State pension: Millions missing out on £11,000 - 'They've lost out and it's unfair'

Millions of people fall short of £11,000 in state pension despite paying all their National Insurance contributions.

The amount Brits are paid depends on several factors including age, how long a person has worked for and the type of employment.

There are also two main types of state pension, the “basic” state pension paid to those who reached pension age before April 6, 2016, and the “new” state pension for those who reach it after that date.

The basic pension pays up to £141.85 a week, or £7,376 per year.

Former pensions minister Baroness Ros Altmann says the two systems are 'unfair'
Jonathan Brady

The new state pension, received by men born on or after April 6, 1951, and women born on or after April 6, 1953, pays a flat rate of up to £185.15 a week, equivalent to £9,628 a year.

Whereas, the new state pension, received by men born on or after April 6, 1951, and women born on or after April 6, 1953, pays a rate of up to £185.15 a week, equivalent to £9,628 a year.

Under the triple lock, both pension schemes increase every year in line with whichever is the highest of inflation, earnings growth or 2.5 per cent.

This year, payments will rise by 10.1 per cent to mirror last September’s rate of inflation.

As a result, the gap between the two payments will increase to £47.65 a week or £2,478 per year.

Over the course of a 20-year retirement, that adds up to a giant £49,560 difference between the two state pension rates.

In reality, the average payouts between the two pension plans are much closer in value, due to an additional earnings-related element for those on the old basic state pension.

According to the Office for National Statistics, on average people on the old state pension currently earn £162.92 a week.

The total different between the two state pension schemes adds up to £11,000 over 20 years
Joe Giddens

By comparison, those on the new state pension receive an average of £173.60 a week, which means on average, pensioners born before 1953 receive £10.68 less a week than more recent retirees.

The total difference over a 20-year retirement adds up to £11,000.

Experts warn that this gap will increase as high inflation rates push up the new state pension by more.

“The self-employed are a big group that lost out — and it is unfair,” Baroness Ros Altmann, a former pensions minister told This is Money.

“Unfortunately, there is no legal protection for them on the grounds of age discrimination because the state pension is paid at the discretion of the Secretary of State.”