Alert millions of state pensioners face 'two-tier system' over changes

A former DWP employee has shed light on how this year's Triple Lock increase will impact some pensioners differently due to a 'two-tier system'.

The Triple Lock guarantee ensures that both the New and Basic State Pensions rise each year in line with whichever is the highest: the average annual earnings growth from May to July, the Consumer Price Index (CPI) inflation rate in the year to September, or 2.5 per cent.

However, additional elements of the State Pension, including deferred amounts, increase by the September CPI rate, a situation that a former DWP employee warns is creating a 'two-tier uprating system for pensioners'.

Sandra Wrench has 42 years of experience dealing with State Pensions and benefits delivered by the DWP. She is raising concerns over the two-tier issue - having previously voiced her concerns to DWP ministers in 2023.

Speaking to the Daily Record , Mrs Wrench explained how some pensioners may not realise that this year's Triple Lock increase of 4.1 per cent only applies to the New and Basic State Pension payment rates.

The former DWP employee said: "The Triple Lock guarantee only covers the BASIC State Pension and not all components, the other components being Additional Pension (the scheme which existed between 1978-April 5, 2016 and which you could contract out of), Graduated Pension (1961-1975), increments for deferring your State Pension, and the protected pension which is any amount in excess of the 100 per cent rate of the new 100 per cent State Pension which you might be entitled to at April 6, 2016."

They further noted: "With the calculation of the New State Pension at April 6, 2016, in most cases, all the components of the old State Pension have been added together to give a basic State Pension, and where applicable a protected pension, which is the excess above the 100 per cent rate of the New State Pension."

The ex-worker also highlighted a significant change, adding: "So by adding all the components together this has brought components such as additional pension, within the scope of the Triple Lock, which was 4.1 per cent. Under the old scheme, additional pension would have just been increased by the CPI rate of 1.7 per cent."

Mrs Wrench warned: "With The Triple Lock relating to the basic rates of the State Pension only, this has created a two-tier uprating system for those who reached State Pension Age before April 2016 where the 100 per cent rate of the Old/Basic State Pension is currently £176.45 a week and those who reached retirement age after April 2016 where the 100 per cent rate of the New State Pension is higher at £230.25."

She highlighted the differences with an example:

Imagine someone who reached State Pension Age before April 2016 with a weekly State Pension of £240.00, consisting of 100 per cent Old/Basic State Pension of £176.45, additional pension of £59.75 and graduated pension of £3.80.

Now compare that to an individual who became eligible for State Pension after April 2016, also on a weekly pension of £240.00, but composed of 100 per cent New State Pension of £230.25 and a protected payment of £9.75.

By April 2026, the person who reached State Pension Age before April 2016 will have only their £176.45 subject to the Triple Lock increases, while the post-April 2016 retiree will benefit from the Triple Lock on a larger portion of £230.25.

Mrs Wrench further explained: "You can see how a person who reached State Pension Age before April 2016 has a lower percentage of their State Pension uprated by the Triple Lock compared with those who reached State Pension Age after April 2016.

"Because of this difference in basic pension and the Triple lock only relating to the basic rate of the State Pension, this will inevitably lead to those who reached State Pension Age before April 2016 falling further behind with every annual uprating."

The insider revealed that whilst the Triple Lock was established in 2011 with just one State Pension scheme (Old/Basic) in existence, the launch of the New State Pension in April 2016 raises questions about whether this too should receive Triple Lock increases.

Nevertheless, she cautions that any future modifications to the Triple Lock "will particularly affect poorer pensioners, such as those who do not have other sources of income, those who are disabled and not able to work full time, and women with caring responsibilities who have had to work part time and who may not have had the opportunity to build up any private or work pension".

Mrs Wrench continued: "The DWP have confirmed they cannot means-test the State Pension, so possibly the only way that the increased costs for State Pension can be addressed is through some adjustment to the Triple Lock, and to reassess the annual uprating of the State Pension."

Mrs Wrench provided two examples to help illustrate the uprating consequences:

From April 6, 2016, a woman, who reaches State Pension Age after April 2016, receives a Basic State Pension of £63.63, plus Additional Pension of £24.82. These two elements were combined on April 6, 2016 to provide her with a starting sum of £88.45 for the New State Pension, with this entire £88.45 now classified as Basic State Pension under the revised system.

If you reached State Pension Age before April 2016, under the old scheme, the basic State Pension of £63.63 would have been increased by the Triple Lock, and the additional pension of £24.82 would have risen by the lower CPI rate.

However, with the introduction of the New State Pension from April 6, 2016, these two amounts were combined, meaning that the entire sum is now considered as basic state Pension and increases according to the Triple Lock.

This puts those who reached State Pension Age after April 2016 at an advantage compared to those who retired before this date, in terms of the Triple Lock increase.

A person who reached State Pension Age after April 6, 2016 would receive the full 100 per cent rate of the basic State Pension, which was then £119.30 (under the old scheme), plus an Additional Pension of £75.00.

The Basic amount of £119.30 plus the Additional Pension of £75.00 equals £194.30 as of April 6, 2016. This was converted into the 100 per cent rate of the New State Pension of £155.65 (the 100% rate at April 6, 2016) plus a protected payment of £38.65.

The Basic State Pension increases according to the Triple Lock, but the protected payment rises by the CPI rate. Therefore, some of the additional pension has been converted into Basic State Pension and falls under the scope of The Triple Lock.

Full New State Pension

• Weekly payment: £230.25
• Fortnightly payment: £460.50
• Four-weekly payment: £921
• Annual amount: £11,973

Full Basic State Pension

The Labour Government has pledged to honour the Triple Lock or the duration of its term and the latest predictions show the following projected annual increases:

• 2025/26 - 4.1%, the forecast was 4%
• 2026/27 - 2.5%
• 2027/28 - 2.5%
• 2028/29 - 2.5%