was assassinated on the steps of the Senate. As was their wont, the priests who were left in charge of the calendar mistook the instructions and added the extra day every third year (they counted inclusively 1-2-3-4 so to them the third year was called the fourth). 

This error went unnoticed for more than thirty years and was finally corrected by Julius's successor, Augustus. By then the seventh month had been named after Julius and on Augustus's death in AD 14 the eighth month was named for him. 

Apart from that one change the amended Julian calendar with the same months of the same lengths and a leap year every fourth year has run continuously since the year 8 BC. 

But one small correction was needed. The Julian Calendar assumes the year is 365.25 days long - hence the extra leap day every four years. In fact the year is very slightly shorter than that. So over many centuries the calendar began to get more and more out of step with the seasons. Towards the end of the 16th century it was almost two weeks ahead of the Sun. Pope Gregory XIII decided to correct it. He took ten days out of the calendar - which fixed the spring equinox around 20/21 of March - and decreed that in future there would no Leap Year in century years unless they were also divisible by 400. Taking out three days every 400 years would almost precisely align the new Gregorian calendar with the time it takes the Earth to orbit the Sun. 

The change was made in October 1582 and much of Europe soon followed. But the Protestant UK refused to obey a Papal decree and no change was made in the UK or in what were then its Colonies and Dominions. So our calendar got further out of step with the seasons and of course our dates were different from much of Europe. 

It took nearly 200 years before the British Government decided to make the necessary changes. The Calendar Act of 1751 decreed that Wednesday 2 September 1752 would be followed by Thursday 14 September thus removing eleven days and bringing the calendar back where it should be. It also provided that the new year would start on 1 January. Many people had reverted to starting it on the old Roman equinox day of 25 March. You can still find eighteenth century books published early in the year with two dates such as '1724/25'.

But there was a problem. Tax was due over a year. So if there were 11 fewer days in 1752 tax would be due 11 days early. At the time the tax year began on that Roman spring equinox day, 25 March. It was called Lady Day and was one of the quarter days when rent and other payments fell due. So the Government decided that the 1753 tax year would begin eleven days later on 5 April to give the full 365 days over which tax was due. 

That is still one day short of its present starting date. 

That extra day was added in 1800. That year would have been a Leap Year under the old calendar but not under the new Gregorian Calendar as century years (except those divisible by 400) were no longer leap years. Again there were protests. If people were denied their extra day of 29 February then they would be paying the same taxes but over a shorter period than they expected. Once again the Government gave in and extended the tax year by a day so it ended on 5 April and the next one began on 6 April 1800. And that is where it has remained. In 1900 no-one demanded the extra day for the tax year and the question did not arise in 2000 as it was divisible by 400 and so was a leap year. 

This piece is an expanded and corrected version of the Money Box newsletter for 4 April. You can subscribe to the newsletter here 

5 April 2014 

version 1.02

Friday, 28 March 2014


All the information in this blogpost is given in good faith, has been checked thoroughly, and is believed to be accurate at the date of publication – 28 March 2014. Paul Lewis accepts no responsibility for any consequences financial or otherwise to individuals who act on it. By reading on you accept this condition.

Up to £1500 free
Generally I don’t approve of using tax wheezes – evoidance as I call it – but this is one loophole which is built in to the current pension rules and has just been widened considerably. If you are aged at least 60 but under 75 and can get hold of a few thousand pounds (I know, I know) you can make £500 almost overnight. And you can do that up to three times with the same money. The gain is tax-free.

Here’s how it works.

             Open a personal pension plan (PPP) and pay in £8000.
             The Treasury puts in another £2000.That represents the basic rate tax you have paid to have £8000 left.
             The total in your fund is £10,000.

From Thursday 27 March a pension pot up to £10,000 counts as a small pot and can be taken out in cash as a lump sum.

             Immediately take out your small pot as cash
             The first 25% is tax free. That is £2500.
             The remaining £7500 is taxed at your basic rate.
             That will cost 20% which is £1500
             You are left with £6000.
             Add on the £2500 tax free and you have £8500. Even though you only put in £8000.
             Profit £500.

You can cash in up to three small pots, so you could make £1500 for nothing.

