Sheila receives the basic state pension and says it is a struggle to make ends meet. “We’re supposed to survive on pocket money,” says the widow, aged 81. “I don’t go out because I can’t afford it. I used to go for a coffee to treat myself but not any more. It’s too expensive. If I buy clothes it is at the charity shop.
“The way we have to live is not nice at all. There’s masses of people in the same position. It makes you isolated because if you can’t go out and have a little spend it is not living is it?”
There are 12.6 million state pensioners, according to the latest Department for Work and Pensions figures, and three-quarters are on the old basic state pension like Sheila.
It is paid to those who reached pension age before 6 April 2016, while the “new” state pension goes to those who have reached pension age since then.
In April the basic state pension increased by £13.30 to £169.50 a week, while the new state pension went up by £17.35 to £221.20 a week. Over a year the full new state pension adds up to nearly £2,700 more than the old version.
Caroline Abrahams, the charity director at Age UK, says there is a “big, and growing gap between the level of full basic state pension and the full new state pension. For those who only receive the old basic state pension, many of whom are older women, life can be tough.”
Basic v new
Taken at face value the different rates create retired haves and haves-not. However, a 2023 petition calling for the basic rate to be increased to match the new pension met short shrift from the government, which argued it is not possible to make direct comparisons between the two payments.
“Comparing the headline full rates alone is misleading: this does not reflect the full position for people under each system,” it said, adding that it is “not the case” that everybody on new state pension receives the full amount and everyone in the pre-2016 system only gets the basic rate.
This is because under the pre-2016 system, people can receive extra money from the state based on their national insurance (NI) contributions.
They could qualify for the “additional state pension” – known as the state earnings-related pension scheme (Serps), or state second pension – for the years they paid the full rate of NI. This payment could be worth in excess of £200 a week on top of the basic state pension, the government says.
Some also paid into a workplace scheme rather than Serps (called contracting-out) so have a private pension as a result.
This point is illustrated by the DWP figures for 2023. At a time when the basic rate was £141.85 a week the average man and woman received £178.67 and £152.90 respectively. For the new pension (then worth £185.15 a week) the equivalent figures were £175.54 and £170.61.
The former pensions minister Steve Webb – one of the architects of the new state pension – says the idea there is a “big chasm” between the two systems is based on a misunderstanding.
“The average man gets slightly less under the new system, and the average woman somewhat more – which was part of the point of the reforms [in the 2014 Pensions Act],” says Webb.
He says the Treasury had stipulated that the new system had to cost the same or less as rolling forward the old system in every single year.
“So the main thing that the new system does is favour women, lower earners and the self-employed at the expense of better-paid men, and personally I think those were the right priorities, but within a broadly fixed overall pot,” Webb adds.
Far from losing out, people on the old state pension are “actually getting more than they might have expected”, suggests Webb. “This is because for 30 years from 1980 to 2010 the pension was linked only to inflation, but now they get a triple-locked basic pension.”
£11,340 a year doesn’t even meet minimum to live on
Sheila, whose working life included stints as a legal secretary and flight attendant, did not qualify for Serps.
However, her low income means she qualifies for pension credit, which tops up a single person’s weekly income to £218.15. The benefit helps with “council tax and other bits and pieces”, bills, she says, that she couldn’t otherwise afford. Her friend who has just retired is on the new state pension but doesn’t get any other help. “She’s not happy at all,” says Sheila. “She’s finding it hard.”
The sad reality is the cost of living crisis has left pensioners who rely on the state pension struggling. “Sadly we know the state pension alone isn’t enough to live on, particularly for those older pensioners who rely heavily on the old basic pension,” says Abrahams.
The annual retirement living standards report by the Pensions and Lifetime Savings Association (PLSA) puts a number on the income required to have a “minimum”, “moderate” or “comfortable” lifestyle. In 2024 it says a single person needs £14,400 a year as a minimum. For a moderate lifestyle they need £31,300, whereas £43,100 is needed to be comfortable.
For Sheila, with an annual income of about £11,340, money is tight. She no longer uses her central heating or washing machine because she fears the expense, opting instead to wash clothes by hand.
The food price shock of the past two years has a big impact on the pensioner who shares her small terracehome with a “menagerie” of pets – a parrot, four budgies, three cats, a dog and three chickens – hard.
“I used to enjoy going shopping at one time but can’t any more because I’ve got to study everything,” she says. “It doesn’t matter what it is that you buy, it has all shrunk: cat food, dog food, people food. A packet of coffee used to fill my jar and then spill over. Now it doesn’t even fill my pot.”
Sheila makes the most of every penny, including growing her own veg in a battered polytunnel in her garden.
Pensions built for very different eras
Helen Morrissey, the head of retirement analysis at the investment platform Hargreaves Lansdown, says the basic and new state pensions were “built for very different eras”.
She adds: “On the face of it the headline rate for the basic state pension is much lower than that of the new state pension but the role of the state second pension is less reported and can give a significant boost to people’s incomes.
“However, it’s fair to say that the state second pension is uprated in line with CPI [consumer price index] rather than the triple lock, so pensioners in receipt of the basic state pension will find the growth in this element will lag at times.”
Even if someone receives the full new state pension they will “find it difficult to make ends meet if that’s your only form of income”, says Morrisey.
She mentions the PLSA findings, saying: “A couple both receiving the full new state pension would just about reach this minimum standard but a single person would need to generate almost £3,000 extra to hit this. This is why private or self-invested personal pensions play such an important role in boosting people’s retirements.”