State pension payments rise every year by the highest of 2.5 percent, national earnings rates or inflation. These measures are taken throughout the year and today, official inflation figures were released and as such, state pensioners will know how their payments will increase going forward.
Today, it was confirmed inflation (as measured by CPI) increased to 0.5 percent.
As average earnings figures were already released in July, it is now possible to determine how much pension payments will increase by as Ian Browne, a pensions expert at Quilter, broke down: “The confirmation that CPI inflation for September increased to 0.5 percent, together with the fact that average earnings growth fell by one percent between May and July this year, means that retirees are set for an inflation busting state pension boost next year, as long as the government sticks to the 2.5 per cent increase used in previous years.
“However, despite promising to “maintain their manifesto commitment” to the triple lock, DWP has discretion in setting the rate at which state pension benefits will increase, and are yet to confirm the exact figure they will use in 2021/22, although a 2.5 per cent increase is widely expected.“
The increase will be different for those who are receiving the basic state pension as opposed to the new state pension.
On this, Ian calculated exactly what will be received for both and what impact of the increases will have on the economy in the coming months: “If they do so, recipients of the individual full basic state pension will receive a £3.40 a week boost to their pension income next year, receiving £137.65 a week. Recipients of the new style state pension will receive an extra £4.40 a week at £179.60 a week.
“This is despite a challenging economic backdrop in which many workers are taking a cut to their pay packet, are working fewer hours than they would like, or have lost their jobs altogether.
“But even more contentious is the fact that once the furlough scheme ends later this year and if wages recover, in its current form the triple lock will provide an artificially large boost to state pension income in 2022/23 when we could be in the clasp of a deep recession and when the government is struggling to control the deficit.”
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Coronavirus has had dire effects on the economy and that impact is reflected in the official economic data.
Despite the downturn, Ian went on to warn wages could recover and while this may boost pensions higher in the coming years, the future of the triple lock itself remains uncertain.
As he concluded: “Once wages recover next year, average earnings growth is expected to bounce back to create a one-off spike in wage growth, estimated to be as high as five percent.
“This will increase the full basic state pension to £144.50 a week by 2022/23, and the new style state pension to £188.55 a week.
“However, the Social Security (Up-rating of Benefits) Bill 2019-21, which provides the Secretary of State with the legal powers to uprate state pension benefits at her discretion, will only have effect for one year, so the question remains whether the government will maintain their manifesto promise in 2022/23 and follow the same methodology for uprating state pension benefits.
“Baroness Stedman-Scott, DWP’s Minister in the Lords, has said that any future decision on the state pension triple lock will be made ‘in the context of the wider public finances’.
“Given the Treasury’s final tab for the Government’s Covid-19 response is likely to surpass £300bn, there is still the potential the triple lock to face the chop next year as the Chancellor Goes hell for leather in reducing the deficit.”
So long as the commitment to the triple lock is maintained, the new increase should arrive in April 2020.
The triple lock has proven to be controversial for the government and calls for ending the policy and ensuring it have rammed up in recent months in equal measure.
Those who want to see it removed usually argue it is too expensive and the government’s public spending bill is high enough already.
On the other side of this, defenders of the triple lock feel it would be unfair to pensioners to remove it, especially considering state pension payments are usually pretty low to begin with.
Currently, the government has made numerous commitments to the triple lock and has assured it is not being removed but Maike Currie, an Investment Director at Fidelity International, detailed reviews may be forthcoming next year: “Under the policy, retirees will see a significant rise in their state pension, while a chunk of the working population faces a major fall in their income as Covid-19 continues to wreak havoc on consumers earnings, businesses and by extension, the broader economy. “Unsurprisingly, many are calling for the triple lock to be reviewed, or even removed, and greater efforts from the government to ensure the cost of the pandemic is spread equally among different generations.
“It seems unlikely we’ll see any immediate changes to the pledge this side of Christmas, but as we move into next year and the dust settles these calls are likely to get only louder.”
— to www.express.co.uk