The Chancellor said: “For the first time in half a century the retail prices index has been negative for much of this year. Many benefits and tax credits are linked to the September RPI. RPI inflation last September was minus 1.4 per cent. This would have meant no increase in these benefits in April. I do not believe such a freeze would be fair.

“So I can confirm the basic state pension will not be frozen but will rise by 2.5 per cent, 4 per cent in real terms.”

In April the full state pension will rise from £95.25 to £97.65 per week for a single pensioner, while couples will receive £156.16 instead of £152.30.

However campaigners pointed out that the improvement was always guaranteed, and said it would bring most elderly people no real benefit, as their living costs are still rising fast while their other benefits such as the winter fuel allowance have been frozen.

After Labour was condemning for increasing the weekly pension by just 75p at the start of the decade, there has been a commitment that it will also go up by at least 2.5 per cent if inflation is lower.

Charities believe the cost of living for pensioners is increasing higher than for other groups in society, because they spend a greater proportion of their money on food, and on heating and lighting their homes. Many have also seen their retirement income drop over the past year because of low interest rates and reduced dividends for shareholders.

Dot Gibson, general secretary of the National Pensioners’ Convention, said: “The Pre-Budget Report gives with one hand but then takes away with the other and does little to tackle rising pensioner poverty, fuel poverty or the impact that the recession is continuing to have on older savers.

“One in four pensioners still lives in poverty and rising costs of food and fuel, combined with record lows in savings returns and underperforming pensions, mean that pensioners continue to suffer a disproportionate increase in the cost of living.

“In light of all this, the Chancellor’s promise to raise the state pension next year by £2.40 a week but then take more than half of it back again will bring little cheer to Britain’s pensioners.”

Andrew Harrop, Head of Public Policy at Age Concern and Help the Aged, added: “Many older people will be relieved that the Basic State Pension and Pension Credit will both increase above planned indexation. Yet the Government has missed a golden opportunity to promise to restore the link between Basic State Pension and earnings by 2012.

“Sliding beyond this date will plunge an additional 70,000 pensioners into poverty, saving relatively little for the Government – an estimated £250 million a year after 2012.”

WE SAY: Pension payments need to be sufficient to take all pensioners out of the many poverty traps which await them, and assessments of RPI which reflect upon pensions and pension increases should be adjusted to reflect pensioners specific needs – for example, fasting rising heating costs should result in these being given extra weighting in RPI calaculations.

The figures appear to support those who claim that the policy is unsustainable in the long term, especially if public spending falls in coming years. In 2003-04, when the flagship policy was launched by the Labour-Lib Dem coalition, the cost of free care at home was £129 million a year. Last year, 2007-08, it was £257 million.

In the home service’s four year history, the number of people in in the scheme rose from 32,870 to 44,660, an increase of 36 per cent. The cost of providing free care for those paying their own way in care homes in Scotland passed the £100 million mark for the first time — 4 per cent up in a year and 22 per cent higher than in 2004, the first full year of the policy.

Last week’s Queen’s Speech presented plans to introduce free personal care in England. Gordon Brown hailed the move as a major breakthrough but Lord Lipsey, the Labour peer, described it as “a demolition job on the national budget”.

The policy was introduced in Scotland in 2002 to provide free personal and nursing care for those at home and in care homes. Under the system, those over 65 and living at home are not charged for personal care services, but they can be charged for domestic services such as help with shopping.

Over 65s living in care homes and paying their own way can receive a weekly payment of £153 for personal care and £69 for nursing care, while paying other bills themselves.

In the first week of April 2009, there were 68,334 home care clients, the first year in which numbers have fallen. The number of over 65s receiving more than 10 hours per week was just over 18.1 clients per 1000 population. and this figure has been rising steadily since 1998. The average amount of care per client received in 2009 was 9.5 hours per week.

Shona Robison, the Public Health Minister, said, “These figures show an increasing proportion of the people who benefit from this policy are being cared for in their own homes — reflecting our policy of supporting older people to remain independent in their own homes as long as possible.”

The minister said the Scottish government had accepted recommendations by Lord Sutherland in his review of free personal and nursing care which included an commitment to an extra £40 million being spent annually.

She added, “We are absolutely committed to maintaining that progress and laying the foundations for Scotland’s older people to receive the support they need, not only now but in the years to come.

These are the key findings of a nationwide study by Club Vita*, the longevity experts for private and public sector pension schemes.

