Retirees on course for £5.55-a-week increase in full new state pension
A 3.1% inflation figure released by the ONS will predict the rise in the value of the state pension from April 2022.
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Your support makes all the difference.Retirees are on course for a £5.55-a-week increase in the full new state pension next year.
The Office for National Statistics (ONS) said the Consumer Prices Index (CPI) measure of inflation edged down to 3.1% in September, from 3.2% in August.
The Work and Pensions Secretary will be carrying out an annual uprating review of benefit and pension rates shortly, the outcome of which will be confirmed later this year.
Alistair McQueen, head of savings and retirement at Aviva said: “Today’s 3.1% inflation (CPI) figure will predict the rise in the value of the state pension from April 2022.
“If confirmed by Government this should represent a £5.55 rise in the weekly value of the full new state pension in April 2022, from £179.60 to £185.15.”
But Mr McQueen said the measure does not reflect price rises happening now which are having an impact on households’ living costs.
He said: “3.1% is a backward-looking measure, reflecting the rise in prices from September 2020 to September 2021. It underplays recent rises in food prices.
“And it does not reflect October’s 12% rise in the energy price cap. Food and energy represent a bigger proportion of typical household expenditure for those aged 65 and above – 18% of their typical monthly expenditure. Pensioners will be hit harder by these rising prices.”
Traditionally, the triple lock underpins state pension increases.
It guarantees that the state pension rises in line with inflation, earnings or 2.5% – whichever is higher.
But in September, the UK Government confirmed that the link between state pension increases and wage growth would be severed for a year.
It could have meant pensioners received a rise of about 8% – while many workers have been dealing with job losses, salary cuts and pay freezes.
The impact of the coronavirus pandemic has distorted wage growth figures, producing a spike as a result of people having previously been furloughed and many low-paid jobs having disappeared.
Average earnings hit 8.3% in the three months to July 2021
Ian Browne, pensions expert at Quilter, said a 3.1% uprating would still be the third highest in the decade-long history of the triple lock.
He said: “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.”
He continued: “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 £4.7 billion.”
He said the latest uprating would be beaten only by the 5.2% CPI boost in 2012/13, the first year of the triple lock, and a 3.9% earnings boost in 2020/21.
Sarah Pennells, consumer finance specialist at Royal London, said: “Rising energy costs will add to the concern that price rises will outstrip the increase pensioners see next year.”
Andrew Tully, technical director, Canada Life, said: “The boost to state pensions will be welcomed by many retirees who are looking to balance household budgets with the inflationary headwind of ever-increasing bills.”
Ros Altmann, a former pensions minister, urged the Government to reconsider its temporary shelving of the triple lock, which was a manifesto pledge.
She said it could use earnings figures which are adjusted for the impacts of furlough last year.
Baroness Altmann said: “Pension Credit has never had triple lock protection and has had to be protected against earnings inflation. Many receiving Pension Credit are the most elderly who have no private pension to supplement state benefits.
“I am really concerned that these poorest pensioners will be at risk of rising poverty if the sudden removal of vital earnings linking sets a precedent that Governments can abandon them even during times of sharply rising living costs in the basic essentials.”
A Government spokesperson said: “We’re committed to ensuring older people are able to live with the dignity and respect they deserve, and later this year we will confirm the new rate for state pensions.
“The one off decision to temporarily suspend the triple lock ensures fairness for both pensioners and taxpayers – while also protecting pensioners’ incomes.”
The rate of inflation, which is far above the the Bank of England’s target rate of 2%, also signals bad news for savers.
Financial information website Moneyfacts.co.uk could find no standard cash savings accounts on the market that can outpace 3.1%.
Rachel Springall, a finance expert at Moneyfacts, said: “Should the murmurings of a base rate rise before the year-end come to fruition, variable rate deals would typically be the first type of savings accounts to see improvements.
“However, there is no guarantee for rates to do so immediately and this could even take a few months to flow through, or indeed may not even be passed on in full.”