Older retirees are more than £12,600 worse off than their younger counterparts who retired after 2016 due to a two-tier state pension system.
the new state pension, received by retirees who have reached retirement age in the past eight years pays an average of £572 extra per year than the older system, official figures from the Office for National Statistics show.
The average full new state pension was £168 a week, while those on the “basic” state pension received just £157 a week from the state. Over the course of a 20-year retirement, this difference grows from £11 a week to £12,600, an analysis by the Telegraph shows.
The biggest gap was among women, with those who retired before 2016 more than £19,250 worse off than younger women, equating to £963 a year.
Sir Steve Webb, the architect of the new state pension during his time as Pensions Minister between 2010 and 2015, said the new system is designed to tilt the overall benefit budget towards women, who have traditionally retired with much lower pensions. By doing so, the higher wages of younger female retirees would have helped close the gender pension gap, said Sir Steve, who is now a partner at consultancy LCP.
†Many of the increases in the state pension of those now retiring reflects the fact that women are now much more likely to have careers and full state insurance than in previous generations,” he said.
Steven Cameron of Aegon, a pension group, said the self-employed and lower-earning women would particularly benefit from the new state pension. But those who reach the state pension age too early are worse off.
In 2016, the government unveiled the new “flat-rate” state pension, but nearly 11 million people who receive the old state pension are likely to receive much less.
The old state pension had an additional income-related element.
Many receive this additional pension, known as “Serps”, on top of their basic payment, which is currently £141.85 a week. The state pension plus supplementary income-related pension averages £157.41.
A new petition calling on the government to align the basic pension with the new state pension, which pays £185.15 a week, said the two-tier system was “unfair”. High inflation will widen the gap between the two because the basic pension is so much lower, they argued.
“I don’t think it’s very fair to have a two-tier system, especially if it increases in percentage and thus gets even further apart,” they said.