Poorest pensioners see lowest rise in income

Poorest pensioners see lowest rise in income

The rise in pension credit – the benefit for the poorest pensioners – is set to rise by less than the state pension next April.

According to figures published today (27 November) by the Department for Work and Pensions (DWP), the rate of pension credit will rise by 2.3 per cent, or £3.65, from £159.35 to £163.

Meanwhile the rate of the state pension for new pensioners will rise in line with inflation by £4.80 from £159.55 to £164.35.

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The difference between the two rates is because the latter is protected by the triple lock – which dictates that the increase will be equal to last September’s CPI, earnings growth or 2.5 per cent, whichever is the greatest.

Meanwhile pension credit is only set to increase in line with the growth in average earnings.

Inflation stood at 3 per cent on that month, which is the highest of the three triple lock indictors meaning the state pension will rise by that much.

Sir Steve Webb, director of policy at Royal London, said it is "surprising" that the government has decided to give the poorest pensioners the smallest increase.

He said: “For those on pension credit, the rise is below the rate of inflation which will create a squeeze on the living standards of the poorest pensioners.”

In previous years, governments have found extra money within the benefits system to make sure the poorest pensioners got the same rise as their better off counterparts, which has not happened this year, Royal London said.

Sir Steve added: “For many years’ pensioner poverty has been falling and it would be worrying if that progress were to be reversed because of decisions like this.”

According to report commissioned by the Work and Pensions select committee published in February, retaining the triple lock on pension increases is unsustainable and will result in the UK's poorest dying before they receive state pension.

Paul Gibson, managing director of Granite Financial Planning, said the triple lock would not be sustainable long-term because of the cost implications.

He said: “It would be far better to make changes now and ensure any money saved is redirected to those in the greatest need.

“It seems crazy that the poorest in society are suffering even more due to what indexing factor is used.”

Tom Selby, senior analyst at AJ Bell, argued that even though the difference between the pension credit and the state pension increase “might only be a few pence a week, for anyone struggling to make ends meet even seemingly insignificant amounts of money can make a huge difference”.

He said: “In the medium-term I suspect the triple-lock is not for this world.

“While one could argue a boost to the state pension was long overdue when it was introduced in 2010, it is odd to do so at random based on the prevailing economic circumstances at the time.

“Indeed, many would argue raising the payment of the state pension in line with average earnings would be a fairer option – with the added benefit of potentially saving the government huge sums of money.”