Thursday, 13 March 2014

THE ‘TRIPLE LOCK’ AND A PENSIONS RISE OF 1%


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.

TRIPLE LOCK
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.

WHY
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.

NUMBERS
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%.

HISTORY
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

4 comments:

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