The Treasury manages public spending within two ‘control totals’ of about equal size:
- departmental expenditure limits (DELs) – mostly covering spending on public services, grants and administration (collectively termed ‘resource’ spending) and investment (‘capital’ spending). These are items that can be planned over extended periods.
- annually managed expenditure (AME) – categories of spending less amenable to multi-year planning, such as social security spending and debt interest.
Welfare spending is the biggest source of AME spending, with pensioner spending the biggest item in the social security budget (accounting for 46 per cent of the total in 2020-21, down from 49 per cent in 2019-20).
For this summary, pensioner benefit spending refers to expenditure on state pension, pension credit, pensioner housing benefit and winter fuel payment. Disability benefits spending sits outside of this definition, but much of it also goes towards pensioners.
The state pension is the largest single item of welfare spending, making up 41 per cent of the total in 2020-21 (down from 43 per cent in 2019-20). The system for pensioners who retired before April 2016 comprises the basic state pension (paying up to £137.60 a week in 2021-22) and the state second pension which is mostly related to prior earnings. Since April 2016, these have been replaced by a ‘single-tier’ (flat-rate) state pension for newly retired pensioners (paying £179.60 per week in 2021-22).
The state pension is uprated each year in line with the ‘triple lock’ that states it will rise by the highest of CPI inflation, average earnings growth or 2.5 per cent. This is a more generous uprating policy than for working-age benefits and tax credits or child benefit, although it has been temporarily suspended for 2022-23 due to pandemic-related effects distorting earnings growth in 2021, and replaced with a ‘double lock’ excluding earnings.
Pension credit was introduced in 2003 to provide extra support for those over the state pension age (SPa) and on a low income, topping up the income of older people to a minimum level (£177.10 a week in 2021-22 for single people, £270.30 a week for couples). It replaced the ‘minimum income guarantee’ and before that income support for the over 60s.
Pensioner housing benefit provides financial support to pensioners on low incomes who rent their homes from private or social-sector landlords. Unlike many benefits, there is no fixed amount available to each claimant. The value of the award depends on an estimate of ‘eligible’ rent and other household circumstances. Housing benefit is administered by local authorities.
Winter fuel payment is a one-off annual payment to help those over the SPa pay their heating bills. The payment is between £100 and £300 depending on household circumstances.
Pensioner benefit spending totalled £114 billion in Great Britain in 2020-21, of which £101 billion was spent on state pensions. The same system operates in Northern Ireland, but spending there is not included in these figures or discussed on these pages as we include it separately in our figures for ‘Northern Ireland social security’. Pensioner benefit spending in 2020-21 represents around 10 per cent of total public spending (down from 13 per cent in 2019-20), and 5 per cent of GDP.
Average awards across the different pensioner benefits varies, with state pension recipients receiving an average of £8,200 in 2020-21 and pension credit claimants £3,430 each.