Britain’s pensioners are split into two camps — those who get the old state pension and those who retired within the past decade and get the new state pension.
At first glance it seems unfair. The old state pension now pays a full basic rate of £176.45 a week and the new pension pays as much as £230.25. But analysis suggests that the oldest pensioners are actually pocketing more state pension cash than the younger generation, thanks to perks and extra entitlements ingrained in the old system.
Official figures show that those over 90 get the highest state pension payments, at an average of £221.62 a week, while those between 85 and 90 get £218.65. Yet the newly retired get an average of £217.53, and those aged between 75 and 79 get the least, at £202.03 a week, according to the Department for Work and Pensions (DWP).
Why do some pensioners get more?
Many pensioners on the old basic state pension will also be eligible for the old additional or second state pensions, based on their earnings. Widows on the basic state pension can also inherit some of their husband’s additional pension.
Steve Webb, a former pensions minister and a partner at the consultancy LCP, said: “A widow could inherit 50 per cent or more of her late husband’s additional state pension, as well as using his contributions to boost her basic pension.
“As a result, many people under the old system are getting similar amounts to those on the new system or even more, even though the headline rate of the new state pension is higher than the basic rate of the old state pension.”
Some older pensioners will also be eligible for benefits, which were not part of the DWP averages, but could boost incomes considerably. Pension credit gives you extra help with living costs if you are over the state pension age and have an income below £227.10 a week. It also may mean you are eligible for other benefits, including a free TV licence, help with NHS dental treatment, glasses and transport, plus the winter fuel allowance, which is worth up to £300 a year.
A pensioner needs ten qualifying years to get any new state pension, and 35 qualifying years will generally get you the full amount. To get the full amount of the old state pension, you usually need 30 qualifying years as a man (or 44 if you were born before 1945) and 30 qualifying years as a woman (but 39 if born before 1950).
Steve Webb says deferral and widow benefits can leave some pensioners better off than newer retirees
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Earlier payments
Older pensioners were also able to claim their pension earlier. State pension age for women was 60 until 2010, when it began to rise to reach parity with the men’s age of 65 by 2018. A phased increase to 66 began in 2020. By 2028 it will be 67 and it is due to rise again to 68 by 2046, although that change could happen earlier.
A woman born in 1950 could have claimed her basic state pension in 2010, while a woman born ten years later in 1960 would have had to wait an extra six years until 2026 to get hers, but would be put on the higher rate of the new state pension.
A man born in 1950 who got his basic state pension at 65 had a year’s headstart on men born in January 1960, who had to wait until 66. Those born after April 6, 1961, have to wait until they are 67.
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The downside of the basic state pension
It is not all good news for additional pension recipients, however. Increases to the new state pension and basic state pensions are dictated by the triple lock, which, since 2011, has guaranteed that the state pension will rise each year by either average wage growth, inflation or 2.5 per cent — whichever is highest. In April it is going up 4.8 per cent, in line with wages.
Prior to the introduction of the triple lock, pensioner poverty was on the rise. But the triple lock means that, in cash terms, the state pension has risen 73 per cent in just over a decade. But for those claiming the additional or second state pension, this goes up in line with the consumer prices index measure of inflation from September, which was 3.8 per cent.
The amount available from an additional or second state pension varies, but the maximum amount someone can claim for this is £222 a week.
Inherited rights and legacy benefits continue to boost incomes under the old pension system
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There will be 117,000 more people of state pension age in 2026 than there were last year, according to the charity Age UK, bringing the total number to 12.7 million.
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You can get a bigger state pension if you defer payments. Those on the new system get an extra 5.8 per cent for every year that they defer while those on the older systems get an extra 10.4 per cent for each year of deferral.
Webb said: “A minority of very large pension payments will be people who might therefore get say 20 per cent or 30 per cent more if they deferred two or three years under the old system.”
The UK still offers some of the lowest income support for pensioners in the G7 when looking at the figures comparatively, according to research by the investment firm Fidelity International. It found that pensioners get less than a quarter (22 per cent) of their pre-retirement salary from the state pension, significantly lower than the 76 per cent in Italy.
Age UK found that one in six (1.9 million) pensioners already live in poverty, with the charity fearing that this could exceed two million in the next few years. It said there had been a “substantial increase” of 120,000 pensioners who do not get the pension credit for which they are eligible.