State pension rise to be highest in decade as Bank of England revises inflation prediction
Pensions triple lock scrapped for millions of Brits
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State pension payments could rise by four percent next year as the Bank of England forecasts inflation to rise by the end of 2021. The Government had been working on the assumption inflation would peak at 3.9 percent this year, Express.co.uk understands, but continuing energy and coronavirus related issues has forced revisions.
Triple lock changes
In September, Thérèse Coffey, the Secretary of State at the Department for Work and Pensions (DWP), confirmed the triple lock would be temporarily scrapped for the upcoming year. The triple lock previously ensured state pension payments increased each year in line with the highest of:
- Inflation, as measured by the Consumer Prices Index (CPI)
- The average wage increase
- 2.5 percent
However, due to the impact of the furlough scheme, it became apparent that wages across the UK could be boosted by around eight percent as millions of workers returned to work with their regular pay rates.
As such, wage growth would likely vastly outpace inflation and 2.5 percent due to a “statistical anomaly” and cost the Government billions to fund. With this in mind, the Government elected to remove the wage element of the triple lock and instead offer a “double lock” for 2022, where state pensions would rise in line with the higher of 2.5 percent of inflation. Ms Coffey commented: “At a time when we have made tough decisions to restore the public finances which have impacted working people, such as freezing income tax personal thresholds at current levels, [the triple lock] would not be fair.”
However, even with the removal of wage growth, pensioners are likely to see a substantial increase to their payments next year. In late September, the Bank of England revised its inflation forecast for the remainder of the year.
Largely as a result of the ongoing energy crisis, the Monetary Policy Committee (MPC) confirmed inflation could hit four percent by the end of this year, likely remaining into 2022.
In a statement, the central bank said: “CPI inflation is expected to rise further in the near term, to slightly above four percent in 2021 Q4, owing largely to developments in energy and goods prices.
“The material rise in spot and forward wholesale gas prices since the August Report represents an upside risk to the MPC’s inflation projection from April 2022.”
While only being about half the increase they would have got, this will still be a comparatively huge result for retirees.
According to a Research Briefing from the House of Commons Library, the biggest increase seen for state pensions occured in 2012/13, with payments rising by 5.2 percent. However, since then no increase has reached four percent or higher.
This means pensioners could be on the verge of the biggest rise seen in around a decade.
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Will the triple lock return?
Dr Coffey reiterated the suspension of the triple lock would be temporary in nature but some have expressed doubt on this.
“As happened last year, it will again set aside the earnings element for 2022/23 before being restored for the remainder of this Parliament,” she said.
“As we have sought to protect lives, so we sought to protect livelihoods and to mitigate the worst impacts we introduced a £407billion package of support including the furlough and self-employment schemes to support incomes
“Nevertheless last year we saw earnings fall by one percentage point. In response we legislated to set aside the earnings link allowing me to award an uprating of 2.5 percent as this was higher than inflation. If we had not done this, the state pension would have been frozen. We can and will apply the triple lock as usual from next year for the remainder of this Parliament, in line with our manifesto commitment.”
Despite these commitments, James Andrews, senior personal finance editor at money.co.uk, warned more difficult decisions remain.
“On one level the decision to suspend a manifesto pledge makes economic sense, with a bumper payout coming just as the Government looks for any way it can to find money to cover the cost of COVID-19 payments and earnings still down on two years ago,” he said.
“Whatever they say, more change is coming. It’s quite simply mathematically impossible to maintain the triple lock indefinitely, with the promise guaranteeing pensions will cost the Government more and more every year regardless of what happens to the taxes coming in.
“A single year’s suspension might cover a statistical anomaly, but it does nothing to answer the bigger question.”
The Conservative Government may face fierce resistance from pensioners over the recent changes, let alone a continued suspension down the line. Following the original announcement, Dennis Reed, Director of Silver Voices, said it amounted to the Government stealing from the elderly.
“We regard the announcement today as basically a theft from pensioners. If the triple lock had been honoured this year, and it is a statutory guarantee to pensioners, the increase would have been about £11 a week,” he said.
Mr Reed went on to confirm many retirees are set to fight back against the Tories over this decision: “We have given notice to the Conservatives that if they scrap the triple lock this year, we would campaign against the Conservatives at all future elections until the triple lock is restored.
“So that is now a fact and that’s what our members want, 97 percent of them voted to take this position.
“It is so important to us as it’s a guarantee that pensioner poverty won’t get worse.”
Express.co.uk has contacted the DWP asking for comment.
The Government has been forced to spend billions over the last 18 months as coronavirus wreaked havoc on the economy. According to the Office for National Statistics (ONS), public sector borrowing, excluding public sector banks, reached £20,514million in August 2021.
Many experts warn the state will have to start making tough decisions as these debts come due, with pensioners and taxes likely to be targeted.
In early September, HM Treasury confirmed the next Budget will be delivered on October 27. Additionally, a Spending Review will set out the plan for how public spending will deliver the “people’s priorities” over the next three years.
Rishi Sunak, the Chancellor of the Exchequer, commented: “Since the start of the pandemic, we’ve delivered on an unprecedented scale to protect people’s jobs and livelihoods.
“Despite the worst economic recession in 300 years, we have not only got people back into work through the Plan for Jobs but continued to deliver on the priorities of the British people.
“At the Spending Review later this year, I will set out how we will continue to invest in public services and drive growth while keeping the public finances on a sustainable path.”
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