This Forecast in-depth page has been updated with information available at the time of the October 2021 Economic and fiscal outlook.

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).

In our October 2021 Economic and fiscal outlook we designated welfare spending into broad recipient groups. Forecasts for individual benefits are available in a supplementary table on our website.

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 Since April 2016, these have been replaced by a ‘single-tier’ (flat-rate) state pension for newly retired pensioners (paying £179.60 per week in 2021-22).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.

  Previous forecasts

Pensioner benefit spending has been revised down in the short term but up in the medium term in our forecasts since March 2020. Lower spending in the short term is explained by weaker earnings growth reducing uprating and excess deaths as a result of the pandemic reducing the caseload. Spending is higher in the medium term as a result of stronger earnings growth in later years. Previous forecasts had also been revised down due to higher than expected mortality rates. Downward revisions to productivity and earnings growth also reduce cash spending on state pensions spending via the earnings element of the triple lock on uprating.

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  Policy measures

More detail on policy costings up to and including the October 2021 forecast can be found in our policy measures database and are described briefly in the Treasury’s relevant Policy costings document.  For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook.

Key changes to pensioner benefit spending since 2010 include:

  • The introduction of the state pension triple lock. This was announced in the June 2010 Budget and guarantees that basic state pension awards rise by the highest of CPI inflation, average earnings growth or 2.5 per cent each year.
  • The introduction of the single-tier state pension. Under the Pensions Act 2014, the existing two-tier pension system has been replaced by a single-tier pension, which has applied to newly retiring pensioners since April 2016. This combines the basic state pension and state second pension into a flat-rate pension set above the basic level of means-tested support. It therefore increases state pensions spending but reduces pension credit spending.
  •  The SPa was raised for women to equalise it with that for men at age 65 by 2018 (originally legislated in the Pensions Act 1995 and accelerated in Pensions Act 2011), and then the SPa for both men and women was raised to 66 between 2018 and 2020 (also legislated in the Pensions Act 2011).
  • The end of universal provision of free TV licences to the over-75s announced by the BBC in June 2019. Entitlement will instead be means-tested with reference to receipt of pension credit. More detail can be found in Box 5.1 the 2019 Fiscal risks report.
  • The temporary suspension of the state pensions triple lock in 2022-23, replacing it with a double lock (the highest of CPI inflation or 2.5 per cent) due to the distortionary effects of the pandemic on earnings growth in 2021.

Further policies that affect state pension spending beyond the forecast period include:

  • Raising the SPa for both men and women to 67 between 2026 and 2028 (legislated in the Pensions Act 2014); and
  • Legislating for a review of the SPa at least once every six years – based on a technical assessment by the Government Actuary and an additional report considering other relevant factors. The findings of the first review were announced in July 2017 and were accompanied by a change in the timetable for increases in the SPa, with the increase to 68 now taking place in 2037-39 rather than 2044-46. This is not currently legislated for and could change at a subsequent review before being enshrined in legislation.

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