The state pension is on course to top £10,000 a year if the government delivers on its promise to reinstate the ‘triple lock’ on annual increases.
The People’s Guarantee means the state pension is increased to the highest of inflation, wage growth or 2.5% – but it was scrapped last year because the pandemic temporarily distorted the income figure.
The inflation rate will be the highest this year, so the increase in the state pension should be decided by the September CPI figure, which is due to be released on October 19.
People’s guarantee: State pension set to rise by 10% if new PM Liz Truss delivers on her triple lockdown promise
August inflation, released last week, was 9.9%, down from 10.1%. The latest revenue growth figure, based on total salary including bonuses, was 5.5%.
But older people anxiously waiting to find out what state pension increase they will get next April might find it still lags behind the prices.
Inflation could stay around 10% in the key month of September, but increase further this winter despite the government’s freeze on the energy price cap.
Last year the triple lockdown was suspended because pay rises were skewed as the labor market recovered from the impact of Covid-19.
I paid NI for 44 years, but I get a lower state pension than people retiring now – how fair is that?
This is Money pensions columnist Steve Webb explains how the April 2016 overhaul was designed to be fair for everyone, and why people who reached retirement age before that didn’t have no need to feel uncomfortable.
“The switch to the new state pension is not a godsend for people who have not yet retired,” he says.
But this year, skyrocketing inflation is weighing heavily on retirees who are struggling to pay their household bills.
If August’s 9.9% inflation rate were used, pensioners on a full state pension after 2016 of £185.15 a week or around £9,600 a year would see an increase to £203.50 per week or £10,600 per year.
Those on the old base rate would see a jump from £141.85 per week or around £7,400 per year to £155.90 or £8,100 per year.
During the Conservative leadership campaign, Prime Minister Liz Truss promised to reinstate the triple lockdown this year but is expected to come under pressure to back down due to squeezed public finances.
There is overwhelming support for the triple lock among pensioners, but less among younger generations.
According to a Canada Life poll weighted to be representative of all UK adults, around 55% of adults overall support the triple lockdown under the current circumstances.
But this is distributed at 78% among those over 55, 44% among those aged 35 to 54 and 33% among those aged 18 to 34.
>>> What do you think? Vote in our triple lock poll below
Separate research from Canada Life found that two-fifths of UK adults have cut back on spending due to rising prices.
Some 37% are worried about their own or their household’s finances, and 31% are already feeling the impact of inflation on their finances.
How the state pension was decided under triple lockdown over the years
* Subject to seasonal adjustments
State pension set to rise by record amount next year
“The immediate outlook looks bleak, with the Bank of England predicting peak inflation later this year at around 13%,” said Andrew Tully, chief technical officer at Canada Life.
“The peak, when it does come, will offer little respite when the tail end of inflation is expected to last a long time next year and not approach the target of around 2% for several years.
“As UK workers continue to feel the pain as wages fall below inflation, there will be positive news in the months ahead for pensioners.
‘As inflation rises, September’s data will determine the standard of living for millions of pensioners across the UK for the year ahead, and the state pension is highly likely to be on track to increase by a record amount in April 2023.
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“People are clearly making cuts where they can and many are worried about their household finances.
“Unfortunately, the worst is yet to come unless we see further significant government interventions in the coming weeks.”
April hike seems a long way off for struggling retirees
“Inflation has eased this month, but remains very high and is expected to remain so for the foreseeable future,” says Helen Morrissey, senior pensions and pensions analyst at Hargreaves Lansdown.
“It means pensioners are in line for a significant pension increase next year as long as the government delivers on its commitment to maintain the triple lockdown.
“If the CPI link remains, we could see pensioners on a new full state pension receiving over £200 a week.
“Last year’s 3.1% increase fell short of soaring inflation and left many pensioners struggling. A more generous increase would therefore be welcome.
“However, such an increase will only come into effect in April, which seems a long way off at the moment for those struggling to make ends meet.”
Questions remain over the affordability of the triple lock
“The government has previously committed to reinstate the triple lockdown after suspending the revenue element for 2022-23 due to distortions caused by the Covid-19 pandemic,” said Kate Smith, head of pensions at Aegon.
She notes that new Prime Minister Liz Truss reiterated this during her leadership campaign, but adds: ‘Questions will remain about its affordability and whether the triple lockdown will survive in its current form in all-party manifestos before the next general election.”
How much is the state pension?
The basic state pension is currently £141.85 a week, or around £7,400 a year. It is supplemented by additional state pension rights – S2P and Serps – if they have been accrued during working years.
The two-tier state system was replaced in 2016 by a new ‘flat-rate’ state pension. This is currently worth £185.15 per week or around £9,600 per year.
People who have retired from S2P and Serps over the years and who retire after April 2016 receive less than the new full state pension.
But they can fill gaps in unpaid and/or underpaid National Insurance in previous years, make voluntary top-ups to buy additional qualifying years, and accumulate more years if they have enough time between today and retirement age.
Workers had to have 30 years of National Insurance contributions to get the old state pension, but now need 35 years of contributions to get the new flat-rate state pension.
But even if you paid in full for 35 years, if you contracted for a few more years, it could still reduce what you get.
Everyone has the option of deferring their state pension to get more in their later years. You can check your NI record here.
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