State Pensions: the triple lock loophole that means you may not get the full 8.5% increase this month
While the 8.5% rise in State Pensions may appear good news for retired Brits, a little-known technicality means that millions will miss out on the full increase.
Retirees seemingly had cause for celebration this month as the 8.5% increase in State Pensions has been touted as the second-biggest rise in history.
However, new research from Money Mail paints a different picture, with under a third of Brits being eligible for the full increase on their whole State Pension.
In fact, up to eight million pensioners will receive a smaller increase and the worst-hit will be shortchanged by almost £200 per year.
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Older pensioners are losing out
The shortfall is the result of a relatively unknown loophole that primarily affects those who retired before 2016.
Under the Conservatives’ flagship triple lock policy, State Pensions are often described as rising in line with inflation, average earnings, or by 2.5% every tax year – whichever is greater.
However, the Government is less vocal about the fact that some components of the State Pension are not tied to the triple lock and instead increase in line with inflation.
And it is mainly older pensioners who receive these (less generous) inflation-linked payments.
The country where the state pays pensioners more than £3,000 a month
How the triple lock works
Before you can understand this shortfall, it’s important to consider how the triple lock works and how it relates to the old and new State Pension systems.
Crucially, the triple lock only applies to the part of your pension that is based on your National Insurance contributions.
If you retired after April 2016 and are receiving the full rate of New State Pension, the 8.5% rise will mean an annual increase of £902.20.
This will take your state-backed retirement income to £11,502.40 per year.
That’s because the increase for those on a New State Pension is entirely tied to their National Insurance contributions, which means their whole payment will rise by 8.5%.
A two-tier system
If you reached State Pension age before April 2016, however, your payments are worked out using a different system.
Confusingly, the old State Pension is made up of two parts.
The first is the Basic State Pension in which payments are determined by your National Insurance record.
As a result of this month’s increase, the full rate of Basic State Pension will rise to £156.20 a week or £8,814 per year.
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The Additional State Pension
On top of the Basic State Pension, most older pensioners also receive an Additional State Pension.
Payments for the Additional State Pension are calculated according to your in-work earnings and whether you receive certain state benefits.
The Additional State Pension was previously known as the State Earnings-Related Pension Scheme (SERPS) and Second State Pension (S2P).
An earlier version of the system was known as the graduated retirement benefit.
It is this Additional State Pension that is tied to inflation (as of September 2023).
And with inflation standing at 6.7% at that time (ie lower than the headline figure of 8.5%), the research estimates that more than eight million pensioners have been left out of pocket.
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The winners and losers
As the Money Mail data reveals, the SERPS element makes up more than half of some older pensioners’ state retirement income.
In certain cases, formerly high-income pensioners or those who claimed certain benefits could receive the full Basic State Pension of £169.50 a week, plus a maximum of £185.90 per week through SERPS.
However, these individuals are in the minority, with government figures revealing that the average SERPS payment is just £48.90 per week.
The pensioners losing out on £192
While most older pensioners will be worse off as a result of the triple lock loophole, the amount by which you’ll lose out depends on the size of your Additional State Pension.
The maximum Additional State Pension you could receive during the 2023/4 tax year was £204.68 per week.
This includes any entitlement to SERPS and S2P, plus any pension payments you may have inherited from a spouse.
According to the research, retirees receiving the full Additional State Pension during the last tax year would have been £192 better off if their entire State Pension had risen in line with the triple lock.
The State Pension deferral trap
If you defer your State Pension, you’ll also be caught out by the triple lock technicality.
Delaying your State Pension means that you’ll receive higher payments when you do eventually claim.
For every nine weeks that you defer your State Pension, you’ll receive a 1% increase in payments.
However, the increase in payments will be tied to the rate of inflation, rather than the triple lock.
In real terms, this means a shortfall of £11 for every year a pension is deferred, the research found.
How much the State Pension pays in 2024
Government savings of more than £350 million
While this discrepancy in the system is bad news for millions of pensioners, it’s another story for the government’s coffers.
According to the Money Mail analysis, this technicality will save the government more than £350 million.
Speaking to the newspaper, former pensions minister Ros Altmann said: “The triple lock is a political trick which is meant to be politicians' shorthand for saying we will look after pensioners and the Government gets away with it because it is complicated and outdated.
“It gives the biggest rises to the youngest pensioners, which is the wrong way round.
“It's long overdue that we review how we protect pensioners, and particularly the oldest who tend to be poorer and need it the most.”
Useful resources
If you’re concerned about managing your finances in retirement, there are organisations that can help.
These include:
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