March 21, 2012 • 5:26 pm

“Under this Government, pensioners next month will receive the largest ever cash increase in the Basic State Pension of £5.30 a week”.

George Osborne, Budget Speech, 21 March 2012

The outlook for older people was one of the more contentious talking points following today’s Budget announcement, with Labour accusing the Government of overseeing the introduction of a “granny tax”.

A less noticeable claim made by the Chancellor, however, was that pensioners would enjoy their “biggest ever cash increase” in the Basic State Pension in just a few weeks time.

Pensioners will be looking forward to an extra £275 a year when April sees in the new tax year, something which was promised in the Autumn Statement last year.

David Cameron also celebrated “the biggest increase in history” in his party-political broadcast a fortnight ago, before George Osborne reiterated the claim in the Commons today.

But are older people really enjoying an unprecedented rise in their pension?

Analysis

Pensions rises are currently guided by a ’triple guarantee‘ system, meaning it must rise by the highest of three uprating factors: earnings rises, 2.5 per cent, or the Consumer Price Index (CPI). The CPI, which is calculated independently of the Government, stood at 5.2 per cent in September last year – this was the month used to calculate the CPI rise.

However, in spite of this guarantee, the Government also changed the way pensions are uprated by moving from using the Retail Price Index (RPI) to the CPI now in use.

RPI in September 2011 stood at 5.6 per cent – higher than CPI. Had RPI continued to be used by the Government as the measure for pensions changes the rate would have actually risen by an additional 40 pence, or £5.70 in total.

A Department for Work and Pensions (DWP) spokesperson said officials compiled the figures “from a number of sources” to reach the conclusion that this was the “biggest ever cash increase”. 

We are waiting to for them to get back to us on just which data were considered, however there are figures available dating back to 1948 which were published in the 2004 Abstract of Statistics for Benefits from the DWP.

The data confirms that the rise this year will be the largest since 1948, but this is only in cash terms. What this doesn’t tell us is which increase over the years has been the largest in relative terms.

Put into relative terms, the Government’s increase pales in comparison to previous years. As recently as 2001 there was a rise of 7.4 per cent.

However, even this doesn’t present the full picture, as it doesn’t take into account by how much the rises outstripped inflation. The data provided in the DWP statistics provides further information on the rises in RPI inflation up until 2011, when the measure changed.

Conclusion

The figures used by the Chancellor are correct, however they somewhat obscure the picture. In cash terms the Basic State Pension is indeed seeing its largest rise since 1948. But in terms of percentage increases, there have actually been significantly larger rises, even in recent years.

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