The state pension will increase by at least 2.5 percent next year, but it is expected to rise by even more. Retirees’ weekly income will increase with any inflation, provided it is more than 2.5 percent as most analysts have suggested.
The latest inflation figure will be announced on October 20 and will confirm how much basic and standard pensions will rise in 2022/23, with some predicting that it could be as much as four percent.
The latest inflation data showed that prices in the UK had increased by 3.2 per cent during the year to August 2021, but the Bank of England believes that this could increase even more, up to as high as four per cent in the 12 months to September 2021.
Pensioners will see their state pension for the tax year 2022/23 increased by either 2.5 or the inflation rate, whichever is higher, due to the terms of the triple lock policy that has been in place for a decade. However, retirees will not get as much of an increase as they hoped for.
The state pension’s triple lock is a state guarantee that ensures that the state pension increases with the highest average wage development, inflation or 2.5 per cent every year, which means that pensioners can retain their purchasing power when the cost of living rises.
An increase in average revenues after 2021 caused the government to temporarily suspend the revenue element for next year. As a result, the state pension will instead rise by the highest of the average inflation or 2.5 per cent, since a “double lock” is mainly used.
The average income increased by 8.3 percent in the three months to July 2021. This would have meant an increase of more than double what is now expected and increased the basic state pension to 149 pounds per week and the fixed state pension to 194.50 pounds per week
This will mark the first time in a decade that the state pension has not increased in line with the triple lock, which over the years has had a significant impact on the income pensioners receive and earned them up to £ 35 extra per week since its introduction.
However, a four per cent increase in the state pension can still be welcome news, as it would be the largest increase in the value of the state pension since the triple lock became a policy. Beneficiaries of the full basic pension would receive an additional £ 5.50 per week, or £ 286 for the year.
Those who receive the new full state pension would see their income go from £ 179.60 each week to £ 186.78, an extra £ 7.18 income which in one year would mean that pensioners would raise £ 373.36 more.
Since the triple lock was introduced, the basic state pension has increased in value by 35 percent, from £ 102.15 per week in 2011/12 to £ 137.60 per week in 2021/22, and the fixed state pension, which was first introduced in April 2016, has increased in value by 15 per cent, from £ 155.65 per week in 2016/17 to £ 179.60 per week in 2021/22.
Regarding the effects of the triple lock, Tom Selby, head of pension policy at AJ Bell, said: “Since its introduction in 2011/12, the state pension triple-lock has dramatically increased the pension income of millions of people.
“But in 2022/23, the state pension will rise in line with the highest inflation or only 2.5 percent, with the CPI for September historically the figure used. This will therefore confirm how much the government’s decision to increase the revenue element of the policy will cost pensioners.
“Average earnings for the three months to July 2021 — the historical figure used for the triple cap — increased by a staggering 8.3 percent.
“This hope can be explained mainly by distortions in the labor market caused by the pandemic, with average incomes plummeting in 2020 when society locked up and then recovering in 2021 when restrictions have eased.
“If the average salary had been used for state pension increases in 2022/23, the basic pension would have increased by £ 11.40 per week and the fixed state pension by £ 14.90 per week.”
During the 52 weeks of the year, this works out to £ 592.80 and £ 774.80 respectively.
“This would have been a blessing for pensioners but at a significant cost to the Tax Agency in a year when many people were facing great uncertainty about their pay and employment.”
Selby reported on the large costs that the increase in the state pension by more than eight percent would have had for the government.
He said: “According to the Office for Budget Responsibility, each percentage point increase in the state pension costs the Treasury around £ 900 million. This means that an increase of 8.3 per cent would have cost over £ 7 billion compared to freezing the state pension and over £ 5 billion against an increase of 2.5 per cent. ”
By failing to meet the triple lock in its traditional form next year, the government will break a promise from its 2019 manifesto, in which they promised to honor the triple lock in the future. They have assured pensioners that this will only be a temporary measure.
Selby said: “Although it was a central part of the Conservative Party’s manifesto, the triple lock was considered too expensive a promise to maintain – although it will be reintroduced after next year.”