Since I am astounded by all the separate statistics, how does the annual state pension increase work? Steve Webb answers


I was born in 1948 and get a low basic state pension. I also have additional SERPS and widows’ pensions.

Do these increase with an annual percentage increase as I seem to be only getting a percentage increase applicable to my original pension?

I could not Get a description of how my pension is made. Any help would be appreciated.

Scroll down to find out how to listen to Steve Your The question of pensions

State Pension: How does the annual increase to the original, SERPS and widow factors work?

Steve Webb replies: While prices are rising fast, there will be a lot of attention on how pensions will rise in April, so I think I can explain how the annual increase works.

Unfortunately, the upcoming hike is unlikely to keep pace with rising living costs, so you are likely to face a financial squeeze in 2022/23.

Starting with a state pension, you refer to those who have reached the pension age before 6 April 2016 under the ‘old’ system.

There are different aspects to your state pension under this system, and the rules for annual increases are different for different factors.

The main part of your state pension is called a ‘basic’ pension, with a maximum weekly rate of £ 137.60 for those who currently have a full history of national insurance contributions.

Steve Webb: Find out how to ask a former pension minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask a former pension minister a question about your retirement savings in the box below

This is the maximum basic pension for widows like you, where the pension may be based on the contributions of the late spouse.

By law, the basic pension rate usually rises every year from the average earnings growth of those who work.

For example, if people in employment increase their wages by 4 percent, the basic state pension will increase by at least 4 percent.

As you may have read, there was a big debate a few months ago about whether this is the right way to adopt the way the epidemic has impacted the job market.

Simply put, wages were depressed by things like the Furlow scheme in the early months of the epidemic (in 2020), but by 2021 wages had generally recovered the lost ground.

The government decided that simply comparing the 2021 wage levels with the 2020 wage levels would result in a large increase (more than 8 per cent) and that this would not be the right basis to use for the next pension increase.

In response, the government passed the Parliament Act so that the original pension for one year * rises simply in line with inflation.

The specific measure is the increase in the Consumer Price Index (CPI) for the year to September 2021, which showed an increase of 3.1 per cent.

As a result, the basic state pension component of your total pension will increase by 3.1 percent in April 2022.

As far as we know, inflation is already high enough, and by November 2021, the CPI inflation figure was 5.1 percent.

Despite this, the government is currently planning to stick to the 3.1 per cent figure, although inflation is expected to rise by April.

The rest of your pension is made up of ‘extra’ state pensions (also known as SERPS or state second pensions) and ‘graduate retirement benefits’ (based on the work you did in the 1960s and early 1970s).

By law, it will always increase in line with price inflation, so these factors will rise to 3.1 per cent in April 2022.

In the coming years, the government says it will return to a more liberal ‘triple lock’ policy, where average earnings, prices, or the best rise in the floor of 2.5 per cent will increase the * basic * state pension.

But the ‘extra’ state pension is still tied to inflation. This is why different parts of your pension may increase in different amounts.

I should add that these calculations may be slightly different if you or your late husband is a member of the company’s pension plan, which is part of the state plan leased.

In this case there is a slightly more complex correlation between the increase you receive from your state pension and the increase you receive from your company pension.

For those under the ‘new’ state pension (who have reached the pension age since 6 April 2016), the rules are again a bit different.

All payments for a new state pension up to the standard flat-rate figure of £ 179.60 will be treated the same as the old ‘original’ state pension.

This means they will rise by 3.1 per cent in April 2022 and through the ‘triple lock’ formula in the coming years. Anything higher than the £ 179.60 flat rate is simply linked to inflation.

You can contact the pension service to get a breakdown of various aspects of your state pension, but phone lines are usually busy and may make it easier for you to write and wait for a written response.

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