Are you in financial agony? Ask Paul Lewis, broadcaster and our new financial agony uncle. Is there something you’ve always wanted to know but don’t understand? Do you need to know your rights in a situation? Have you been in a situation where you think you’ve been ripped off?
Paul can help. He can’t take on individual cases or try to force firms or the Government to be reasonable. But you can send all those questions about things that puzzle you involving money to Paul at paul.lewis@inews.co.uk and he will answer some of them in this column. Remember, it’s your column so get those questions coming in.
Brian writes: I am 77 and my wife is 80. We both receive the basic state pension which I believe goes up to £169.50 per week in April. One of my friends is 10 years younger than me and I believe that his new full state pension will be £221.20 a week from April. That’s over £50 per week more. It means that, with percentage rises, the disparity will only increase each year. Can you explain how this can be fair to older pensioners and why the pension schemes are set up in this way?
Paul responds: First thing to do, Brian, is forget the idea that the state pension is fair. I have been writing about it for 40 years and it is very unfair. One of the more recent disparities, as you say, is the growing gap between the basic pension paid to people on the old state pension – which you and your wife get – and the standard rate of the new state pension paid to your younger friend.
Your friend must have been born on 6 April, 1951 or later, which is the qualifying date for the new state pension for men. For women it is 6 April, 1953 or later. Both groups reached state pension age on 6 April, 2016 or later. Everyone older than that got the old state pension. That hard boundary – and the difference between men and women – seems pretty unfair to lots of people who write to me, but it is the law.
You are right to say that the basic old state pension will be £169.50 a week from 10 April and the standard rate of the new state pension will be £221.20 which is £51.70 a week more, an advantage of around 30 per cent. That gap will grow as both are increased by the same percentage each April following rises in wages or prices.
However, in practice the gap between the two is much smaller. The average pension paid in 2023-24 to new state pensioners was £190.90 a week and to those on the old state pension £182.06 – a difference of less than £9 a week. That is because many people on the old state pension get extras on top of the basic and many on the new state pension get less than the standard rate.
The biggest bonus to the old pension is additional pension – SERPS (State Earnings Related Pension Scheme). This is an extra amount of money you could get on top of your basic state pension.
From April it can be as much as £218.39 a week, more than doubling the basic pension. Few people get that maximum but even the average adds significantly to the old state pension. Some get very little extra if they paid into a good pension scheme at work and never paid the extra national insurance contributions needed to qualify for SERPS. That group may include you and your wife.
But on top of the £169.50 you should both have a few pounds a week from contributions paid between 1961 and 1975. And many people get extra state pension because they did not claim it as soon as they could. For each year the old pension is deferred, the total pension is increased by 10.4 per cent. On the other hand many get less because they have not paid enough national insurance contributions.
The result is that nearly six million people out of the nine million who get the old pension will receive more than the basic £169.50 a week from April.
The new state pension was supposed to be much simpler. One rate for everyone. But it came with complications. One of them was that people who had been in a good public sector or company pension scheme have their new state pension reduced. That may well have applied to you if you had been younger and would have seemed very unfair!
And some people get extras. Deferring a claim earns a bit more pension, though at 5.8 per cent a year not the 10.4 per cent paid with the old pension. Others get compensation if the new state pension was less than they would have got under the old pension rules.
Overall nearly half of new state pensioners get less than the standard rate, some because they have not paid 35 years contributions. And because many on the old pension get more than the basic, the difference between new and old averages less than £9 a week rather than the headline £51.70.
In the long term the new state pension will cost the government less than the old one which means of course that pensioners will get less. That was how the new state pension was sold to the Treasury by Liberal Democrat Sir Steve Webb when he was pensions minister in the coalition government.
Maurice Saatchi: I used to adore capitalism – then I had lunch with Margaret Thatcher