This piece first appeared in The Daily Telegraph on 3 March  2001
The text here may not be identical to the published text

When Gordon Brown stands up and gives us money with one hand a week next Wednesday, we should watch very carefully what his other hand is doing. He is a master of headline grabbing give-aways which look rather less generous when the details are examined. Millions of older people will experience this sleight of hand in April when the pension rises promised in the Pre-Budget last November actually start being paid.

Your Money has learned that the Government is set to save £400 million a year from trimming back on the promised rise to pensioners in April. As Gordon Brown announced in November, the basic state retirement pension will rise by £5 a week for someone who paid their own National Insurance contributions and by £3 a week for a married woman claiming on her husband’s contributions. Currently the basic state pension is £67.50 and a £5 rise is an increase of 7.4pc – more than double the 3.3pc rate of inflation last September – the month that is used to work out the annual rise in pensions and other benefits.

But all the other parts of the pension – including SERPS and graduated retirement benefit – will only rise by the September rate of inflation, 3.3pc. So pensioners who were expecting a 7.4pc rise on all their weekly pension will be disappointed. Very few will find that the pension they get from the week of April 9 2001 rises by 7.4 pc – and some will not even get the £5 rise.

This penny pinching, lopping more than £1 a week off this typical pension, will save the Government £400 million in 2001/02.

The state retirement pension that people earn is in several parts. Almost everyone gets some basic retirement pension based on their own or their husband’s National Insurance contributions. It is normally £67.50 or £40.40 for a wife claiming on her husband’s contributions. But it can be less if you (or your husband) had a poor National Insurance contribution record. People who get the full pension will find it rises by the promised £5 or £3. A husband who claims his pension and has a wife under the age of 60 can claim an extra £40.40 a week for her as a dependant. That sum will also rise by 7.4pc to £43.40 from the week of April 9.

However, anyone whose pension is reduced because they (or their husband) have not paid enough National Insurance contributions to get a full pension will not get the full £5 a week rise – they will get a rise of 7.4pc in their reduced pension.

And all the other parts of the retirement pension will rise by 3.3pc. Most important of these is additional pension – normally called SERPS (State Earnings Related Pension Scheme). It adds an average of more than £20 a week onto newly-claimed pensions, That part will rise by just 3.3pc. SERPS is paid on earning-related contributions paid from 1978. Although many people were ‘opted out’ of SERPS either because their employer had a good pension scheme or they chose to opt out into a personal pension after 1988, most people who retired in the last 20 years do get some SERPS. That is because for pensions earned prior to 199x the state paid some of the annual increase in that occupational pension or personal pension through SERPS.

The second element in most people’s retirement pension is graduated retirement benefit – also called graduated pension. It is a small amount of money, a few pounds a week at most, and is based on graduated contributions paid at work between 1961 and 1975. Any graduated pension is also rising by just 3.3pc a week.

The third part which can be included in a pension is called ‘increments’. They are added to the pension of people who deferred claiming it beyond pension age – 60 for a woman, 65 for a man. Someone who defers claiming their pension for the maximum five years allowed gets a pension that is more than a third higher than the standard rate. SERPS and graduated retirement benefit are also enhanced. All these extra amounts are also rising from April by 3.3pc.

A typical retirement pension paid to a recently retired man is £94 made up of £67.50 basic pension, £22.59 SERPS, and £3.91 graduated pension. From April 9 that will rise to £72.50 plus £23.34 SERPS plus £4.04 graduated pension – a total of £99.87 which is a rise of 6.2 per cent – rather than the £100.96 which would be a full rise of 7.4 per cent. The Department of Social Security has told Your Money that this penny pinching, lopping more than £1 a week off this typical pension, will save the Government £400 million in 2001/02.

One part of the pension will not rise at all. The extra 25p paid to people who reach the age of 80 stays at 25p. Introduced in 1971, it would be £2.80 today if it had risen in line with the rest of the pension. The 18,000 pensioners who have a dependent child will fare even worse. They will find the extra amount they get on top of their pension for the first child is cut from April by 15p a week from £9.85 to £9.70, though they will get an extra 50p on their child benefit. The £11.35 for subsequent children is frozen at £11.35. And of course, the 475,000 British pensioners who live abroad in countries such as Australia, Canada, New Zealand, South Africa and Zimbabwe where the retirement pension is never increased will not see any rise in their pensions from April 9. Their pensions will continue to be frozen.

3 March 2001

e-mail Paul Lewis on paul@paullewis.co.uk