But we’re gradually beginning to understand the impact of increased longevity on the funding of retirement income; whether by the state or via our own savings. Half of the respondents want to carry on working after they reach their formal retirement age, either by keeping their current job or switching careers.

And those just starting out seem to be the most accepting about the need to work for as long as possible. Over three quarters (77%) of 16-24 year-olds said that they would be prepared to work past the official retirement age, compared with under half of those over 55.

The research also shows a link between household income and plans at formal retirement age. Whereas almost 60% of those with the lowest household incomes expect to officially retire, less than 30% of the highest earners expect to do so.

Other findings:

• Nearly half (47%) of all respondents don’t think that the younger generation should help their parents financially in their retirement.
• 70% think that the younger generation will be unable to look after their parents.
• Almost 40% of 16-24 year-olds thought that the younger generation should provide financial support to their retired parents.
• 35% think that their generation will live 8 or more years longer than their parents’ generation.

Nick Flint, Chief Executive of Club Vita, said: “Provided we remain reasonably healthy, greater longevity is obviously a ‘good thing’, but it comes at a price.

“The UK population is slowly – very slowly – beginning to understand the link between longevity and retirement funding, at the state and personal level. We may not be living quite as long as some of those surveyed think – it’s actually around a five to six-year increase in typical lifespan from one generation to the next – but our increasing longevity will effect profound changes in our attitudes to work and subsequent retirement.”

Club Vita*

HMRC has launched a campaign called TaxBack, which aims to encourage pensioners who have overpaid tax on interest from savings to claim it back, and register for savings interest to be paid gross in future, if they are non-taxpayers.

Banks and building societies are required by law to deduct 20 per cent tax from the interest on everyone’s savings before it is paid.

But pensioners – and other savers – who are non-taxpayers, or people who qualify for the 10 per cent savings rate, will be entitled a repayment if their savings have been taxed at 20 per cent.

HMRC says it is simple to claim back this tax and can be done using HMRC Form R40.

In addition to claiming any overpaid tax back, non-taxpayers can also get future savings interest paid deduction of tax, by filling out the R85 form and sending it to their bank or building society.

Exchequer secretary to the Treasury Sarah McCarthy-Fry said, “We know times are tough for many pensioners, and we do not want anyone paying tax they do not need to. If you think you might have been overpaying tax on your savings, check the figures, and make a claim if you’re eligible”.

She add, “If it does not affect you, but you know someone it might – spread the word.”

HMRC is writing to some 3.4 million pension credit recipients, asking them to check if they have overpaid tax on their bank or building society interest. The letter will be accompanied by a helpsheet, which pensioners can use to help them calculate their annual income and allowances and whether they may be due some money back.

An estimated 540‚000 pensioner households will see their income increase by an average of £4 a week1 from November‚ after the Government changed the way income from savings is worked out for benefit purposes following an announcement in the Budget 2009. Some people with savings over £6‚000 who currently just miss out on benefits might also be brought into entitlement by the change and will need to make a claim.

Under the current system‚ when the Department for Work and Pensions checks someone’s entitlement for pension credit (or the local authority works out housing benefits or council tax benefit)‚ instead of including actual income from savings an ‘assumed income’ is taken into account. The first £6‚000 is ignored and after that every £500 over the £6‚000 level is counted as producing an extra £1-a-week income.

The new Budget provisions coming into force on 2 November will lift the so called ‘capital disregard’ limit from £6‚000 to £10‚000. For people with savings above £6‚000 in receipt of pension credit this means that the benefit money paid to them weekly will increase by up to £8 (see table below). The higher capital disregard will also apply to people aged 60 or over who receive council tax or housing benefit but not pension credit.

Although half a million pensioners will benefit from this change‚ up to £5.4 billion worth of means-tested benefits is still going unclaimed by older people each year.

Andrew Harrop‚ Head of Policy at Age Concern and Help the Aged‚ said:

“The changes to the way income from savings is worked out are good news for hundreds of thousands of older people who can certainly do with a small top-up to their weekly income.

“The fact that savings up to £10‚000 will be ignored for the purposes of working out benefit entitlements should encourage more older people on modest incomes to check whether they might be missing out on financial help which is rightfully theirs.

“This small improvement‚ though‚ won’t hide the fact that the means-tested system is failing to help many of the older people who most need its help. Up to £5 billion goes unclaimed by older people each year and one in three entitled pensioners aren’t claiming pension credit. This is why it is so important to move to a system of paying older people their entitlements automatically‚ rather than relying on them to claim”