The calculation

Pay into a PPP
Treasury adds
Total in PPP
Cash in as small pot
Tax free cash
Taxable balance
less 20% tax
less original outlay
Do it 3 times

HMRC has what it calls ‘anti-recycling’ rules to stop people taking tax free cash and putting it straight back into a pension to get further tax relief on it. However, those rules do not apply until you take more than £12,500 of tax-free cash so should not apply to this process as even doing it three times releases only £7500 tax-free cash.

The scheme has been possible since April 2012 when the rules for cashing in ‘small pots’ first began. But before 27 March 2014 the maximum 'small pot' was £2000 so the profit was just £100 and you could only do it twice. So it was not worth it. By raising the limits to three pots of £10,000 each the Government has made the scheme much more worth doing. You can of course do it with any amount up to paying in £8000 which gives the maximum small pot of £10,000.

If you take three maximum lump sums it will count as taxable income of £22,500 and added to the earnings you need of at least £30,000 that will push you over the threshold for higher rate tax - £41,865 in 2014/15. Depending on your other income, two lump-sums or even one might do the same. That would mean some of the lump-sum is taxed at the higher rate. In that case the calculation is complex. You may make more profit but will have to wait longer for it. See the paragraph on higher incomes below. 

Lower incomes
The scheme also works for people who have low or no earnings. It is especially profitable if their income is low enough for them to pay no tax.

Anyone below the age of 75 can open – or have opened for them – a personal pension with up to £3600 in the fund. That means a payment in of £2880 and £720 tax relief is added by the Treasury. The whole lot can now be taken out instantly by those aged at least 60 – leaving a profit of £720 for a non-taxpayer or £180 for a basic rate taxpayer. Non-taxpayers will find the basic rate tax is deducted and they must claim it back. If the lump-sum takes them over the personal tax allowance of £10,000 (£10,500 for 66-74 year-olds), in which case they will only get part of it back. 

So a kind spouse or child or grandchild can open a personal pension with £2880 for a relative aged 60 to 74 who has low or no earnings and the person over 60 can then take the profit and repay the initial investment of £2880. It can only be done once a tax year.

Higher incomes
People who pay higher (40%) or top (45%) rate income tax can make more out of the scheme. If you pay higher rate tax the arithmetic is a little more complex. For your £8000 outlay you would get back just £7000 after paying 40% tax on the taxable £7500. That is a loss so far of £1000. But you can then claim further tax relief through self-assessment which will give you another £2000 which will be deducted off your tax bill. So the final net profit is £1000. For a top rate 45% taxpayer the initial loss is £1375 but the self-assessment claim will reduce the tax bill by £2500 leaving a net profit of £1125. The procedure can be done three times. But beware pension limits – see below.

The person opening the pension fund must be aged at least 60 and under 75.

They must earn at least as much as the pot or pots they pay into in the year they pay into them. Other income such as interest, dividends, a pension in payment, or an annuity does not count as 'earnings'.The exception is a single pot of up to £3600 including basic rate tax relief which can be opened by or for someone with low or no earnings.

Beware maximum limits
The maximum amount that can be put into a pension fund in a year is £40,000. If these payments take you over that limit in your pension input period you may face a tax charge on some or all of the money. If you are a member of a final salary scheme the rise in the value of your rights over the year will count towards your £40,000 limit. If you are at or close to your lifetime pension allowance of £1.25 million in 2014/15 further payments may not attract tax relief and you may be liable for a tax charge.

The Treasury payment may take some time to be credited which could delay the process. If you are a higher or top rate taxpayer you will make a short-term loss and will have to wait until you complete your self assessment form and pay your tax to make the tax saving.

Find a provider
Some platforms or insurance companies which offer personal pensions or SIPPs will be happy to do it for you. Some may charge nothing, others a modest fee especially for existing customers. One quoted me £120 including VAT for the whole job. Tell the firm you want to open an immediate vesting pension – or three if you can afford it and have the income needed.

The future
From April 2015 there will be no restrictions on taking a pension fund in cash and the age you can do so will fall to 55. So if you had you made no other pension contributions in the year you could put in £40,000 – the maximum pension contribution allowed in a year – and make £2000 instant profit. A higher rate taxpayer could get double that – £4000 – though there would be a delay before the profit was made. And for a top rate taxpayer the profit would be £4500. You could repeat the wheeze very year. So the Government will close this loophole before Pension Freedom Day in April 2015.

