Autumn Statement: State pension to increase by its largest amount for 15 years

Mr Osborne told MPs that a 'civilised and prosperous society' should support its older citizens

(PA)

The state pension will increase by its largest amount for 15 years in a move to support people who “have worked hard all their lives and contributed to our society”, the Chancellor announced.

George Osborne again spared pensioners any financial pain despite confirming plans to reduce Britain’s welfare bill by £12bn.

Research has found that the retired now have larger average incomes than working people, creating a widening financial gap between the generations.

But Mr Osborne told MPs that a “civilised and prosperous society” should support its older citizens as he announced the basic pension would go up next year by £3.35 to £119.30, an increase of 2.9 per cent.

“Taking all of our increases together, over the past five years, pensioners will be £1,125 better off a year than they were when we came to office,” Mr Osborne told MPs.

He said that increasing the pension age in line with life expectancy was helping the Government to afford the pensions “triple lock”, which guarantees rates rise by at least 2.5 per cent a year.

The triple lock will mean that someone on a full basic state pension will receive about £570 more a year in 2016-17 than if it had been uprated by average earnings growth alone over the past six years, the Government said.

However, Jonathan Isaby, the chief executive of the TaxPayers’ Alliance, said: “Taxpayers cannot afford the unsustainable triple lock on the state pension. No area of Government spending should be exempt from savings, least of all unaffordable increases for people in the wealthiest and least-deprived age group.”

Video: Osborne on pensioners

Andrew Harrop, the general secretary of the Fabian Society, said: “Already the living standards of typical pensioners are higher than those of working-age households and this statement will exacerbate that trend. The plan is to spend a rising share of [gross domestic product] on pensions and a falling share on family incomes. That position is unfair and unsustainable.”

Mr Osborne also disclosed that the new single-tier, flat-rate pension, which will apply to people reaching state pension age from April 2016, would be set at £155.65.

“That’s higher than the current means-tested benefit for the lowest-income pensioners in our society – and another example of progressive Government in action,” he said.

Meanwhile, the Treasury is saving more than £800m from pushing back rises to pensions contributions for employees who save into workplace schemes. By delaying each of the increases – which were due to come into effect in October 2016 and October 2017 – by six months, the Government will save £840m over two years because it will have to pay out less in pensions tax relief.

A further £635m will be saved over five years by scrapping pension credits payments to claimants who have moved abroad for more than a month.

Case Study: The pensioner

Credit: Tony Buckingham (Tony Buckingham)

Colin Porter, 70, is a retired civil servant living in Ipswich

"We pensioners have been winners for some time it seems, and with my so-called “gold-plated” civil service pension I certainly can’t complain. My concerns now are with how my grandchildren’s generation will fare.

I thought the announcement about increasing state pensions was confusing – I fear it could eat into inflation and at this point I really don’t know how that will impact on me. But I’m certainly no worse off than I was before.

To me, council tax is an area for concern. I don’t think an increase of 2 per cent is really enough.

A lot of people in my age group are worried about how to pay for future care and I do wonder if it ends up being a postcode lottery. The area I live in has a high ratio of elderly people so the council must struggle. I’d rather see council tax go into a central pot and then be distributed to places of need. It’s always nice to hope you can leave some inheritance for your family but in all likelihood my children will end up selling my house one day to pay for my care. It’s hard to see that happen to people who have worked hard all their life and are left with nothing by the end of it.

It was good to hear there will be no police cuts. I approve of the idea of back- room mergers but nobody talks about merging police forces. In East Anglia, where you have one big and one small constabulary, it would save money.

I’m glad tax credits weren’t cut as this would have affected people who do work and need the extra support for their families."