In the GB News Pensions and Retirement Q&A, Jasmine Birtles answers questions from GB News members. You can email your question to [email protected].
Question: “Why are there two state pensions? I was born 1950 so I get basic state pension whereas now, if you retire you get the new state pension.
“So people on the new state pension get £100 more than me.
“We both have to eat, pay bills etc so why is it different?”
Jasmine replies: I know what you mean. This is a very odd situation and I have had a few emails from one reader insisting that it is unfair.
So to get you a really good answer, I first checked in with former Pensions Minister, Steve Webb, for his view on this issue.
Steve is now a partner in a pensions analysis company called LCP and he was instrumental in bringing in auto-enrolment for company pensions when he was a minister.
He says: “This is a question I get asked all the time. There’s a few key points that I would make:
“The new state pension wasn’t a windfall where a generous Chancellor suddenly decided he had a lot more money to pay to newly retired pensioners (!); by design, the new system costs about the same as the old one would have done if it had carried on; so although some people get more under the new rules, other people get less; overall, the budget is about the same;
“People look at the headline rates – basic pension (old system) of £169.50 and new state pension of £221.20 and say this proves it’s unfair; but in fact people on the old system didn’t typically get as little as just the basic pension and many people on the new system don’t get as much as the full flat rate (because of deductions for past contracting out etc);
“A key point is that the old system was basic pension *plus* either an additional state pension (SERPS) or the contracted out equivalent, whereas the new pension is more-or-less all there is; so you can’t just compare the old basic figure with the new flat rate figure;
“The old system is more generous when it comes to the position of widows – under the new state pension widows get virtually nothing, whereas under the old system your state pension as a married woman could increase very sharply when you were widowed;
“It’s true to say that – by design – the new system is on average more generous to women and the self-employed and less generous to men than the system it replaced, and rightly so.”
I also spoke to Lily Megson, Policy Director at My Pension Expert. She said: “There are two levels of state pensions – old and new – because of reforms made in 2016 to simplify the system.
“The new state pension replaced the older setup, which had a basic pension plus additional earnings-related benefits. The new pension is a flat-rate payment for those who retired after April 2016.
“While the new pension amount is higher, many people under the old system built up extra benefits through these additional schemes, such as elements like the State Second Pension (S2P) or SERP, which can provide a significant boost depending on what they paid in.
“Both the old and new pensions will increase next year due to the triple lock. The new state pension will go up by £460 a year, and the old basic state pension will rise by £353.60. It might seem like the new system is more generous, but it’s not always straightforward to compare.
“There are different features in each system that affect how much people get in retirement, based on their individual work and contribution history.
“For those on the old state pension who are unhappy with their amount, it’s important to check if they are receiving all additional benefits they’re entitled to, such as benefits from SERPS or S2P.
“Any retirees of low incomes should also look up if they are entitled to Pension Credit to provide extra support. Finally, speaking to a financial adviser can also help explore other ways to improve their retirement income.”
I recommend that you look at the benefits calculator at Turn2Us.org.uk as it could show you that you are owed some extra benefits.
“The website also has access to grant-making bodies and it’s possible that you qualify for a nice little hand-out because of where you live or where you used to work or even your family connections. It’s worth a look!”
Jasmine Birtles is a personal finance expert, TV and radio presenter and author of 38 books. Her website, MoneyMagpie.com, covers all aspects of personal finance from money-saving and money-making ideas to investment and pensions information. She is a keynote speaker at conferences around the world.