The facts in this blog have been checked with two top accountants and with pension providers and investment platforms. The Treasury has made it clear to me that officials recognised this consequence of the interim changes on 27 March. It seems that it does not intend to block this loophole in the current rules. But the Treasury will make sure that it cannot continue in its present form when the April 2015 changes begin. A spokeswoman told me "We are now consulting on how best to deliver the next step in our radical plan to let people withdraw their defined contribution pensions savings how they wish. This includes ensuring robust anti-avoidance measures are in place.” How small a pot will be caught by these measures will be the interesting thing to watch out for. 

Pension wheeze
Version 1.13
29 March 2014

Monday, 24 March 2014


Tax rates of more than 100%, higher tax rates at £110,000 than £150,000, frozen allowances for pensioners, and when does higher rate tax start? All figures are at 2014/15 rates.

When does higher rate tax start?
People ask me “When does higher rate tax start?” Often preceded by "I’m confused” and attaching an official document which says, unhelpfully, that basic rate tax ends at £31,865.

The confusion is caused by the Treasury which likes to refer to the ‘basic rate band’ as running from £0 to ££31,865 in 2014/15 but without mentioning that amount is on top of the personal tax allowance. So higher rate tax in 2014/15 begins on income above £41,865 made up of the £10,000 tax-free personal allowance plus the £31,865 basic rate limit. The table shows the personal allowance and the higher rate threshold for the last few years
Personal allowance
Basic rate limit
Higher rate starts

After falling for three years the threshold for higher rate tax is now rising by 1% a year. The result has been that the number of taxpayers paying higher rate tax has risen by has increased by around two million under the Coalition Government. Just over five million will pay it in 2015/16 compared with just over three million in 2010/11 (source: IFS).

What is the marginal tax rate on Child Benefit?
The new Child Benefit High Income Charge is a tax on child benefit where either partner has an income above £50,099. The tax on the child benefit is 1% for each £100 above £50,000 thus reaching 100% of the child benefit as income reaches £60,000.

Child benefit is £20.30 a week (£1055.60 per year) for the first child and £13.40 per week (£696.80 a year) for each other child. So for each £100 rise in income the tax charge is 1% of £1055.60 for those with one child; 1% of £1752.40 for two children, 1% of £2449.20 for three children and so on.

People earning between £50,000 and £60,000 pay income tax at 40% and National Insurance of 2%. If they have a student loan they pay another 9% towards that. So their marginal rate of tax is already 42% or 51% with a student loan. If the tax taken from the child benefit is also added the marginal rate for someone with, for example, three children for each £100 earned is

Income tax £40.00
NI £2.00
CBHIC £24.49
Total £66.49

So for those with three children the marginal rate of tax on each extra £100 is 66.5%. Add on £9 student loan repayment and the marginal rate rises to 75.5%.

Marginal tax rate on each £100 for incomes £50,000 to £60,000 where child benefit received

With student loan
As the table shows everyone in this position pays above the notional top rate of tax of 45% and will pay more than 100% on each extra £100 if they have eight children, or with seven children if they are repaying a student loan. So earn £100 and pay for example, £110.30 in tax. 

Why do I pay 60% tax over £100,000?
The top rate of tax is 45% on incomes above £150,000. But people with income between £100,000 and £120,000 actually pay a marginal rate of income tax of 60% on each extra £2 they earn.

Since 2010/11 the personal allowance has been phased out once income exceeds £100,000. It disappears at the rate of £1 off the personal allowance for each £2 of income above £100,000. So an extra £2 of income is taxed at 40% and also brings down the personal allowance by £1. That brings another £1 of income into tax charged at 40%. So a £2 rise in income results in £3 being taxed at 40% which is £1.20. So £2 of income results in extra income tax of £1.20 which is a rate of 60%.

The marginal rate continues until the personal allowance disappears. In 2014/15 that happens as income hits £120,000. Above that the marginal rate reverts to 40%. And then of course rises to 45% above £150,000.

Why do pensioners pay 30% tax?
Only some, and a declining number, of people over 65 pay a marginal tax rate of 30% on a narrow band of income above £27,000 a year. People born before 6 April 1948 – who are now 66, get a higher personal tax allowance than younger people. The allowance is £10,500 for those born 6 April 1938 to 5 April 1948 and £10,660 for those born before 6 April 1938. These age allowances used to apply at 65 and 75 but from 2013/14 were frozen at their 2012/13 rates and retained only for those born before those dates. The higher age allowance is reduced if income exceeds £27,000 in 2014/15.

