Half a million pensioners will miss out on 'higher than expected' state pension rise

The value of the state pension for next year will increase by the rate of inflation or 2.5 percent, whichever is higher, with inflation set to be the figure used as it continues to bloat. However, It is estimated that inflation could go over four percent, giving pensioners a sizeable boost to their weekly income as a result.

The Government opted to suspend the state pension triple lock for the 2022/23 tax year in order to avoid a steep rise in the value of state pension, but based on the latest estimates around inflation, it appears that their efforts to keep state pension down may be thwarted.

The state pension triple lock is a Government guarantee, which ensures that the value of the state pension will increase every year by the highest of three values, inflation, average earnings growth, or 2.5 percent. This is done to help Britain’s retirees maintain their spending power over time.

However, due to the economic impact of the COVID-19 pandemic, average earnings growth looked set to balloon this year to unusually high levels, up to more than eight percent, which would have meant a large increase to the state pension.

Therefore, the Government decided to suspend the state pension triple lock temporarily for next year, removing the average earnings growth element and essentially creating a ‘double lock’, with the higher of inflation and 2.5 percent now the determining factors behind state pension value.

READ MORE: State pension savers warned they could be missing out on £5,000: ‘Money they deserve’

© GETTY state pension inflation frozen

The decision drew anger from pensioners and broke a manifesto pledge from the 2019 election, but it appears that through inflation, retirees may still be looking at a large increase to their state pension income.

Inflation rose by 3.2 percent for the year to August, shooting up from two percent for the year to July, which is the rate that is targeted by the Bank of England. That increase is the largest from one month to the next on record.

The rate of inflation for the year to September, which is set to be revealed next month, will determine how much the state pension will increase by next year, providing that inflation comes in above 2.5 percent, as it is expected to.

Express.co.uk understands that the Government had been operating under the assumption that inflation would go to 3.9 percent this year, but the energy crisis appears to have thrown a spanner in the works.

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Inflation is now on course to rise about four percent, which would be good news for pensioners as their income would receive a welcome boost.

In a statement, The Bank of England 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.”

At an increase of four percent, the value of the full state pension would go up by £7.18 each week, from £179.60 to £186.78.

That would mean retirees picking up an additional £373.36 every year, and those on the basic state pension would also benefit from the increase. Their weekly income would go up by £5.50 from £137.60 to £143.10, giving them £286 more each year.

© Express what is state pension

However, there will be some people who miss out on the extra cash altogether, as their state pension payments stay frozen in place whilst others see their income increased. It is believed that more than half a million pensioners who moved abroad following their retirement have seen the value of their pension stand still.

More than 520,000 British pensioners have missed out on additional income according to the campaign group End Frozen Pensions, with those impacted losing out on up to £61.75 a week, or a massive £3,211 each year.

One such victim, 95-year-old Anne, has seen her pension stall at £72.50 a week, while it could have been £134.25 if she had stayed in the UK rather than moving abroad.

As her pension does not increase in line with inflation, she loses money in real terms every year and will once again not benefit from an increase in state pension.

© GETTY state pension inflation frozen

Despite the expected increase to state pension as a result of inflation, retirees still could have been better off if the triple lock had been honoured for next year.

If the average earnings growth element had stayed in place, pensioners were on course for an increase of more than eight percent to their state pension.

At eight percent, state pension recipients in the UK would have got up to an extra £747.14 each year, or £14.37 a week, lifting their earnings from £9,339.20 to £10,086.34 for a full year.

Even if inflation does rise to four percent, pensioners could have been better off to the tune of double that amount under the traditional triple lock rules.

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