State pension increase fairness

Silversense

We ‘wrinklies’, who have to watch our pennies, like it when we have an increase in our state pensions and, of course, we are very grateful to have a few pounds more to help us meet increases in our costs. However, are state pensioners treated EQUITABLY ? I’m thinking about whether the ‘new state pensioners’ (from 2016) and those who received their state pension before this date should be receiving a different amount of money as their increase in pension each time the government increases the state pension. This is so because there is a PERCENTAGE increase rather than a specified amount of money as an increase. Is this FAIR ? Pre-2016 pensioners, in general, receive less than post-2016 pensioners by some margin and the gap between the two groups grows (and will continue to grow if there is no change to the system).
e.g. if pre-2016 pension is £150/w and post-2016 is £240/w, then if there is a 10% increase the amount of cash received is increased by £15/w or £24/w dependent upon whether you were pre or post 2016. [a difference of £728 per year !!
If ALL state pensioners received a FLAT rate cash amount of increase in pension instead of a percentage increase, regardless of when our state pension began, then that, I suggest would be the fairest way of looking after all retirees.

molerat

However, are state pensioners treated EQUITABLY ?

The answer to that one is simply YES.

A percentage increase means  you get the same spending power for however much you received previously, both pensioners are being treated equitably.  Doing it your way actually makes any increase unfair as it increases the spending power of the lower paid pensioner whilst making the higher paid pensioner proportionally worse off.  Would a pre 2016 pensioner currently receiving £360.86 per week be happy receiving the same increase as a post 2016 pensioner receiving £203.85 ?

Eldi_Dos

Silversence's proposal is going to gain ground as time goes on as the differential between the groups grows there will be pressure on politicians to address it.
I have no proof but feel more women than men are going to feel disadvantaged by present arrangement.

IvanOpinion

Everyone has had the same opportunity to provide for their old age (arguably proper education on this is more recent). I listen to the younger ones in work whose concern is not how much they will get but whether or not they will get any state pension at all. If not, then why are they being expected to fund the pensions for the previous generation as well as trying to save for their own (we all know the answer to that, but it is a fair question to raise).

Some people my age who have paid into the NI system for 40+ years get concerned about comments in relation to means testing the state pension. Will it be fair on them to suddenly find out that they have lost a significant proportion of their expected retirement income despite having paid for it, while those who have not paid their fair share are looked after? Could breed a whole new population sample of poverty in retirement.

Will either of the above happen? Who knows?

When it comes to 'fairness' it usually depends on whose eyes you look at it through.

Eldi_Dos

The state pension is already means tested in that tax is payable on it in relation to your income.

p00hsticks

As is usually pointed out when this topic comes up, it's incorrect to assume that all those reaching state pension age prior to April 6th 2016 only received the old basic state pension (currently £156.20 a week) and that all those reaching state pension age since then receive the new maximum of £203.85. 

Many of the first group will have also been 'contracted in'  to the SERPS or S2P schemes and so have an additional state pension amount that could in some cases take their state pension amount up to £300+ a week. Those who were not contacted in would have paid a lower rate of National Insurance and would almost certainly in return have been enrolled into some form of company or private pension scheme to augment their state pension. 

Many of the first group will also have been receiving their state pension from an earlier age than those in the latter group and so even if receiving less a week may have received more in total at a given age.

Nor do all those in the second group necessarily receive the new maximum - depending on their individual records transitional rules mean that some will still only get the equivalent of the old basic pension and others previously contracted in may still receive a 'protected amount; in addition. 

And of course, whether reaching SPA under either scheme, those receiving an amount equivalent to the new state pension maximum will not be eligible for Pension credit and the accompanying benefits such as council tax reductions, cold weather payments, free TV licences, etc that receipt of that benefit passports them to. 

It's human nature to think that the grass is greener, but as molerat points out, given the large range of sums that people can currently receive as state pension, a percentage rather than flat rate increase is the most equitable way. 

Given the fact that under the new State Pension rules there is now both a much lower maximum amount achievable and a much higher starting point required (with a minimum of ten years NI contributions now needed to get anything) as time progresses there will be a much narrower spread of sums received between differnt pensioners. 

Eldi_Dos

But politicians are going to have to deal with the perception of unfairness which is only going to increase.

Hoenir

Eldi_Dos said:

But politicians are going to have to deal with the perception of unfairness which is only going to increase.

Over time the unfairness is washing out. There's a level playing field now. 

Marcon

Silversense said:

If ALL state pensioners received a FLAT rate cash amount of increase in pension instead of a percentage increase, regardless of when our state pension began, then that, I suggest would be the fairest way of looking after all retirees.

Really? What about people who only worked for 10 years and thus earned a small proportion of the full state pension - why would they get a bumper increase when they've contributed so little to the system over the years?

xylophone

The state pension is already means tested in that tax is payable on it in relation to your income.

Indeed - I have made this point a number of times.

And with the freezing of the personal allowance, a number of pensioners will find that they are paying tax for the first time in years?

Grumpy_chap

Eldi_Dos said:

The state pension is already means tested in that tax is payable on it in relation to your income.

Is it?

State pension is currently below the standard personal allowance and therefore paid and not taxed.

It is any additional income over and above state pension that pushes income above personal allowance and, hence, liable for income tax.

I suppose it all depends on how you look at it.
Is the state pension the basic income?
Is the state pension "a little bit extra"?