The age allowance is reduced at the rate of £1 off for each £2 of extra income. So an extra £2 of income is taxed at 20% and also brings down the age allowance by £1. That brings another £1 of income into tax paid at 20%. So a £2 rise in income results in £3 being taxed at 20% which is 60p. So £2 of income results in extra income tax of 60p which is a rate of 30%.

Once the age allowance is reduced to the personal allowance is then stays at that level. So in 2014/15 the marginal rate applies only to income between £27,000 and £28,000 for the younger age group and between £27,000 and £28,320 for the older group.

In 2015/16 the personal allowance will equal the lower age allowance so the problem will disappear for that age group and will almost certainly vanish for the older group in 2016/17 as the personal allowance rises above £10,660.

Why are tax allowances for pensioners frozen when they are rising for others?
In the past people got a higher personal allowance in the tax year they reached 65 and a slightly higher one that that when they reached 75. But in 2013/14 these age allowances were frozen at their 2012/13 rate and only given to those entitled in 2012/13. The allowance is £10,500 for those born 6 April 1938 to 5 April 1948 and £10,660 for those born before 6 April 1938.

The result is that the tax allowances for those age groups have not risen in 2013/14, 2014/15 and will not rise in 2015/16. By then the personal allowance will be £10,500 for everyone so those born 6 April 1938 to 5 April 1948 will get the same as younger people and in 2016/17 should see their allowance rise above that level. The policy is that it will rise by CPI so probably by 2% or about £210 taking it to £10,710.

That should also mean that the older group born before 6 April 1938 should see their allowance rise – though only by around £50. 

Pensioners with incomes high enough not to get age allowance have of course seen their personal allowance rise by the same amount as younger people.

Version 1.00
24 March 2014

Sunday, 23 March 2014


It is always good to have a three point plan. So when the UK Gift Card and Voucher Association (yes, there really is one!) asked me to talk at their conference on 19 March 2014 I decided to draw one up.

It was brave of the Association to ask me. I have been very critical of gift cards, especially in 2012 and 2013 when almost every month a major High Street name disappeared into administration - and with it the gift cards bought in its name.

Gift cards and vouchers are big business. We spent £5 billion on them in 2013 - and when I say 'we' that figure splits almost equally between retail gift cards bought for presents and cards bought by firms to reward their employees. But out of that £5bn about £300 million (6%) paid by loving relatives and kind bosses is never spent by the recipient. So I decided my three point plan would tackle three things that cause that 'breakage' as it is sometimes called.

First, there is the big loss when a firm goes bust. A gift card with £20 on it becomes worthless overnight. Sometimes the administrator honours them and occasionally a new owner will revive them. But usually the whole lot disappears as card holders are unsecured creditors who seldom get anything when the company is liquidated. So point one of three was ring-fence the money paid for gift cards so that if a firm does go bust it is safe for the gift card holders.

Second, the money expires. Money on almost all gift cards can't be used after a certain time has passed. That can be as little as twelve months, though two years is more common. And the clock starts when the card is bought not when it is given. By the time the happy recipient opens the envelope the card can already be a few months old but nothing on the card shows when the money will disappear. So my point two was - scrap expiry dates.

Third, shops won't give change. Cards are for nice round sums like £25. But goods in shops are for odd amounts usually ending in pence. What happens to the change? The cards do not allow retailers to give it in cash. Instead any balance is left as a small sum on the card. So point three was allow shops to give small amounts of change.

To my surprise this three point plan was greeted well. There were those who said regulations made ring-fencing difficult and even that money laundering laws might scupper giving change. But many of the delegates from all parts of the gift card and voucher business said they broadly agreed with it and would take it back to discuss. We'll see.

But for now I still recommend giving the vouchers you can use anywhere, that never expire and which begin with the unbreakable promise "to pay the Bearer on demand the sum of £20" by the Chief Cashier on behalf of the Governor and Company of the Bank of England.

Thursday, 13 March 2014


In April nearly two million of the poorest pensioners will see a rise in their state pension payments of £1.69 a week (£1.22 each for a couple). That will mean a rise in their income of barely 1%.

So does this break the Government’s ‘triple lock’ promise of raising the state pension by earnings, inflation, or 2.5% whichever is the highest?

