Here’s an example of we helped one of our long standing clients with their query on State Pensions.
A query about changes to State Pension
Subject: RE: NEW TAX YEAR: NEW RULES
I wonder if you can explain something for me.
When I received my State Pension letter for 2016/17 it indicated an increase of 2.89% on the basic State Pension but the ‘pre 97 additional State Pension’ and the Graduated Retirement Benefit remained at 2015/16 levels with no increase applied. Previous years have shown a similar percentage increase added to the additional state pension and graduated retirement benefit as that added to the basic state pension.
I telephoned the Pension Service – and surprisingly got through to a real person – who told me the alteration was ‘in the budget’ but was unable to tell me which budget. I have looked at both March ’15 and late summer ’15 budgets and can find no mention of the increase only being applied to the Basic State Pension.
Can you enlighten me on this point.
Roger’s response to the client’s query
I refer to your email below regarding the proposed increase to your State Pension and the increase being applicable to just the basic pension and not to additional amounts.
Although this is not specifically a tax issue, I have done some research on the matter and believe I have found the answer to your query.
You will be aware that State Pensions involve complex calculations. Once an entitlement is determined it is normally broken down between Basic Pension + SERPS + SP2 + Graduated Contributions etc.
In calculating State Pension increases, the previous coalition Government announced a “triple lock” guarantee, being the higher of earnings, inflation or 2.5%. The current Government has promised to retain the “triple lock” guarantee until the end of Parliament in 2020 although financial commentators have indicated that this could prove very costly. However, the “triple lock” guarantee only applies to the Basic State Pension (BSP). Increases to any Additional State Pension (ASP) are calculated by reference to inflation i.e. Consumer Prices Index (CPI). In September 2015, the CPI was measured as -0.1% so any ASP portion will remain largely unchanged for 2016/17. This ties up with your own situation where an increase has only been applied to your BSP.
The “triple lock” increase is a statutory requirement and may not always be easy to locate in Budget summaries. For your perusal, I have attached some Government publications, which shed more light on this matter:-
1) State Pension Uprating – see top of page 3 under Summary
2) Summer Budget 2015 – see page 37, Para 1.139
I hope that this is helpful.
For Fuller Spurling
Response to Roger from our client
I am very grateful to you for this information which explains my query very clearly.
I do appreciate that it is not a tax matter but as your firm has been dealing with my tax affairs for longer than I care to remember my first thought was that you might know the answer.
Thank you again.
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