Data from the Department for Work and Pensions (DWP) reveals that 324 state pensioners are currently receiving £692.30 per week, amounting to £35,999.60 annually. This sum is more than three times the full new state pension of £11,973 per year (£230.25 per week) and nearly four times the basic old state pension of £9,175.40 per year (£176.45 per week) for those who retired before 2016.
Why Some Pensioners Get More
The disparity stems from the complexity of the state pension system, which includes different schemes and loopholes. Two key factors are deferral and the State Earnings-Related Pension Scheme (SERPS).
Deferral allows individuals to delay claiming their state pension past retirement age. Under old rules, deferring for a year boosted payments by 10%. For new state pensioners, the increase is only 5.8%, making it less attractive.
Finance firm Charles Stanley explained: “Deferring the state pension means forgoing income in the short term but a higher level when you start to collect it. The enhancement is just under 5.8% for each year deferred, which works out at around £694 a year presently. Very broadly, you'd need to live at least 20 years after taking your state pension to be better off deferring – for the uplift in the amount to make up for the years of income given up. This is similar to the time an average 66 year old is expected to live. However, in some circumstances the ‘breakeven point’ can occur at a lower age once you take tax into account. If you have sufficient longevity the tax saving combined with the uplift described above can outweigh the short-term income forgone from deferring. However, if you are unfortunate enough to die early in retirement it won’t. That’s why it can be a good option for some and much less desirable for others, for instance those in poor health.”
The Role of SERPS
SERPS, the additional state pension, was an earnings-linked and employer-linked scheme that allowed pensioners to draw extra payments in retirement. This now-defunct system contributes to the higher payouts for some pre-2016 retirees.
A consultant at finance firm LCP told the Telegraph: “These figures are a reminder that outcomes under the old state pension system could vary hugely, with some people receiving very large pensions and others very small ones. In particular, some people with very large entitlements to the additional state pension on top of their basic pension could have pensions of £300 per week or more, significantly higher than the standard rate of the new state pension. In the future, it will not be possible to build up state pensions this large, but there are significant numbers of people who retired before 2016 who will continue to enjoy pensions above the new flat rate.”