The basic state pension paid to people who have paid enough National Insurance contributions is £110.15 a week and will rise in the second week in April by £2.95 to £113.10. That is a rise of 2.7% in line with CPI inflation in September 2013. So far, promise kept. Some get higher or lower amounts of state pension. Lower if their NI contributions were not enough for a full pension. And higher if they have SERPS or graduated pension on top. Their total state pension will also rise by 2.7%. Promise more than kept.

But the poorest 3 million pensioners get their state pension topped up by another benefit called pension credit. It can be claimed by any anyone aged 62 or more who has a low income below around £148 (single) or £226 (couple).  And people aged 65 or more can claim extra if their income is below £190 (single) or £278 (couple). All figures apply from 7 April.

These three million split in three –

Group 1: those aged 62-65 with weekly income up to £148 (single) or up to £226 (couple;  older partner that age).
Group 2: those aged 65 or more with weekly income up to £120 (single) or £192 (couple; older partner 65 or more).
Group 3: those aged 65 or more with weekly income £120 to £190 (single) or £192 to £278 (couple; older partner 65 or more).

From April their pensions will rise

Group 1: their total pensions – state pension and pension credit – will rise by £2.95 (single) or £4.45 (couple) a week. That is a rise of 2%.
Group 2: their total income – state pension and pension credit – will rise by £2.95 (single) or £4.45 (couple) a week. That is a rise of 2%.
Group 3: their total income – state pension, pension credit, and any other income – will rise by £2.95 (single) or £4.75 (couple) a week but their pension credit will fall by £1.26 (single) or £2.31 (couple) leaving a net gain per week of £1.69 (single) or £2.44 (couple - £1.22 each).  These are rises of around 1% (between 1.15% and 0.9%) in their total income. Calculations assume other income is flat, from earnings, pension, or savings for example.

The triple lock applies only to the percentage rise in the basic state pension. And that is rising by 2.7%, the rate of inflation at September 2013 measured by the CPI. So the pledge is met in that narrow sense. Someone with £500 a week from work or a company pension will get a 2.7% rise in their state pension adding at least £2.95 a week to it.

But it is not being met in any sense for the poorest pensioners who rely on means-tested pension credit to boost their income. Their rise will be less than 2.7% - somewhere between 0.9% and 2%. And for many it will be less in cash terms - £1.69 instead of £2.95. For couples £2.44 (£1.22) each instead of what will be at least £4.75 on the state pension.

The Government wants to get rid of the means-tested pension credit. It is doing this in two ways. First, the basic state pension will be much bigger for those who reach pension age from 6 April 2016. It will be above the level at which pension credit starts and so groups 1 and 2 will not get any pension credit. The extra pension credit at age 65 will be scrapped from that date. So very few new pensioners will get pension credit.

People already getting pension credit at 6 April 2016 will continue to receive it. But the amounts will be restricted as the extra pension at 65 will be cut each year. Already in three years from May 2010 to May 2013 the cost of this part of pension credit has fallen by more than £780m a year - a fall of 23%. Altogether 320,000 fewer people claim pension credit and, as about 100,000 of those are couples, about 420,000 fewer people rely on it.

Just under a million people claim the part of pension credit that guarantees to bring their income up to £148 (single) or £226 (couple). Adding in partners, that part supports 1,150,000 people. They fall into group 1 or 2 above and will get a cash rise of £2.95 (single) or £4.45 for a couple. That will be a rise of 2%.

Just under 1.5 million people claim the extra part of pension credit (called savings credit). Adding in their partners, that supports 1,780,000 million people. They are in group 3 and generally will get a cash rise of £1.69 (single) or £2.44 (couple - £1.22 each). That will be a rise of around 1%.

The last time there was a fuss about a small rise in the state pension was 2000. A low rate of inflation in September 1999 led to an increase in the basic state pension of 75p taking it from £66.75 to £67.50. The low rise was opposed in the House of Commons by Steve Webb, the young Liberal Democrat MP, who was spokesman on Social Security matters. He said "Pensioners I talk to are insulted by being offered 75p next April" He added that it was "inadequate". Others pointed out that 75p was not enough to buy three first class stamps - then just raised in price to 27p each.

Steve Webb is now the pensions minister in the Coalition government and responsible for this year's increases and the plans not phase out pension credit. The £1.69 a week rise or less for 1.8 million on pension credit is not enough to buy three first class stamps - which rise to 63p each on 31 March. I wonder if he will notice this time?

Source: DWP statistics. My calculations. Weekly amounts rounded down to nearest pound.

Version 1.00 13 March 2014