State pension will rise by ‘third-largest’ increase in a decade next year
Pensions triple lock scrapped for millions of Brits
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Pensioners will receive the third-highest increase to the state pension in the last decade, earning up to an extra £288 for the year. However, this is still less than half of what they were expecting.
State pension value will go up by 3.1 percent next year, in line with inflation, after the earnings link was removed from the triple lock calculation.
The state pension triple lock is a Government guarantee which promises the state pension will increase every year by the highest of three figures, which are 2.5 percent, the rate of inflation, or the rate of average earnings growth.
This was introduced back in 2010 and helps pensioners maintain their spending power as the cost of living rises with inflation. However, due to irregularities with average earnings growth, the policy has been scrapped for the 2022/23 tax year.
Due to the number of people coming off the furlough scheme as they went back to work following the worst period of the COVID-19 pandemic, the rate of average earnings growth soared, which put pensioners on course for an increase to their state pension of more than eight percent.
This would have been the largest increase to the state pension since the introduction of the triple lock by some distance, but the Government took the decision to ignore the average earnings element of the triple lock.
However, the 3.1 percent increase does represent the third-largest uprating to the state pension since the introduction of the triple lock.
The full entitlement of the new state pension will increase from £179.60 to £185.15, allowing pensioners to pick up an extra £5.55 each week.
The full amount of the basic state pension will go from £137.60 up to £141.85, an additional £4.25 per week.
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As a result, people receiving the full basic state pension will get an additional £221 next year, while people receiving the full new state pension will get an extra £288.60.
The Autumn Budget and Spending Review 2021 confirmed in writing that the earnings link will be removed for next year, and explained the thinking behind the change.
It read: “The Government is suspending the earnings link for state pension uprating next year to ensure that the public finances remain sustainable in a manner that is fair across all generations. This approach avoids the distortion in the annual growth in earnings caused by the pandemic driving a disproportionately inflated rise in the state pension.
“This action will protect taxpayers from a significant fiscal pressure, while protecting pensioners from higher costs of living.
“The earnings data series has been distorted by the pandemic. The Government is therefore legislating to temporarily suspend the earnings element of the ‘triple lock’ used to uprate the state pension and Pension Credit.
“Instead, for 2022-23 the new and basic state pension, Pension Credit and survivors’ benefits in industrial death benefit will increase by the higher of CPI or 2.5 percent, protecting pensioners from higher costs of living and protecting taxpayers from the significant additional fiscal pressure created by the statistical anomaly.”
Had the triple lock policy been implemented as normal, pensioners would have received more than double the increase they will now get.
Many analysts had believed the state pension would have gone up by a larger amount even with the earnings link removed from the triple lock. Indeed, the Bank of England had expected inflation to be more than four percent for the year to September 2021, which is the figure that decided the state pension increase.
With the increase now locked in at 3.1 percent, plenty of observers are concerned that inflation could surge from this point onward into next year.
That could undermine the increase to the state pension and mean a real-terms cut in spending power for pensioners if inflation balloons beyond the increase in weekly income they receive.
By failing to honour the state pension triple lock policy, the Government has broken a manifesto pledge from 2019, when they promised the triple lock would not be touched.
The Prime Minister, Boris Johnson accepted that promises had been broken, but blamed the pandemic as the reason for these changes.
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