State Pensions 2012: Cameron Hails Weekly Increase As Proof Of 'Commitment To Elderly'

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Cameron has hailed the increase in state pensions | PA

Prime Minister David Cameron has hailed a £5.30 weekly boost to state pensions that comes into force today as proof of the Government's "commitment to the elderly".

Basic rate payments will increase to £107.45 a week after inflation in September - the month when the uprating of benefits is set - hits 5.2%.

It comes after intense criticism of the Government's treatment of pensioners in the wake of last month's Budget.

Chancellor George Osborne announced he was "simplifying" tax arrangements by phasing out age-related allowances, a move that was instantly dubbed the "granny tax".

Mr Cameron said today: "We owe older people in society our respect, our support and our care. That's why from the start I've made sure this government protects pensioners and gives them the help they need.

"We brought in the triple-lock to restore the link between pensions and earnings - guaranteeing the basic state pension rises by whichever is highest out of rises in prices, average earnings or 2.5%.

"Today we're delivering with a 5.2% increase in the basic state pension, an extra £5.30 a week, the largest cash rise in history.

"At a time when we're having to make cuts elsewhere, this is further proof of this government's commitment to the elderly.

"Already we're protecting free national bus travel and free TV licences for the over-75s, backing the Winter Fuel Payment and increasing spending on the NHS.

"I know these are difficult times - but my promise to pensioners is that we are on your side."

The payment increase will cost the Treasury an extra £4.5 billion this year.

When additional pension payments are included, such as entitlements built up under the State Earnings-Related Pension Scheme (Serps), average state payments will now be £124 a week, according to officials.

Steve Webb, Liberal Democrat Pensions Minister, said: "My first concern is to make sure our pensioners have a decent income in retirement, and that's why we are paying out £4.5 billion extra from today, boosting the average state pension to £124 a week.

"Uprating the basic state pension by the highest of earnings, prices or 2.5% will have a dramatic impact in driving up the value of the state pension. This is one of the biggest spending commitments we have made in difficult economic circumstances, and will provide more money for pensioners both now and in years to come."

The National Pensioners Convention (NPC) criticised the basic state pension rise, arguing it would have been higher if the Government had continued to uprate benefits in line with the Retail Prices Index, which recorded inflation at 5.6% in September, instead of switching to the Consumer Prices Index.

General secretary Dot Gibson said: "The Prime Minister must think pensioners are stupid if he thinks we're going to swallow his claims about the rise in the state pension. If his Government hadn't changed the link with inflation from the Retail Prices Index to the Consumer Prices Index, the state pension would be going up by £5.70 a week rather than the £5.40 some pensioners are getting or the £3.10 that millions of older women will get.

"Pensioners also remember that it was his party that broke the pension link with earnings in 1980, which means the basic state pension is now around £60 a week less than it would have otherwise been. Given his track record, the recent freeze on the age related tax allowance and the cut to the winter fuel payments, no-one's going to be fooled by any claim that Mr Cameron's government cares about the older generation."

Shadow Treasury minister Chris Leslie said: "For all David Cameron's boasts, the state pension is simply keeping up with the high inflation his Government has delivered.

"The fact is George Osborne's 'granny tax' will leave nearly 4.5 million pensioners an average £83 worse off next year. And it will hit people just about to become pensioners harder still, as they will lose £285 a year.

"It cannot be right to ask millions of pensioners to pay more so millionaires can pay less tax. That is why Labour will hold a vote in the House of Commons on April 19 to try to defeat the granny tax and we're asking MPs from every party to join us."

Mr Webb is in negotiations with major employers over plans to create new "defined ambition" pensions that would fill the gap left by the decline in final salary schemes.

In an article for The Daily Telegraph the minister said private sector workers could be offered a fixed retirement income if they agree to work longer or guaranteed pension pots.

The Lib Dem said "a measure of certainty in their future pension" would be welcomed by employees.

He added: "The Government is therefore looking to investigate options for a new model - the defined ambition pension - where the risks and uncertainties are more evenly shared between employer and employee.

"One example is the so-called "cash balance" scheme, where the firm guarantees to deliver a fixed pension pot on retirement and the employee then bears the uncertainty as to how much pension that pot of money will buy. Another model is to share some of the uncertainties of rising life expectancies, so that firms pay a guaranteed pension but the date on which that pension is paid can change for future accruals if people live longer than expected.

"Or there could be new models where younger workers are told that their pension could lie somewhere within a wide range but as they get older they are given more and more certainty about what their final pension will be."

Mr Webb said the schemes could offer greater flexibility to firms without "loading all of the uncertainty" on to employees.

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