The gap between the new and old state pension will pass the £3,000 mark for the first time after the expected earnings-linked increase, leaving millions of older pensioners worse off relative to newer retirees.
Tomorrow, the Office for National Statistics is due to publish average earnings growth for May to July, expected to come in at around 4.1%. Under the triple lock, the state pension rises by whichever is highest of earnings, inflation or 2.5%. If the figure comes in at 4.1%, that will be the minimum increase pensioners can expect, unless September inflation comes in higher, which it probably will not. So tomorrow’s number is likely to determine next April’s state pension increase.
Two state pensions, growing divide
There are two state pensions, and how much you get depends on which one you are on. Someone receiving the maximum full new state pension currently gets £12,547.60 a year. A 4.1% increase would be worth £514.45 a year. Those who retired before April 6, 2016, get the older basic state pension, currently worth £9,614.80 a year. A 4.1% increase would give them an extra £394.21 a year.
That means the new state pension gets an extra £120.24 a year from exactly the same percentage increase. The gap rolls up over time. After a 4.1% increase, the difference between the full new state pension and full basic state pension will pass the £3,000 mark for the first time, reaching about £3,053.
Why older pensioners lose out
The system changed on April 6, 2016. People reaching state pension age after that date moved onto the new state pension, while those who had already reached pension age remained on the old one. The old system also allowed people to build up additional state pension through schemes including SERPS and S2P. In practice, once added to the basic state pension, some may get more overall. Others will not get a penny extra and often feel treated as second-class citizens. It all depends on the individual.
Another issue is that both the basic state pension and new state pension benefit from the triple lock, but basic state pension increments are not triple locked. They are uprated in line with inflation instead, which means that when wages rise faster than prices, these payments increase at a slower pace. This adds another layer to an already complicated system, and means the gap between different pensioners can grow for reasons that are not immediately obvious.
Impact on millions
The gap between the headline rates will also widen because both are increased by the same percentage, but the basic state pension starts from a lower base. A 4.1% increase on £9,614.80 simply produces less money than a 4.1% increase on £12,547.60. Not everybody on the old system will lose out to the same extent. Some have substantial additional state pension, while those on the lowest incomes may receive Pension Credit, which tops up their income.
Around 8.2 million pensioners were still receiving the pre-2016 State Pension in 2025/26, compared to around five million on the new state pension. Over time, that balance will shift. Tomorrow should bring some good news for pensioners, assuming earnings growth comes in around expectations. But for millions of older pensioners, that good news will come with an unpleasant aftertaste: the triple lock will give them another pay rise, while reminding them once again that they are on the wrong side of a growing £3,000-plus divide.
