Gordon Brown believes that the average pensioner household will be pounds 240 a year better off after his changes.
"I'm surprised and moderately happy," said Mervyn Kohler, head of public affairs at the charity Help the Aged. "But I would not have chosen to spend the money that way - the amount is similar to what it would have cost him to uprate the state pension to pounds 75 a week."
Sally Greengross, director general of Age Concern England, also welcomed the moves, but warned that up to 700,000 pensioners failed to claim income support and would miss out on the increases. She said the charity believed a basic state pension above the level of benefits was the only way to guarantee an income to all pensioners.
The basic state pension is currently pounds 64.70 a week and this will only rise from April in line with inflation to pounds 66.75 a week. In contrast, the new minimum income guarantee, announced in last December's Green Paper on pensions, is targeted at those who have not paid enough national insurance during their working life to qualify for a full state pension plus a second Serps (state earnings related) pension and have no other income.
Around 1.5 million pensioners are expected to benefit. Single people will get at least pounds 75 a week and couples pounds 116.60 a week. Some people will gain an extra pounds 400 a year from next month.
The Department of Social Security hopes the move will overcome the stigma that older people sometimes associate with claiming income support benefits. Mr Brown's decision to link the minimum income guarantee to rises in earnings partly restores a link broken in 1981 when the Tory government started to uprate pensions in line with the retail price index rather than average earnings.
Better-off pensioners also gain through a combination of extra tax allowances and the new 10p tax band. The Chancellor delivered an uprated personal allowance of pounds 5,720 each per year from the age of 65. This is pounds 130 more than an inflation-linked rise from the current rate of pounds 5,410. For those aged 75 upwards, the current allowance of pounds 5,600 goes up to pounds 5,980, meaning that the first pounds 115 of weekly income is normally tax-free. Mr Brown also allowed the married couple's allowance for existing pensioners to continue.
The Chancellor added an extra boost for couples aged 74 or more. Even when both partners have used up their full pounds 5,980 personal allowance, they will be able to generate a combined income of pounds 15,000 before they have to pay any tax. This means an extra pounds 3,040 tax-free.
The age-related extra personal allowances will be progressively withdrawn once a pensioner's income goes above a fixed income limit, which rises to pounds 16,800 (from pounds 16,200) from April.
The changes have been received positively by retirement experts. The independent financial adviser Mark Howard, of Maddison Monetary Management, said: "This Budget is a very positive move and it is putting money into pensioners' pockets."
However, he warned that new pensioners and those coming up to retirement soon will need every extra penny the Chancellor gives them. Low interest rates means falling gilt yields, and this affects the income that those retiring now can expect. Current annuity rates mean every pounds 100,000 saved in a pension can only be swapped for a contract giving an income of about pounds 4,000 a year, rising at 5 per cent annually. "People are going to have to look for more ingenious ways of insuring income in future," Mr Howard said.
Pensioners will get extra help to generate a risk-free income from a new National Savings pensioners' bond. The current pensioners' guaranteed income bond pays a fixed rate of 4.25 per cent gross, which can be taken monthly but money has to be tied up for five years. The Chancellor wants to see a new shorter-term product.
A spokeswoman for National Savings said: "Some people want a fixed rate but do not want to tie up their money for five years. We will research this among pensioners before we launch."
The extra cash for pounds 100 annual winter fuel payments was also trailed in the pensions Green Paper. The extra payments will start this winter and will cost pounds 2bn over the next three years.Reuse content