State pension to rise by £5.50 a week following inflation figures

Pensioners are set to receive a boost of more than £5.50 a week to their state pension from next April as the official September inflation figures, which are used to dictate the state pension rise for the following year, showed a 3.1% rise in consumer prices over the year.

Related topics:  Later Life
Rozi Jones
20th October 2021
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"While significantly short of the 8.3% increase the earnings component would have delivered, this is still the third highest increase since the triple lock was introduced in its current form over a decade ago."

Today’s CPI inflation figure means the full new state pension will increase from £179.60 to £185.15 per week in April 2022 with the full basic state pension up from £137.60 to £141.85 per week.

The rise could potentially have been higher at more than 8%, had the Government not decided to scrap the wage link part of the triple lock guarantee for one year.

After dropping the earnings link from the triple lock, industry experts have raised concerns that surge in inflation over the winter months could mean a 3.1% rise in state pension falls short of rising living costs for pensioners.

Steven Cameron, pensions director at Aegon, commented: “Based on today’s inflation figures, and following the government’s one-year suspension of the earnings element of the state pension triple lock, state pensioners will, subject to any late adjustments, receive an increase of 3.1% from April 2022. While significantly short of the 8.3% increase the earnings component would have delivered, this is still the third highest increase since the triple lock was introduced in its current form over a decade ago.

“While some pensioners will be disappointed that the Government broke its Manifesto commitment to keep the triple lock, others will acknowledge the intergenerational challenges of granting an artificially high increase based on a statistical anomaly in the earnings figure due to the pandemic. An 8.3% earnings based increase would have represented a windfall bonus for state pensioners, but would have created a £7.5bn annual bill paid for from the National Insurance of today’s workers.

“However, if inflation continues to surge in the coming months, there’s a concern the 3.1% increase may fall short of cost of living increases come April 2022. With many pensioners heavily reliant on their state pension, and disproportionately affected by increased heating costs from the global energy squeeze, many could feel ‘left out in the cold’.”

Becky O’Connor, head of pensions and savings at interactive investor, said: “Despite today’s inflation figures indicating a coming rise in pensioner incomes, times still feel perilous as living costs continue to increase in unpredictable ways.

“While those receiving a state pension can take comfort from it heading up in line with inflation from next April, with energy prices rising by the minute and the cost of food and other consumer goods continuing to increase, older people will not feel out of the words yet.

“Pensioners are potentially more exposed than most to rising inflation because their income is limited and a higher proportion of their spending goes on essentials, like energy.

“Older people also tend to choose lower risk investments within their private pensions and are more likely to use cash savings to avoid investment losses later in life, so are more exposed to inflation eroding the value of their wealth. So it is some comfort to know that at least the state pension part of their income is rising in line with inflation.

“However, the economy remains volatile and retired people will be watching to see whether inflation continues to rise. If it does, then next year’s state pension increase may still not feel big enough to cope with rising bills.”

Ian Browne, pensions expert at Quilter, added: “The state pension triple lock has been pulled from pillar to post since the beginning of the pandemic thanks to wild swings in earnings and inflation data. Last year, we had negative earnings growth and paltry inflation numbers. This year, we’ve had the opposite problem: booming wage growth and rampant inflation thanks to the end of the furlough scheme and reopening of the economy. Nothing has really changed fundamentally speaking, but the economy is playing catch-up, and this is skewing the numbers.

“Both years, the Chancellor has elected to tinker with the triple lock. Last year, state pensions were manually increased by 2.5% to get around a technicality in the legislation that would have blocked the triple lock given negative wage growth. This year, the earnings growth element has been removed to bring the uprating back down to earth. Average earnings hit 8.3% in the three months to July 2021, which would have been used as the uprating figure.

“Instead, pensioners will have to settle for a 3.1% increase in the state pension next year as a result of the latest CPI stats out today. While this is clearly not as good as if the triple lock was maintained in its original form, it is still the third highest uprating in the decade-long history of the triple lock, and will increase the basic state pension to £141.85 a week next year, and the new state pension to £185.15 a week. Removing the earnings element of the triple lock has saved the Chancellor a tidy sum, given the cost has now been reduced by £4.7bn.

“This uprating is beaten only by the 5.2% CPI boost in 2012/13, the first year of the triple lock, and the 3.9% earnings boost in 2020/21.”

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