- State pension set to rise by 3.1% in line with September inflation figures
- The government decided to suspend the earnings element of the triple-lock next year.
- If the income element is honored, the state pension may increase by 8.3%
- Rising inflation and rising energy prices may mean that 3.1% growth is insufficient.
Pensioners will see a full state pension increase of £5.55 per week from next April, but will lose around £500 a year once the triple lock promise is broken.
Triple lock means the first annual state pension increase is determined by price inflation, average income growth, or higher of 2.5 percent.
But last month the government ratified a one-year suspension of the triple lock formula to exclude an 8.3 per cent increase in average income.
Pension problem: the decision to suspend the income element of the triple-lock for 2022/23 will see retirees receiving a full flat-rate state pension of £9.35 per week.
Instead, the state pension will increase pensioners’ income by 3.1 per cent in the next April in line with the September Consumer Price Index inflation figures.
The basic state pension will increase from £4.25 per week to £137.60 per week to £141.85 per week, while the flat rate state pension will increase from £5.55 per week to £179.60 per week to £185.15.
If the income element of the triple-lock was retained, this would increase the basic state pension to £149 per week and the flat rate state pension to £194.50 per week.
This is the third largest increase since the triple lock was introduced in its current form more than a decade ago.
Tom Selby, head of retirement policy at AJ Bell, said: ‘The good news for retirees is that state pensions will increase by 3.1 percent next year.
However, the government’s decision to suspend the income element of the state pension triple-lock means retirees will miss out on the blockbuster 8.3 per cent growth.
‘The decision would “cost” someone to receive a full flat-rate state pension £9.35 per week in retirement income – or £486.20 over the course of the year.
‘The decision to remove the triple-lock was another reminder that state pensions, while valued as a foundation of retirement income, remain uncertain and subject to the whims of politicians.’
The suspension of the triple lock formula is expected to save the Treasury around £4.7 billion next year.
But many will point to the Conservatives reneging on their promise to maintain the triple lock in their 2019 election manifesto.
Earlier in the year, The Money ran a poll that asked: Should the government honor the triple lock if it means a massive increase in state pensions?
A bumper 93 percent said yes with over 22,000 respondents.
|April-22||CPI – 3.1%|
|April-21||Basic – 2.5%|
|April-20||Earnings – 3.9%|
|April-19||Earnings – 2.6%|
|April-18||CPI – 3%|
|April-17||Basic – 2.5%|
|Apr-16||Earnings – 2.9%|
|April-15||Basic – 2.5%|
|April-14||CPI – 2.7%|
|April-13||GM – 2.5%|
|April-12||Earnings – 5.2%|
Food and energy represent a large proportion of typical household expenditures for people aged 65 and over – 18% of their typical monthly expenditure.
Some experts believe that the 3.1 per cent increase does not account for the fact that rising inflation in sectors such as heating and food prices is likely to cause huge losses to pensioners.
According to some reports, the next energy price limit to be implemented in April next year could rise to around £300, although this month the energy price limit has already increased by 12 percent.
Overall inflation is also expected to be 4 per cent or more in the coming months, which means pensioners may find themselves in a real situation worse off.
Alistair McQueen, head of savings and retirement at Aviva, said: ‘3.1 percent is a backward-looking measure, reflecting the increase in prices from September 2020 to September 2021.
“This underestimates the recent increase in food prices and does not reflect the 12 per cent increase in the October energy price cap.
‘Food and energy represent a large proportion of typical household expenditures for people aged 65 and over – 18 per cent of their typical monthly expenditure – meaning these rising prices will hurt pensioners more.’
Kevin Brown, savings expert at Scottish Friendly, said: ‘3.1 percent may sound like a healthy increase, but even against a backdrop of high inflation on sectors that hit the elderly hard – such as heating bills and food prices – You have a profit. There is a serious national crisis in the cost of living.’
Steven Cameron, director of pensions at Aegon, says: ‘While some pensioners will be disappointed that the government has broken its manifesto commitment to keep the triple lock, others may choose to give an artificially high increase based on a statistical discrepancy in the income gap. Will accept generational challenges. figures due to the pandemic.
‘The income-based 8.3 percent increase would have represented an unexpected bonus for state pensioners, but would have created a £7.5 billion annual bill paid from today’s workers’ national insurance.’