The state pension rises by up to £575 today but 8.2 MILLION pensioners won’t receive the full amount – here’s how to work out if you’ll be short-changed

Millions of retirees will be awarded a chunky 4.8 per cent increase to their state pension from today in one of the biggest rises enjoyed in the past decade.

As energy bills are poised to climb and the cost-of-living crisis bites a second time, the increase worth up to £575 a year is a welcome boost to pensioners.

But some 8.2million won’t receive this full increase, Money Mail and This is Money can reveal.

Fewer than two in five retirees were given the full 4.8 per cent uplift to all their payments, our analysis shows.

While younger pensioners are enjoying bumper hikes, swathes are missing out on more than £100 this year due to antiquated rules that penalise older retirees.

The smaller increase will be of great disappointment to droves of pensioner households who are bracing for rising bills, pushed up by the oil and energy crisis triggered by the Iran war.

It’s harder for pensioners – who are typically earning lower incomes than those of working age – to protect themselves against soaring costs. It means that retirees must now prepare brace for higher food costs and energy bills while already battling inflated prices at the petrol pumps.

Here, Money Mail explains how to work out if you’ll be short changed on your pension income, and whether you’ll be clobbered with a tax bill.

How your increase is calculated

The triple lock is lauded as the golden mechanism that protects pensioners from rising costs. It is a promise to increase state pension payments every year by the highest of inflation, wage growth or 2.5 per cent.

Payments rise by the highest of the previous September’s consumer prices index (CPI) inflation figure, average earnings growth from the previous May to July, or 2.5 per cent.

This year, earnings growth was used to determine the size of the pension increase as it stood at 4.8 per cent compared to an inflation rate of 3.8 per cent.

The triple lock has become a political football in recent years with both the Conservatives and Labour listing it as a key manifesto pledge in the 2024 General Election. Labour has pledged to keep it for the remainder of this Parliament.

Reform’s Nigel Farage last week even promised that the party would commit to the lock if it wins the next election.

However, the triple lock isn’t applied to the total amount paid to millions of older retirees.

It only protects the ‘core’ state pension, which is the part that is linked to your National Insurance record. Other elements only increase by inflation – a lower 3.8 per cent this year.

On Monday the lock meant that the new state pension – paid to those who reached pension age after 2016 – climbed from £230.25 a week to £241.30, or £12,547.60 a year. That’s an increase over the year of £575.

In theory, anyone who reached state pension age after 2016 typically receives this flat rate of payments if they have a 35-year NI record.

They must have at least ten years of NI contributions to receive any state pension at all.

The triple lock also pushed up the older, basic state pension from £176.45 a week to £184.90, or £9,614.8 a year.

This is the core part of the old state pension, which is paid to anyone who reached state pension age before 2016. Some 30 years of NI payments are needed to get this amount.

This headline figure, however, is lower than the same payment for younger retirees.

This is because the old state pension is made up of two parts. This basic state pension, which is based on your NI record, is the first. The second part is an ‘additional state pension’, which took into account your earnings and whether you claimed benefits.

It was called the state earnings-related pension scheme (Serps) from 1978 to 2002 and then the State Second Pension (S2P) from 2002 to 2016.

Retirees will have accrued this extra amount automatically throughout their working life.

The amount of money you receive in additional state pension payments depends on your NI contributions, your earnings, and whether you opted out of the scheme (known as contracting out).

Crucially, these ‘additional state pension’ elements are not protected by the triple lock. Instead, they rise by inflation, which is just 3.8 per cent.

Lose out on £115 a year

It sounds like a minor administrative difference, but this sneaky deviation in the rules means younger pensioners are receiving a higher boost to their monthly payments compared to older retirees.

Some of these additional Serps payments are just a few pounds a week. But for other retirees, the additional state pension element makes up more than half of their weekly payments.

This means that the bulk of their state pension will rise by the lower amount.

Take someone earning the maximum amount of both the basic state pension and additional payments, for example.

In the 2025-26 tax year, the full basic state pension was £176.45 while the top amount for additional earnings was £222.10.

For the earnings-related part of the payment, this maximum includes any Serps, S2P, and any additional state pension you may inherit from a spouse.

This means that for someone receiving the maximum amount, 55 per cent of their monthly payment increased by the smaller rate this week.

On Monday, the core state pension payment rose by 4.8 per cent to £184.90 a week while the maximum additional amount has climbed by 3.8 per cent to £230.54.

In total, it means the top amount someone who reached state pension age before 2016 can receive on the old state pension each week is £415.44.

However, if the whole of their pension had climbed by the higher 4.8 per cent instead, they would receive £417.66, an extra £2.22 a week. Over a year, this adds up to £115.44.

Over 20 years, this difference adds up to £2,308. And this figure doesn’t take into account future increases so, in reality, it will be higher.

Steve Webb, a former pension minister, argues: ‘Everybody would like the whole of their pension to go up by a higher amount.

‘But while the additional state pension isn’t increasing in line with wages, the overall old state pensions is still rising faster than inflation.’

Sir Steve, now a partner at consultancy Lane Clark and Peacock, adds that anyone receiving graduated retirement benefits – the precursor to Serps that operated between 1961 and 1975 – will also only receive an inflation-linked increase to this portion of their income.

Younger pensioners hit

A selection of retirees receiving the full new state pension have also been stung by the rule quirk.

When the new state pension was introduced in 2016, there are some pensioners who would have been better off under the old system. This is because they might have already built up enough additional state pension earlier in their working life to qualify for more than the headline flat rate.

To ensure that they did not lose out under the new system, these old entitlements were ‘protected’. These protected payments top up the new state pension to the position they would have been in under the old state pension.

However, these extra amounts don’t have the security of the triple lock. They, too, only rose on Monday at a rate of 3.8 per cent.

Plus, retirees who opted to receive an enlarged state pension by deferring when they hit state pension age will also be short changed.

You can delay your state pension by a minimum of nine weeks and get more money when it begins. Under the system in place since 2016, your weekly income rises by 1 per cent for every nine weeks you defer, which adds up to 5.8 per cent for every year you push it back.

But the payments rise with inflation rather than the triple lock.

Pensioners pulled into tax system

The rising state pension comes with another sting in the table.

The more you receive, the greater the risk you will incur an income tax bill.

Retirees who rely on only the new state pension currently do not need to pay any income tax.

That’s because the total annual £12,547.60 income is below the £12,570 threshold at which someone becomes liable to pay tax.

However, this tax-free allowance has been frozen since 2021. It means that as incomes rise in line with the triple lock, more low-income households will be dragged into the tax system in a stealth raid.

Frozen thresholds will drag anyone earning the full, new state pension into the tax system from next year.

Low-earning state pensioners will soon be forced to hand money back to the state. If the triple lock uplifts payments in April 2027 by the minimum 2.5 per cent, annual payments will be around £12,861.

This means that tax will be due on £291 of the income – a bill of slightly more than £58, if the pensioner has no other income.

But some retirees – those who deferred their state pension start date or those with bumper payments due to hefty earnings-related top-ups – are already paying income tax on their payments.

For example, someone earning the full basic state pension and the maximum earnings-related payment received £415.44 a week.

This adds up to an impressive £21,602.88.

Everyone gets £12,570 tax-free allowance every year. The remainder, however, is taxed at a rate of 20 per cent for basic rate taxpayers.

It means that a retiree with a state pension income of £21,602.88 and no other pension pots must hand a little over £1,806 to the taxman.

Will you face a tax bill on your pension income? moneymail@dailymail.co.uk