Top

Work all your life, then get an extra £2.40 a week


Updated on 22 October 2009 | 6 Comments

With inflation higher than it seems, you get a raw deal as you get older. Find out how to fight back in five simple steps.

Official rates of inflation appear to have very little to do with the real purchasing power of your income. This is especially true if you've already retired.

As of last month, the government's favoured measure of inflation, the consumer prices index (CPI) - which excludes mortgage interest payments - stood at 1.1%. This means the price of an assortment of goods and services is now 1.1% higher than it was 12 months ago. Well, that's the theory anyway.

But, on the flip side, the retail prices index (RPI) - which includes mortgage costs - stands at -1.4%. This rate indicates prices are actually 1.4% lower than they were a year ago. In other words, we're in the middle of a period of deflation.

A double whammy

But if you have already reached state pension age, all this is a double whammy of bad news. Firstly, income provided by the basic state pension is linked to increases in the RPI. So when the RPI is falling - as it is now - you'll suffer lower income growth. So your income will increase at a slower pace than before.

You could argue that lower income growth is OK, if the price of goods is also lower than it was. But that leads me onto my second point...

As a pensioner, you probably feel the effects of inflation far more keenly than most working people. That's because the cost of the items you usually spend the most money on - such as food, fuel and council tax - are rising far beyond the official rate of inflation.  

So what you end up with is an income which seems smaller as the price of items you tend to buy are far more expensive.

You don't need to be a mathematical genius to see these figures just don't add up. It's truly bizarre that the RPI is used to determine the increase in a pensioner's income when RPI relates to a basket of goods which has very little in common with pensioner spending.

Good news? Not really...

So because the RPI is negative, you'll get a smaller state pension next year?

Thankfully, no.

Increases to the state pension take place every April. They're based on the change in the RPI over the 12 month period to the end of the previous September. But when the RPI is negative, the government guarantees an increase of at least 2.5%, regardless of the inflation rate.

Things could be worse, but I think this rise will provide very little comfort. Let's take a look at things in cash terms. This tax year, the basic state pension for a single person is £95.25 per week (or £152.30 per week for a couple). From the 6 April 2010, it will rise to £97.65 or, in other words, an extra £2.40 per week or 34p a day.  

Think about it: £2.40 is barely enough to buy the grandkids a packet of Werther's Originals, let alone fight rapidly rising bills. Remember, two huge costs facing pensioners - council tax and utilities - will probably rise above 2.5% next year. This will leave many pensioners in a worse financial position overall than they're in now. And if pensioner inflation gathers pace next year, budgets will be stretched even further.

Do you think the basic state pension is enough to live on? Watch our recent video on this topic to find out what other people think! Watch the video now

How can you fight back?

The government has said it plans to re-instate the link between the state pension and the increase in average earnings, rather than prices. Earnings normally rise at a faster pace than the RPI which should be beneficial to you. But the change won't come into force until 2012 at the earliest - and could be delayed as late as 2015.

The Conservatives have also committed to re-instating this link, but haven't given a timeframe.

All of which is not much good for pensioners today.

If you're retired I'm afraid, in the absence of any real help from the government, it's down to you to make the most of the income you have. Here's my quick five-point plan:

1. Learn to live on a budget

Take a look at these articles for top tips on budgeting and keeping your household bills in check:

2. Heat your home for less 

If you're 60 or over you may get a Winter Fuel Payment to help cover your heating costs. You could get between £125 and £400 depending on your circumstances. Find out how to claim here. If you need help with your heating bills or to improve insulation in your home and you're over 60 and on benefits, you may be eligible for a Warm Front grant. And if you're over 70, you can get an cavity wall insulation installed for free, regardless of whether or not you receive benefits. Use the Energy Saving Trust website to search for energy saving grants.

3. Find out if you qualify for the Pension Credit

The Pension Credit is a means-tested entitlement which guarantees a minimum level of income above state pension for everyone aged 60 and over. If you're single you'll get at least £130 per week, while couples will get £198.45. If you're over 65 and you have some savings you may benefit from even more. Find out more here.

4. Claim all the benefits you're entitled to

If you qualify for the Pension Credit you may also be eligible for other benefits including Housing Benefit, Council Tax Benefit, and free NHS dental treatment. You can find out more from the Direct.Gov website.

