Tomorrow, state pensioners will almost certainly see how big their pay rise will be next year. Some won’t be happy.
The gap between the new and old state pension will widen again next year (Image: Getty)
Figures showing average earnings growth for May to July are published tomorrow. This is important, because they’re one of the three elements the triple lock uses to determine next year’s state pension increase. The other two are September’s inflation rate, and a 2.5% backstop if both are lower. Tomorrow’s earnings figure is expected to come in at 4.1%. If so, that’s the minimum increase pensioners can expect, unless the September inflation number is higher, which it probably won’t be. So it’s likely to determine next April’s state pension increase.
A 4.1% rise would be yet another reminder why pensioners value the triple lock so highly. But there’s a sting in the tail for millions of older pensioners. There are two state pensions, and how much you get depends on which one you’re on. Someone receiving the maximum full new state pension currently gets £12,547.60 a year. A 4.1% increase would be worth £514.45 a year. That would lift their pension to £13,062. Those who retired before April 6, 2016, get the older basic state pension, currently worth £9,614.80 a year. A 4.1% increase would give them an extra £394.21 a year. Over the year, they’d get £10,009.
So new state pension rises by an extra £120.24 a year, from exactly the same percentage increase. That may not sound like much, but the gap rolls up over time. Next April, the difference between the full new and basic state pension will pass the £3,000 mark for the first time, reaching about £3,053.
I’m regularly contacted by Daily Express readers who complain that nobody seems to care about this, and I always do my bit to put that right. They say everybody talks about the new state pension headline figure as if that’s what everybody gets. It isn’t.
There are actually two types of state pension, and they came about because the system changed on April 6, 2016. People reaching state pension age after that date get the new state pension, while those who had already reached retirement age remained on the old one.
The old system also allowed people to build up additional state pension through schemes including SERPS and S2P. In practice, once added to the basic state pension, some may get more overall. Others won’t get a penny extra and often feel treated as second-class citizens. It all depends on the individual.
There’s another issue. Both the basic and new state pension benefit from the triple lock. But basic state pension increments like Serps and S2P are not triple locked. They’re uprated in line with inflation instead, which means that when wages rise faster than prices, additional state pension increases at a slower pace.
That adds another layer to an already fiendishly complicated system. And it means the gap between new and basic state pensioners further widens.
Not everybody on the old system will lose out to the same extent. Some older people have built up substantial additional state pension. Those on the lowest incomes may receive Pension Credit, which tops up their income.
Still, there’s no getting away from the basic problem. Around 8.2 million pensioners were still receiving the pre-2016 State Pension in 2025/26, compared to around five million on the new state pension. Over time, that balance will shift.
So tomorrow should bring some good news for pensioners, assuming earnings growth comes in around expectations.
But for millions of older pensioners, that good news will come with an unpleasant aftertaste. The triple lock will give them another pay rise, while reminding them once again that they’re on the wrong side of a growing £3,000-plus divide.