Letter from the Pensions Service about the increase in my state pension

Idomeneus

I have just received my annual letter from the Pensions Service entitled “ABOUT THE GENERAL INCREASES IN BENEFITS”. The letter informs me what my state pension will be in the coming tax year. My state pension has three components:

1. The basic state pension
2. A pre 97 additional state pension, less a contracted-out deduction (COD)
3. A graduated retirement benefit

In previous years, all these components have increased in value over the previous year. However, this year, only the basic state pension has been increased and components 2 and 3 are the same as last year. Does anyone know why this has happened? I can’t find any information on a Government Web site related to this issue.

It is also interesting to note that the booklet (Government publication BR2189) which usually accompanies the letter does not, this year, have a section entitled “Additions to the basic State Pension” which would have informed me by how many percent components 2 and 3 have been increased. So I ask, why has this section been omitted?

jamesd

The Basic State Pension increased by 2.9% because of the Triple Lock. That increases it by the higher of CPI inflation, earnings or 2.5%. In the 2015 Autumn Statement the Chancellor announced that it would increase by 2.9%. That is because 2.9% was the increase in earnings.

The other two didn't increase because they were linked only to CPI and CPI didn't increase over the measurement period. Nor did the Chancellor announce any extra increase beyond the normal one.

Idomeneus

jamesd wrote: »

The Basic State Pension increased by 2.5% because of the Triple Lock. That increases it by the higher of CPI inflation, earnings or 2.5%. In the 2015 Autumn Statement the Chancellor announced that it would increase by 2.9%. That is because 2.9% was the increase in earnings.

The other two didn't increase because they were linked only to CPI and CPI didn't increase over the measurement period. Nor did the Chancellor announce any extra increase beyond the normal one.

Many thanks for the reply. I was imagining things like, hidden behind the introduction of the new state pension, the Government had quietly frozen the additions to the basic state pension. I am now somewhat reassured.

jamesd

It's actually better than that in a way for the flat rate system: all earnings-related parts accrued so far are combined into the foundation amount under the flat rate system and the whole flat rate payments get the Triple Lock. So no additional sate pension or graduated retirement benefit at CPI part any more for those in the new system.

That's not quite true during transition because there are people who have more accrued than the flat rate maximum. The part over the flat rate maximum does increase at only CPI. Even so, the amount covered by the Triple Lock is higher, the flat rate level rather than the basic state pension level.

It's not as good as it might seem because from 6 April 2016 all earnings-related increasing is removed and it's solely a system where each year gets an increase in amount. Under the system you're in, even though the basic state pension stopped increasing after 30 years the earnings-related part would continue to increase as long as you were working. That could lead to even low earners who had a full working life getting close to £200 a week and long term higher earners potentially £250 or more.

The effect of the changes is to pay less to those with a full working life and more to those with less or none.

None of this will affect you, though, since you're in the old system. That'll just carry on chugging away until the last person receiving it dies, probably more than fifty years from now.