Older state pensioners can sometimes be taking home far more than new state pensioners thanks to old rules.
Some pensioners are already being paid £36,000 a year by the DWP (Image: Getty)
Some state pensioners are earning more than triple the amount of a standard full new state pension, according to DWP data.
Though state pensioners who retired after 2016 are entitled to the larger full new state pension, which currently clocks in at £11,973 per year, or £230.25 per week, there are many retirees who are collecting more than three times as much, up to £36,000 a year, directly from the state.
That’s not including a private pension, but money being directly paid to pensioners by the government as part of their state pension. This is due to the complexities of the state pension system and the different schemes and loopholes available to state pensioners through the years.
According to Department of Work and Pensions data, 324 state pensioners receive £692.30 per week, which equals £35,999.60 per year. That’s over treble the normal full state pension amount, and nearly four times the basic old state pension of £176.45 (£9,175.40 per year) for pre-2016 retirees.
The reasons for the larger handouts are due to deferral and SERPS.
Deferral is when a person reaches state pension age but chooses to defer receiving their state pension payments for a year at a time. Under the old rules, deferring pensioners were given a 10% boost for each year they deferred, which if you lived or expected to live a long time, could be worthwhile over the long term. For new state pensioners, that rate is cut to just 5.8%, making it less worthwhile.
Finance firm Charles Stanley explains: “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 other aspect is SERPs, or additional state pension. This now-defunct earnings linked and employer-linked scheme would allow a state pensioner to draw additional state pension payments in retirement. Last week, the Express reported on a basic state pensioner who is already paying tax on their pension due to additional Pre-97 state pension payments.
Former Pensions Minister and now 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.”