5. Make the most of any other pensions, savings and investments 

Spend your resources carefully now to avoid going short later on. You should treat your assets as a reserve to see you through your retirement. If you want to keep things simple, you can put your cash in a high-interest savings account which you can draw on as needed. It's also a good idea to discuss your income needs with a good independent financial adviser.

Got a question about your pension, or about pensions in general? Why not ask other lovemoney.com readers for help or advice on our Q&A boards?

Check out more retirement and pensions articles at lovemoney.com

More: How to avoid working longer | The top five worst pension mistakes

Most Recent


Comments



  • 23 October 2009

    I worked up until I got badly assaulted and was made medicaly retired. I suffer from anxiety, and depression and ended up on tamazapam then ciplopram. I also suffer from gout in my fingers and toes and find it extremely difficult to do day to day things such as opening a tin or jar lid or lifting saucepans, hot kettle etc.etc - Initially I received industral injuries benefit but after four years I was told I was "cured" and to live off my savings, this I have done up till now. I have applied for jobs but have not been successful - i have applied for both types of job seekers allowance but do not qualify. I have applied for E.S.A. but have been refused as i don't qualify, I have applied for D.L.A. but have been refused this as i don't qualify.I have been to the Tax office to enquire about Pension credits or tax credits, but have been refused as i don't qualify. I have been to C.A.B for advice, but they have no answers and have admitted i slip through the net on all accounts. Can anyone tell me how I can live off a fixed income of £548 per month as all of my savings have completely been eaten away, I have up until now always paid my bills, and have put my house up for sale, so i don't get heavily into debt. As of this week i literally cannot aford to buy food. I am 51 and see no good prospects ahead. Then the government has the cheek to say MILLIONS of pounds go unclaimed each year If anyone has got any genuine suggestions ( not just insist/try again etc, believe me i HAVE really tried for years) please help as i don't know the benefit system or who to go to next. I have been told i don't have enough tax (NI) credits for jsa, though i do have 28 years of (NI) for my pension in 15 years time.

    REPORT This comment has been reported.
    0

  • 22 October 2009

    Do people in government realise some pensioners necessary lifestyles? Some have very limited mobility and can only visit the local shop where prices are higher than supermarkets. With a medium sized tin of Heinz soup costing EIGHTY FIVE PENCE, what's left out of £95.25 after paying for essential bills. typically £30 -£40 a week for gas and electricity, £55 isn't going to go very far. How pensioners can afford to eat and clothe themselves if state pension is their only income, I simply don't know.

    REPORT This comment has been reported.
    0

  • 22 October 2009

    [b][url=http://www.lovemoney.com/profile/profilehandler.aspx?uid=7561]pastsellby[/url] t[/b]he £6,000 limit on savings goes up to £10,000 on the 2nd of November. This applies to pension credit, housing benefit and council tax benefit. If you have £10,000 and claim all three of these benefits you could be around £20 a week better off. Every little helps... I'm past my sell by date but my brain is still in use... 

    REPORT This comment has been reported.
    0

Do you want to comment on this article? You need to be signed in for this feature

Copyright © lovemoney.com All rights reserved.

 

loveMONEY.com Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FCA) with Firm Reference Number (FRN): 479153.


loveMONEY.com is a company registered in England & Wales (Company Number: 7406028) with its registered address at First Floor Ridgeland House, 15 Carfax, Horsham, West Sussex, RH12 1DY, United Kingdom.


loveMONEY.com Limited operates under the trading name of loveMONEY.com Financial Services Limited.


We operate as a credit broker for consumer credit and do not lend directly.


Our company maintains relationships with various affiliates and lenders, which we may promote within our editorial content in emails and on featured partner pages through affiliate links. Please note, that we may receive commission payments from some of the product and service providers featured on our website. In line with Consumer Duty regulations, we assess our partners to ensure they offer fair value, are transparent, and cater to the needs of all customers, including vulnerable groups. We continuously review our practices to ensure compliance with these standards.


While we make every effort to ensure the accuracy and currency of our editorial content, users should independently verify information with their chosen product or service provider. This can be done by reviewing the product landing page information and the terms and conditions associated with the product. If you are uncertain whether a product is suitable, we strongly recommend seeking advice from a regulated independent financial advisor before applying for the products.